According to George Bernard Shaw, if all the economists in the world were laid end to end, they would still not reach a conclusion.
Having said that, there is a fairly strong consensus that this downturn/recession/economic crisis will be:
1. Deeper
2. Steeper
3. Last longer
4. Have a shallower recovery
than most of the similar situations that the global economy has faced since the end of World War II.
With just over a month to go in the US ‘busy season’, there is a growing sense that April 16th will bring a stark reality for accounting firms. Effectively, April 16th represents a cliff, and nobody knows how long the drop will be. Based on what I have heard around member firms of IGAF Worldwide and the industry in general, here are some key points:
A. Staffing: Employment is a lagging indicator in an economy. Entities shed jobs too slowly for the situation that they see, and then staff up too slowly for the recovery. A focus on the jobs numbers reported is a poor indicator of where we are going (but a great indicator of where we have been!). Employment in accounting firms will be down, but firms will try and determine ‘where is bottom’ before they make draconian cuts.
B. Partner Compensation: This might be the year where partner income takes a bit of a beating in order to position the firm for growth in recovery. In other words, staff will be retained at a lower utilization so that they are available for assignment when work picks up. This will drive down leverage, and the fallout will be in partner income.
C. Fraud & Risk: Clients that played it ‘a little loose’ in the good times will have even greater temptation now. Risk assessment and fraud awareness will need to be pumped up in order to protect the firm.
D. The Hunt for Cash: Long term business development will be replaced, at least partly, by a search for quick projects that dump cash into the firm.
E. Firm Management: WIP and A/R management, perhaps even extending to a more formal retainer and progress billing system, will be to the fore
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