Predictions (?) for 2009
A disclaimer at the start. If anyone tells you what will happen in 2009, contact their closest relative and see if they should be committed.
That being said, my wife, Sally T, confirmed to me this morning that, while my memory may be fading, she thinks I am still sane. By the way, that's the best news I've had in 2009 except for the Gators winning the national championship.
I have received numerous calls from CPAmerica members, beginning in late November 2008, asking me what I thought the impact of the recession will be on their practices in 2009 and what actions I recommend they take.
During these calls, I asked them how they felt the current down economic times would affect them and what their plans were for 2009. Most indicated the hammer had not fallen on them yet in 2008, but pain would start in mid-2009 after tax season. However, a good number advised they did not hit their targets in the fourth quarter of 2008.
Here are my best thoughts at this time. Read quickly. I may change them in 30 minutes.
- What will 2009 be? The calm before the storm or a move from darkness to dawn? I believe we will have more bad weather. The pain of Wall Street will increasingly spread to Main Street. The thing that got us into this recession – housing – will lead us out of it. Government will not be able to spend us out. Money (lending) must start moving again. People must regain confidence in the market. I don’t know when that will happen. And, pray we don't get hit by another 9/11-type incident. If we do, all bets are off.
- The year 2009 is one to "focus on the basics." Bill and collect promptly, work harder, do top quality and timely work, and better manage risk. Production, realization and good business practices will be more important than ever in 2009.
- Most CPA firms' fees and partner compensation will be flat or down in 2009. Five percent organic growth will be excellent. A drop of 5 percent will not be bad. A drop of 10 percent will be the norm. Firms wanting greater growth should focus on an acquisition or merger. But remember. There is great opportunity to gain market share in down times for firms that seize the initiative and commit to growth. Marketing and sales increase in importance.
- Now is not the time for rate increases.
- Some good news. I think the staffing challenges of the past 10 years will be reduced. More potential hires, from entry level to experienced, will be looking for jobs. Due to consolidations on Wall Street, national firms are letting good people go. Finding the right experienced staff won't be a piece of cake, but it will be easier. After tax season would be a good time to seriously consider letting your marginal staff go and upgrading your professional ranks. Raises will be 3 percent to 4 percent. Health care will cost more. Training will increase in importance.
- Additional good news. I am going against most prognosticators here, but I think now is the time for those CPA firms offering financial services to aggressively focus on growth. The public has lost confidence in the mammoth financial institutions – Merrill Lynch, Wachovia, Bank of America, Citi and others. Wall Street is out, Main Street is in, and smaller is better. The local CPA's image as the most trusted client adviser has been enhanced. I recognize revenue from this practice sector is down 25 to 40 percent, but I would aggressively go after those Merrill Lynch and other big brokers' accounts. Now is the time to grow this niche.
- With the falling economy, I predict you will see increased business failures with greater risk exposure. When shareholders, owners and/or lenders look for deep pockets to help bail them out, they may ask, "Where was the CPA?" That means CPAs must do an even better job managing risk in hard economic times. By the way, CPAs should also do a better job running their practices and keeping WIP and A/R low. It’s bad enough to have possible increased risk. It's twice as bad to have this increased risk and not get paid for your service.
- More baby boomers who were thinking about selling or merging their practices in three to five years will want to sell or merge earlier. They’ll take the money and cash out hoping to become part-time employees of the acquiring or merging firm. Following the role of supply and demand, sales of practices will increase, and the value of practices will drop.
- Many more senior partners will want to extend their partnerships beyond planned (or required by practice agreements) retirement age of 65. Having lost 25 to 40 percent of their wealth in the stock market or real estate, they need the money to achieve their planned retirement lifestyle. This will put pressure on younger partners who don’t want seniors to draw the big bucks and coast and feel retirement agreements should not be changed.
What about CPAmerica? I’m not going to let fear and the daily bad economic news back me down. I have issued a challenge of only five words to guide us in 2009…"Think Positive," "Improve and Grow" and "Focus." We're going after it. The best way to predict our future has not changed. We must create it!
One thing for sure. This recession will ultimately bottom out, and our economy will head up again. Calm will follow the storm. But, in the meantime, make sure your boat is solid and has no leaks. Walking on water is not an option for us mortals. Happy sailing!
Until next time, everybody keep thinking! Just imagine how much more we can achieve and how much better we can become together! I would enjoy hearing from you and sharing your ideas. E-mail me at dthompson@cpamerica.org.
Douglas H. Thompson, Jr., CPA
President, CPAmerica International
CEO, CPA Mutual
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