The Craftiest Small Business Accountants Will Adapt and Thrive Even as Clients Get Wiped-Out in the Wake of COVID-19 Stay-at-Home Orders

Written by Scott Wilson

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Many accountants go into the field with one goal in mind: working for themselves.

Accounting has long been a field where it’s easy to do just that, primarily by serving the needs of other small businesses. It’s a practical, stable, respectable field with real appeal for independent number-crunchers:

  • Consistent demand
  • Low start-up costs
  • A well-defined path to entry
  • Clear rules to follow

Accounting is specialized enough that few small businesses can afford to fill the roll in-house, but unique enough that almost all of them will need the service.

For any accountant that doesn’t want to take their career down the big firm route, starting up a solo accounting shop that serves small businesses has always been a lucrative, low-risk path to being your own boss and living the dream.

COVID-19 has brought a lot of dreams crashing down around the world, though, and the small business accounting model may be one of them. Although every downturn comes with disruptions to the small business sector, there are reasons to think that this one could bring long-term consequences that cascade through even the independent accounting firms that service small businesses.

The Small Business Niche Has Long Been a Safe Bet for Independent Accountants

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Historically, small business accounting has been a great field to get into. In 2018, Accounting Today found that small accounting firms in the United States outnumber the big players 91 to 1. Almost a quarter of all accountants and auditors work in general accounting, tax preparation, bookkeeping, or payroll, according to the Bureau of Labor Statistics, which is exactly the services that those small accounting firms typically offer.

Small accounting firms have historically had no problem finding clients; the big players in the industry are not much interested in companies below the SME level… and small business owners are more comfortable dealing with local shops where they can walk in and talk to their accountant on equal terms. Chamber of commerce meetings are the natural breeding ground for these relationships, and thousands of accountants have built comfortable careers out of being the trusted tax and financial adviser for America’s small businesses.

By and large, those businesses are pretty happy with their accountants, which made those relationships exceptionally stable: a 2018 survey by Accounting Today found that 72% of small business owners report being very satisfied with their accountant.

But those numbers hide a long-term trend that already threatens independent small business accounting practices, one that COVID-19 may only accelerate.

Small Business in America Has Been on The Decline for Years… and COVID-19 Will Only Build on These Trends

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Fact is, there has been a general downturn in small business formation and employment in America for some time now. According to JP Morgan, both overall GDP and employment attributed to small businesses has been on a steady decline since 2000 at least.

The reasons for this are complex, but we are already seeing ways the pandemic will make them worse.

Gig Economy Impacts Small Businesses

As big businesses have grown, so has the gig economy. While it keeps operating costs down for major corporations, gig work hits small businesses hard in two ways:

  • Increases competition for employees
  • Cuts out the middleman for services that were once offered by small businesses

With independent freelance workers now a staple in many industries, big corporations have gotten used to hiring the skilled workers they need directly for a short period of time, whereas before the same work would have been outsourced to a small businesses contractor. It’s a trend that makes the cost of services cheaper for consumers, but at the same time drives small businesses to close.

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Big Businesses Have Come to Dominate the Landscape

You don’t have to look far to see how consolidation has hit the American business landscape. It’s an old story by now – small stores that used to need an independent accountant close down when Walmart opens in town; tiny bookstores shutter as Amazon vans fill the streets.

It’s a trend with deep roots in policy, and the simple fact is that monopolistic growth tends to be self-sustaining, as detailed in a 2016 article in The Atlantic.

COVID-19 is Just One More Nail in the Coffin

Typically, small business accounting practices have low enough operating costs and enough flexibility to weather downturns in the economy fairly well. Where some small business clients fail, others rise, and they still need tax advice and payroll processing.

But if small businesses fail, and Amazon or Walmart rise, that generates zero new business for independent accountants.

Moreover, small businesses are less likely to survive an extended downturn in the economy. It’s not clear how long the pandemic will push down the global economy, but the IMF is already forecasting the worst economic downturn to occur since the Great Depression. And, as with the Great Depression, the government response to this event appears to be inadequate.  Fast Company reports that a small business relief program passed by Congress in late March could run out of money by mid-April… probably before you read this.

Without help, your small business customers are in real trouble. According to an April 3rd survey by MetLife and the U.S. Chamber of Commerce, more than half of non-sole-proprietor firms with fewer than 500 employees—the small accounting practice bread-and-butter demographic—are either closed or expect to close in the coming weeks.

And the trends mean that when recovery comes, as it must, it may well come to established, big business and gig workers, not to your small business clients at all.

What You Can Do to Adapt Amid a Tidal Wave of Small Business Closures

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Like most of the country, accountants have been deemed nonessential for the moment and are largely staying home right now… but the good news is that all non-client facing accounting work can be done anywhere you’ve got an internet connection, so this probably hasn’t slowed you down too much. In fact, a lot of accountants are seeing an uptick in business for the 2020 tax season with all the client questions swirling around the IRS extension and the relief money coming to individuals and small businesses through the CARES Act… it’s dealing with the fallout in 2021 that’s keeping small business accountants up at night.

The hard truth is that there may simply be less room for independent accounting firms catering to small businesses in the future. But before you decide to close up shop, put a new suit on the credit card and start interviewing for corporate accounting jobs, remind yourself why you decided to go the independent route in the first place. Crisis brings opportunity, and this may be a once-in-a-lifetime shot at the gold.

Although small business in general will suffer, there will be industries that do better than ever. If you act fast, in the year ahead you may be able to shift your customer base to clients in fields where consolidation is still weak and business is booming, including areas like:

  • Medical device manufacturing
  • Medical biotechnology start-ups
  • Remote education technology services and software development
  • Non-profits, particularly those assisting the unemployed or homeless populations

And although industries are consolidating, money is still changing hands. Now is the time to look at offering more highly specialized services that are sure to be a big part of how business gets done in the post-pandemic world:

  • Catering to independent gig workers for tax preparation and other micro-business needs
  • Consultation work for both big business and small companies that weather the storm

You need to have an eye to the future, but in the immediate term your focus needs to be on doing everything you can to support your existing small business clients. Many are working hard right now to keep their heads above water. Those that make it will remember that they couldn’t have done it without you…

Risk Assessment and Recalculation Have Never Been More Important

The most obvious critical business for accountants right now is dealing with the dramatic revisions in budgets and costs that come along with a large-scale shutdown of the global economy. Businesses have to figure out first what the impact will be, and second, how to adjust operations to survive it.

You already know that’s going to take a lot of spreadsheet work. As conditions in the markets and marketplace continue to develop, accountants are being called in to constantly re-evaluate the situation for small business clients and make recommendations that would give them a fighting chance to remain solvent for at least the next few months till restrictions are lifted and commerce kicks back into drive.

Interpreting New Financial Programs and Reporting Requirements

On top of internal financial calculations, accountants are busy pouring through the CARES Act, the bailout package passed into law in late March that provides more than $2.2 trillion in funding directed at various industries to help weather the downturn.

It’s not just a big chunk of change that gets divvied up equally, though; the fine print is important, dictating elements such as:

  • Third-party loan issuance and forgiveness
  • Individual support
  • Unemployment benefits

Every single aspect of it has impacts on both operations and tax implications, and, since it was written in a hurry and amidst great debate, not all of those aspects are entirely clear. For small business accountants, this means the number crunching continues in the dead of night to figure it all out.

Making Supply Chain Adjustments

A tightly-coupled supply chain has been the magic behind a lot of corporate profits in the last decade as just-in-time transactions have cut down on warehousing and other logistical costs associated with managing inventory.

But with transportation restrictions, supply costs, and consumer demand changing weekly, not to mention the risk of entire factories shutting down as has already been seen with meat packing plants across the U.S., accountants are burning the midnight oil to dial in everything from pricing strategy to warehousing costs.

Today’s Online Accounting Students are Well-Positioned for the Big Shifts Coming in the Post-Pandemic World

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The kind of person who enrolls in an accounting degree program appreciates order. You like the rows and columns to be straight, all the numbers to add up. Predictability, stability –  these are the hallmarks of a good accountant. So a world up-ended by COVID-19 is definitely not going to be in your comfort zone.

With closures affecting college campuses coast-to-coast, and with no vaccine in sight, it’s entirely possible that yours won’t even be open by next fall when a second wave of COVID-19 is expected to occur.

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Even if you weren’t already completing your accounting courses online, chances are that when you came back from spring break a few weeks ago, all of a sudden you were. But this isn’t just a convenient way to finish up your degree, it’s also good preparation for the long-term changes in the accounting industry that may push more and more jobs to remote status.

Remote Work Will Be the New Normal in Accounting

In fact, studying online itself might be one of the biggest investments in your skillset you can make right now.

In the post-pandemic world after stay-at-home orders are lifted, independent accountants working with individuals and small businesses will find that even their most technology-resistant clients adapt easily to remote accounting services after having had months of practice with videoconferencing and other remote solutions.

Corporate accountants and those in larger firms are getting that same kind of practice right now. The fact is, the work-from-home model has been on the cusp of exploding for years. The only thing that has held it back has been the old guard stuck in the customary way of doing things and citing concerns over security and productivity as their reasoning.

But now that they’ve been forced into it, many business leaders and accounting firm principals are likely to realize that it’s a more productive and effective model anyway. With the accounting profession already moving in that direction for a variety of well-documented reasons, COVID-19 stay-at-home orders might prove to be exactly the catalyst it needed to go all in.

Sorting Out the Fallout May Take Decades

If you have a few spare hours (and who doesn’t, right now?) it could be worth your while to sit down and read the CARES Act, in all its legalistic glory. The stimulus package may only be the first of many, depending on how long the crisis lasts, but $2.2 trillion isn’t pocket change… that kind of money is going to be trickling out through the system for a long time.

For accountants, even those trillions of dollars may pale in comparison to the changes that are likely to happen in the coming years. Thousands of companies will be gobbled up through buy-outs and consolidations, and today’s big corporations are likely to be a whole lot bigger in the end. All of this means that both in-house corporate accountants and the big outside firms that serve those corporations will be hitting the big time. Some of today’s accounting graduates may spend their entire careers working through the changes that result from what’s happening in the world at this very moment.

Catching Up Will Require Accounting Talent

Many reporting and regulatory requirements have been pushed back or shifted around as a result of the pandemic, often in ways that are unclear. Tax accountants, particularly, are likely to see a lot of catch-up work emerging over the next couple of years as small business, wealthy individuals and larger corporations alike work to settle up their IRS reporting.

The CARES Act, again, provides some interesting reading along these lines, but official rulings from the SEC haven’t come down yet for publicly traded companies. It’s worth keeping tabs on their pronouncements as they work to draft and implement the legislation in the months ahead.

Even with all the chaos and uncertainty of the day, one thing is for sure – everyone from the big money players to resilient small business owners lucky enough to be situated in a niche that grows throughout the crisis are looking past the COVID-19 era to what the future will look like. We recommend you do the same thing. The pandemic will pass, and when it does, accounting will be a field that is stronger and more lucrative than ever.