For CPA firms, growth over the past several years has averaged a 7% increase per year across the board, with high-growth firms often seeing double digits and low growth firms falling below the 7% mark. So, what does growth look like post-COVID-19? While no formal prediction exists yet, our Growth Outlook Amid COVID-19 survey from May 2020 showed that reporting firms’ general outlook was not outwardly positive. Notable factors for this outlook include issues related to the Paycheck Protection Program (PPP), the delayed tax deadlines nationwide, and the resulting deferment of income as a result of the COVID-19 pandemic.
Taking the circumstances into consideration, presented is an analysis of the findings of the Growth Outlook Amid COVID-19 survey from CPA firms.
Not surprisingly, firms are generally reporting that the events of the first half of 2020 will have an impact on their net revenue. However, this doesn’t mean that firms will not do well this year. The unanswerable question at this time is how much of an impact the pandemic will have on growth. Overall, 50% of firms reported expecting a less than 10% impact on their growth outlook as a result of the pandemic. It’s important to note that this doesn’t translate to a negative 10% in growth. Rather, this reflects a potential for growth despite circumstances, but it’s clear there is an expected decline.
Outlook based on firm size
According to the survey, the largest and smaller firms were united in the area of growth, with the most positive outlooks. This could be because, in theory, larger firms have more infrastructure and skills for business development, and smaller firms are benefiting from an influx of advisory services that they may not have captured without COVID-19 and the resulting legislative opportunities.
Firms in the middle of the pack (5-10 million) were a different story as most reported a negative outlook on growth, with 91% reporting a negative impact.
Correlation between growth outlook and business development investment
We’ve long known through our work that growth begets growth and shifts mindset. COVID is no exception. Firms with an increased number of clients from January 1, 2020, to April 15, 2020, reported a more positive outlook on growth, with 26% anticipating a positive impact on net revenue compared to just 9% in all responses. For firms with increased investment in business development, that growth outlook increases more, with 15% anticipating a positive impact on net revenue. The correlation between business development and a positive growth outlook and overall confidence in the firm couldn’t more evident.
Current fiscal year outlook
As CPA conversion cycles can take months to close, it’s important to note that growth for CPA firms is not just in the bottom line today, but in the opportunities for the future. Overall, many firms felt there was an opportunity to grow in 2020, but maybe at a slower rate than planned. The good news seemed that firms didn’t anticipate they’d be in the negative or even break even. Only firms with less than 10% of projected revenue from advisory services saw no opportunity for growth.
The power of optimism
Growth outlook for firms is often tied to personal outlook and optimism. Respondents were asked to share their personal outlooks, and their responses correlated with their job roles.
Long-term job security – Not surprisingly, business owners felt a strong sense of job security amid the crisis, but those in the marketing profession reported differently. It can be said that the marketers at CPA firms are a good general reflection of staff sentiment. Additionally, marketing is often one of the first areas cut and is tied directly to growth, so a correlation exists between job role and growth outlook.
Responsibilities – 78% of respondents showed confidence in their roles and responsibilities remaining the same. Shareholders had an overall high measure of confidence, while marketing and sales directors with higher access to strategic information about the firm showed higher levels of optimism than those below that level. This is where internal communication becomes critical to lifting morale in times of crisis.
Overall, 89% of respondents felt optimistic about their firm’s continuity, the remaining 11% being neutral. While 89% believe the crisis will continue past 2020, 79% believed their firm was better prepared for future crisis management. Those in disagreement or neutral fell below the $10 million mark, which was anticipated. Additionally, firms feel good with how they’ve responded to the crisis with 86.42% agreeing or strongly agreeing.