Accounting firms in the U.S. have had a profitable last 12 months, due to adding new clients, technology, and service offerings, according to a new report from Xero.
The U.S. State of the Industry report released June 9 surveyed 250 accountants and bookkeepers in practices throughout the U.S. The results found that nearly three-quarters of accounting practices increased revenue (74%) and profits (73%) in the past year, and more than half (56%) added new clients as a result of enhanced operational efficiency and expanded service offerings.
“The larger the practice, the more likely they were to grow revenue, profit, and their client base, with one exception: sole practitioners were the second-most likely to grow profits. Note that profits outpaced the number of new clients. From this, we can infer that some practices are selling more per client, which is exciting,” Xero said in the report. “Practices of all sizes say their profit growth is largely due to adding more clients. But after that, they credit the increase to becoming more efficient and their expanded service offerings, led by client advisory, which 85% of firms now offer [up from 41% in 2023].”
Accountants say client advisory services (CAS) —encompassing forecasting, budgeting and financial strategy — is the second-largest opportunity for them right now, with artificial intelligence ranked as the No. 1 opportunity. According to the report, 91% of accounting firms that began offering client advisory services said it made them look more knowledgeable to clients and helped them meet those clients’ needs.
CAS is now tied with bookkeeping as the most popular services offered across all firms, ahead of tax, payroll, financial reporting and assurance.
Xero noted that accounting firms grew within the past year despite concerns about the economy. Firms said their top challenge was economic uncertainty (38%), followed by understanding and using AI (36%) and evolving client expectations (35%).
The report found that accountants are more excited (79%) than worried about it, with 80% anticipating AI to have a positive impact on their practice.
“Accountants say AI is their No. 1 opportunity (31% of respondents) though it is deeply interwoven with client advisory,” Xero said in the report. “Thirty-two percent say they plan to use AI to automate rote tasks. We expect this to allow them to do more advising and have more real-time data to advise with.”
The most common use cases for AI include delivering faster and more responsive client services (33%) and enhancing accuracy by reducing bookkeeping and accounting errors (33%), according to the report.
“The widespread adoption of AI has been a turning point for the accounting profession, giving accountants an opportunity to scale their impact and take on a more strategic advisory role,” Ben Richmond, managing director, North America, at Xero, said in a statement. “The real value lies not just in working more efficiently, but working smarter, freeing up time to elevate the human element of the profession and in turn, strengthen client relationships.”
Cloud accounting remains a critical enabler for industry success, according to Xero. While 85% of firms have embraced cloud platforms, a notable portion still lag behind, missing out on key advantages such as easier data access from anywhere (40%) and enhanced security (36%).