For 2015/16 the total Australian accounting industry revenue only grew 3.2% or $580m to $18.7bn. In contrast the big 4 accounting practices grew their revenue between 13% and 15%, or $852m in total. Whilst the big 4 are popping the champagne corks the rest of the industry is doing some soul searching as their revenue fell $270m or 2.25% on average. IBISWorld have forecast that the accounting industry revenue will climb by an annualised 1.7% over the next five years. If the big 4 continue on their merry way with annual revenue growth of 13% to 15% pa over that period, the rest of the industry is in for a lot of pain (with average revenue to fall over 11% over that five year period).
There are two main drivers of the falling revenue for small and medium sized accounting practices. Firstly, smaller firms are losing revenue due to the growth of cloud based accounting software reducing client accounting fees. The Xero, MYOB and Sage One cloud based accounting software products are so easy to use that many business clients are bypassing their accountants and preparing their draft financials themselves. As these products reduce the time involved to prepare financials by up to 75%, clients are demanding accountants reduce the fees charged for financial statement preparation anyway. Secondly, the ATO’s myTax system is reducing demand for individual tax return preparation. Over 3m taxpayers are expected to lodge their 2016 tax return for free online.
In contrast, the big 4 are growing their revenue by diversifying into new value adding services that they can market to their client base. Over the last several years they have made big investments into legal, real estate advisory, and digital related businesses. These new services are driving their growth.