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Media Release

Confidence spikes as accountants hunt for new revenue streams

Confidence spikes as accountants hunt for new revenue streams

Confidence has sharply rebounded in the accounting sector, according to the latest Commonwealth Bank Accounting Market Pulse, as almost 90 per cent of firms surveyed expect to diversify their service offering as many in the industry continue to shift away from time-based billing.

The research shows that confidence around future business conditions has continued to rise in the year to date, with a net confidence reading of 51 per cent in 2018, up from 33 per cent in 2017. Firms are also expecting conditions to improve further within the next 12 months, and then moderate over the following year.

Over half the accountants (59 per cent) surveyed forecast their profit to be higher than the previous year and anticipate a jump in revenue over the next year. While revenue expectations are mildly softer compared to last year, the research suggests the outlook for the sector remains buoyant with only around 11 per cent of firms expecting revenues to decrease over the same period.

Almost 90 per cent of accountants also expect an uptick in revenue from non-traditional service lines over the next two years, with more than one in four (27 per cent) expecting a significant increase.

In pursuit of this growth, the accounting sector continues to focus on diversification, with almost 90 per cent of firms seeking to either add or grow new service lines over the next 12 to 18 months.

Of these, almost 50 per cent of firms are moving into new services in direct response to client demand and 39 per cent of firms sourcing specialist talent from outside the industry to build new capabilities.

Accountants are targeting growth in a range of established and emerging segments, with the greatest proportion diversifying into business advisory (43 per cent), although this has fallen from 61 per cent in the previous year. While, there has been little change in the proportion of firms focused on wealth management and financial planning, they remain the top areas for planned diversification (43 per cent of firms).

The highest rate of growth is forecast for risk management services (up from eight per cent in 2017 to 19 per cent in 2018), private equity (0 per cent to 8 per cent), and business recovery and insolvency (8 per cent to 14 per cent). A small group of firms is also actively developing practices in emerging areas including cyber security (19 per cent) and climate change (3 per cent).

Marc Totaro, National Manager of Professional Services, Commonwealth Bank, said, “In response to prevailing market conditions and opportunities for revenue growth, firms are looking to diversify their services and further embed their position as multi-disciplinary professional advice practices.”

“With nine in 10 firms expecting non-traditional services to deliver greater revenues, and many looking to source talent from other industries, the accounting sector continues to transform both its operating model and the role of accountants in today’s market.”

Despite improving optimism, the sector is still facing headwinds. Negotiating prices with clients has come into sharper focus in the year to date, cited as a challenge among 68 per cent of firms.

A 12 per cent decline in the use of time-based fees is predicted over the next two years - falling from 62 per cent to 50 per cent of overall firm billings. Conversely, accountants are looking to grow the proportion of fixed fees, value-based fees and retainers over the same period.

The research shows the use of time-based fees at the largest firms is on the decline, now accounting for 42 per cent of revenue on average, almost on a par with fixed fees at 38 per cent. These firms also forecast that revenue derived from time-based fees will fall to an average of just 28 per cent within two years – almost half of the average across all firms.

While pricing is expected to remain a challenge, firms still expect realised rates to rise, forecasting an average increase of 2.1 per cent over the next 12 months, down from a forecast 2.6 per cent a year prior.

“Industry feedback suggests that a push among firms for greater fee transparency and predictability has been largely driven by clients, but it can also bring significant benefits to firms themselves.

“Through replacing time-based fee structures with other remuneration models, firms can harness efficiency and automation to sustainably enhance profitability, while continuing to deliver superior value to their clients,” Mr Totaro said.

Full report can be accessed here.


About the Commonwealth Bank Retail Insights Report

Now in its 6th edition, the CommBank Accounting Market Pulse is an exclusive, wide-ranging analysis of the Australian accounting sector. This edition is based on a quantitative survey of CEOs, CFOs and other senior leaders from 37 accounting firms across Australia, carried out on behalf of CommBank by Beaton in February and March 2018.