🔦 Welcome to this week’s edition of Sector Spotlight!

Every Tuesday we highlight an under-the-radar and often underappreciated industry. This week we take a closer look at the Accounting Services sector.

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-Harry & Carter

🔎 We identified 536 Accounting Service companies* as strong, potential targets. Click here to access this list.
 
*These companies have verified contact, location, and financial data. We limit the number of downloads for each company list (so we don’t overwhelm the sellers).
Revenue between $1.5M - $20M

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Accounting Services

🏢 Size of Industry: $143.4B
📈 Industry Projected Growth: 1.2% (CAGR)
💰 Average Profit Margin: 17.9%

🔑 Key Highlights

• Increased Demand: The demand for accounting services has significantly outpaced the influx of new accountants entering the field. This imbalance has allowed firms to raise prices, increase revenue per client, and allocate more funds toward capital investment

• Stricter Tax Laws: Increased need for financial auditing due to stricter tax laws has led to a surge in business from both retail and finance sectors, boosting revenue streams for accounting firms.

• Industry Fragmentation: Despite a moderate level of industry concentration, the U.S. market is pyramid-shaped with the Big Four at the top and numerous smaller providers forming the base, offering a range of acquisition opportunities.

• Regulation and ESG: Environmental, social, and governance (ESG) considerations are becoming increasingly important. Accounting firms are fostering more inclusive and diverse working environments to address these priorities, aligning with broader market trends.

• Mergers and Acquisitions: The accounting industry is seeing increased consolidation, with larger firms acquiring smaller ones to expand their service offerings and market reach. This trend is driven by the need to stay competitive and offer comprehensive solutions to clients.

📋 Industry breakdown

Financial Auditing: With increased scrutiny over international tax compliance, corporations are seeking these services more readily. The cost of non-compliance often exceeds the expense of hiring professional accountants, making auditing a critical service.

Tax Planning & Consulting: Firms offer tax planning and consulting services to minimize taxation effects, interpret tax laws, and prepare, review, and file tax returns and related documents. Accountants assist clients with income, inheritance, estate, property, and other operating taxes. The demand for these services remains stable as most individuals need tax assistance at some point.

Individual Tax Preparation: The increasing use of digital software for tax compliance has hindered growth in this segment. This trend is expected to continue as digital solutions become more convenient and affordable compared to traditional accounting services. However, traditional services still hold value for complex tax situations and personalized assistance.

🏢 Competitive Landscape

Major Players: The Big 4

• Deloitte

• PricewaterhouseCoopers (PwC)

• Ernst & Young (EY)

• KPMG

Market Entry Barriers:

• Regulatory and Licensing Requirements: Obtaining necessary certifications (e.g., CPA) and adhering to strict regulatory standards and continuing education requirements.

• Reputation and Trust: Established firms have built strong reputations over many years, making it difficult for new entrants to gain trust and credibility with clients.

• Client Relationships: Long-standing relationships between clients and established firms are hard to break, as trust and reliability are critical in accounting.

• Technological Infrastructure: Advanced software and systems are required to provide competitive services, requiring significant investment in technology.

⚠️ Industry Challenges

• Regulatory Changes: Constantly evolving regulations and standards at both national and international levels necessitate ongoing adaptation and compliance efforts.

• Cybersecurity Threats: Protecting sensitive financial data from cyber-attacks is a critical and ongoing concern, requiring substantial investment in security measures.

• Fee Pressure: Competitive pricing and client demand for cost-effective services put pressure on fees and profitability.

• Sustainability and ESG Reporting: The growing emphasis on environmental, social, and governance (ESG) factors requires firms to develop expertise in these areas and integrate them into their service offerings

🔮 Future Outlook and Trends

• Services Expansion to Drive Growth: Over the next five years, the most notable development for accounting service providers will likely be increased investment in advisory services.

• Increased Competition to Drive Demand: Consumers will continue to embrace technology for everyday services, seeking lower prices and greater convenience, which will increase competition for accounting service providers.

• Mobile Solutions to Lead Innovation: More powerful smartphones, supported by cloud computing, will push the adoption of mobile-first solutions, offering new avenues for service delivery and client engagement.

 📱 Relevant listen

Thanks for reading and don’t hesitate to reach out! - Harry & Carter

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