May 17, 2022

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Art of Accounting: Accounting firm SWOT analysis

I have been using SWOT analyses to advise clients, and many times I do it as a way to prepare some talking points for a meeting with a client. I find it is a very effective way to examine a business. SWOT is an acronym for “strengths, weaknesses, opportunities and threats.”

The SWOT analysis identifies the strengths and weaknesses of an organization and the opportunities and threats from its external environment. It focuses concentration on things that are going well but could be better, and things that are not going so well and how to reverse them. I have also used it successfully in consultations with CPA firm owners and partners.

The following is an illustration of the categories and specifics for an accounting business. None of these are etched in stone but are presented to give you an idea of how you can put a SWOT together for your practice:

Strengths

  • Adaptability and adoption of technology and availability of a wide range of systems and software.
  • A dedication to training staff. All successful firms hire out of school and grow what they need.
  • A great reputation of trust, integrity and competence.
  • Our clients and the general public rightfully consider us as being smart.
  • Many of us are looked at as thought leaders and our opinions are sought out and listened to.
  • We have strong professional associations and societies that promote the profession and keep track of legislation that might hurt us.
  • We have a “franchise” to audit financial statements and do attestation functions.
  • The larger firms, i.e., the Top 100, have become more corporate with centralized and professional management. This is a model that can be emulated by smaller firms, even those with a dozen people.
  • As a profession, we are relatively free of debt.
  • The larger firms have been set up to work virtually for many years. The smaller firms adapted quickly (in some cases in a day) when forced to and were good enough with virtual services, which have become pretty standard and are a testament to our adaptability.
  • We run profitable businesses with a good percentage of repetitive services providing a sustainable cash flow (this could also be a weakness since losses usually spur change more than profits).
  • Longevity of clients and client base and high client loyalty.
  • Key employees with low turnover.
  • Strong firm cultures.
  • Teamwork is pretty seamless.
  • Our systems all work, and even the bad systems are effective (up to a point).
  • Open relationships with clients, some of whom are top-level industry leaders.
  • Virtual employee training.
  • Some firms have monetized websites where business is obtained.
  • Accounting firms are learning organizations.
  • Solid capital structure.
  • A ready supply of buyers that maintain the asset values of the practices.
  • We are generally available to our clients on short notice.

Weaknesses

  • The culture of many firms thwarts the majority of personnel from becoming aware of the many advisory services their firm offers and how staff could spot opportunities.
  • Technical and systems training that enables staff to get working productively pretty quickly, but is not designed to teach them how to be innovative and to seek out opportunities with clients or within the firm.
  • Minimal soft skills training.
  • Competition on a majority of the standardized services we provide tends to reduce fees.
  • The inability of many partners “selling” a prospect to present the full value the firm will provide, so the sale becomes that for a commodity.
  • A lack of in-house professional business development people that can be brought on sales calls.
  • Many partners resist necessary training in new endeavors, procedures and new technology.
  • Firms’ infrastructures are based on an old model with higher or now unnecessary costs.
  • New system setups at many firms are executed “perfectly” but are not being carried through to full implementation.
  • Office facilities are on a path to be downsized over remaining lease terms, costing substantial amounts that could have been saved.
  • If the firm is a niche provider in very few industries and those industries have a meltdown, the firm could lose a substantial source of its revenue.
  • Building up the skill levels of staff to support partners and services and then not promoting them because they do not generate new business.
  • Partner compensation mired in old-school models.
  • Inability of many older partners to authorize or permit investments in new and innovative services and infrastructure strengthening.
  • Lack of diversity of staff and also of the client base.
  • Some firms have very high employee turnover, an older management base, are not learning organizations, and have no partner energy or synergy.
  • The opposite of any strengths listed in that section.

Opportunities

  • To be able to not only grow with our clients but in many cases to lead clients’ growth.
  • The need for advisory services is expanding very rapidly and many of the innovative firms are jumping on these opportunities.
  • The accountant usually finds out early on about personal or professional services that a client needs, enabling us to enter that space.
  • The colleges provide a steady stream of entry-level personnel and, as we add services, we can draw the people we need from the colleges (a threat could be a declining number of students enrolled in accounting programs).
  • Business transparency is increasingly becoming more important, and that means added services for independent accountants.
  • AI and robotics and other technological methods are rapidly growing and some of our societies are leading and supporting this growth.
  • Globalization.

Threats

  • Many innovative premium advisory services will become commoditized, putting pressure on pricing those services.
  • It is becoming easier for other service companies, particularly niche providers, to offer advisory services to our clients.
  • Much of our value is based on reputation, and a single inappropriate action by a partner could destroy that reputation and a firm’s value.
  • Inattention by partners could cause the loss of clients or key staff.
  • Swift, more frequent and wide range of tax changes.
  • Government regulations.
  • Negative publicity of other accounting firms’ shortcomings or errors.
  • Fear of change by older partners who are complacent and risk averse, and who dominate many practices.

These examples should help you get started with your SWOT analyses, particularly if some of these apply to you. Do not use this list as all-inclusive, but as a start. Identifying the issues is not the problem. An inability to implement the more important or current issues is the problem. I suggest you set up a meeting and then assign each person one item to work on with a two- or three-week reporting period. Then evaluate them and set up a plan to proceed further. But keep up the momentum, which will grow as progress becomes evident. You can either work to better the strong items or reduce the effect of the negative items.
This is a tried-and-true process, and it works. It is also a service you can provide to your clients, functioning as a facilitator.

Get started and good luck.

Do not hesitate to contact me at [email protected] with your practice management questions or about engagements you might not be able to perform.