As with many industries, the professional services sector—encompassing fields such as accounting, law, consulting, and financial services—is navigating the dual challenges of digital disruption and a difficult economic environment. This combination has spurred increased demand for the specialized expertise that these firms offer. In 2023, the sector experienced a solid 6% compound annual growth rate (CAGR), and this growth is expected to continue through 2026, driven by the need for transformation and advanced skill sets.
To stay competitive, professional services firms must remain adaptable and forward-thinking. Below, we explore the key trends and opportunities identified by Cbiz for shaping the professional services industry in 2024.
Artificial intelligence (AI) and digital technologies are poised to revolutionize how professional services firms operate. From advanced data analytics and predictive modeling to automating routine tasks and enhancing collaboration, AI can offer both short-term efficiencies and long-term innovations.
Client expectations are also evolving with the increasing integration of digital technology. One-third of firms project that at least 75% of their revenue will come from digital technology by 2025. This shift is driving investments in AI, machine learning, and data analytics. However, many firms feel they are falling behind, with 57% of leaders acknowledging a widening gap between their current capabilities and future needs. Only 20% are confident their digital strategy will allow them to meet future demands.
The professional services industry, including accounting and law firms, remains at the forefront of redefining the hybrid work model. With overall office attendance down by 30% compared to pre-pandemic levels, firms are balancing in-person and remote work while focusing on recruiting and retention.
While job openings and turnover rates have remained relatively steady, firms still face challenges in filling evolving roles and skill gaps. The U.S. Bureau of Labor Statistics forecasts steady job growth in the sector through 2032, but attracting and retaining younger workers will require firms to embrace hybrid work strategies and flexible schedules. Employee retention is particularly critical, with burnout being a primary reason for turnover. Firms should prioritize improving work-life balance and invest in reskilling and upskilling programs to keep their workforce engaged and prepared for the future.
As the professional services sector grows, firms face increasing competition. Many are turning to mergers and acquisitions (M&A) to enhance their technological capabilities, market share, and talent pool. After a record-breaking surge in M&A activity in 2021 and 2022, the pace slowed in 2023 due to inflation and rising interest rates. However, indicators suggest that M&A activity will pick up again in 2024 as firms seek to accelerate their digital transformations and expand their reach.
Even for firms not actively pursuing M&A, strategic preparation remains vital. Firms should be ready to respond to unexpected opportunities and navigate challenges related to management turnover, financing, and regulatory changes.
With the average cost of a data breach reaching an all-time high of $4.45 million in 2023, cybersecurity remains a critical concern for professional services firms, especially those handling sensitive client data, such as law and accounting firms. As cyber threats continue to evolve, businesses face increasing pressure to stay ahead of risks.
The U.S. Cybersecurity and Infrastructure Agency (CISA) and the National Security Agency (NSA) have outlined best practices for firms to mitigate vulnerabilities. Regular cybersecurity penetration tests are highly recommended to simulate real-world attacks and strengthen defenses. These proactive measures help firms identify weak points in their technology infrastructure and safeguard sensitive data.
Tax optimization remains a key opportunity for professional services firms. One area of focus is client receivables. Firms can explore charge-off methods to accelerate bad debt deductions. Depending on the firm’s accounting method, opportunities exist for deferring income recognition, which can reduce tax liabilities. Smaller firms may also benefit from exemptions available for C corporations with gross receipts under $29 million.
Additionally, the Employee Retention Tax Credit (ERTC), which was introduced to help businesses during the pandemic, remains available to firms that maintained their workforce. The maximum credit is $21,000 per employee, but claims for 2020 must be submitted by April 15, 2024. While the IRS has temporarily halted processing new ERTC claims due to fraudulent activity, businesses can still submit new claims and withdraw illegitimate ones to avoid penalties.
As 2024 wraps, professional services firms face a complex landscape filled with both challenges and opportunities. Embracing digital transformation, addressing cybersecurity threats, capitalizing on tax incentives, and staying ahead in the talent race will be crucial for continued growth and success in the years to come.