Canadian Accounting Firms Shift From Compliance to Advisory Services

Canadian small and medium-sized enterprises (SMEs) are changing the required role of their accounting firms. Instead of pure compliance and tax reporting tasks, SMEs now expect their accountants to interpret financial information and turn it into a strategic plan for financial growth. 

Fortunately, modern tech stacks help firms manage the transition with features that support rapid scaling, bridge internal management gaps, and integrate fragmented financial technology for a unified view of all financial operations and processes. 

Demand for advisory services is accelerating

“The leaders of nearly all small to midsize accounting firms [95%] said their clients want more business advisory services ‘to help them navigate the unfamiliar territory confronting all businesses now,’ according to a recent survey.”
Source: Thomson Reuters

What is changing in the SME market?

The new benchmark for Canadian accounting firms is based on insight and reporting. The reason is simple; financial statements and other compliance tasks are still necessary. As a result, a new hybrid approach is coming to the fore. 

What’s driving the shift?

• Financial data analysis and interpretation guide SMEs through uncertain economic conditions.
• Performance analysis that also covers financial strategy and planning can compare SMEs to others in the market, so they know where they stand in terms of service or product quality.
• Accounting firms are expected to provide input and insight into operational decisions and financial direction.

Implications for accounting firms

Accountants must abandon their role as pure historians and adopt an outcomes-based approach. This hybrid approach is necessary because the profession is moving into an advisory era where financial foresight is just as important as compliance.

Growth is changing the financial questions SMEs need answered

34% of SMEs are currently in an active scaling phase, requiring specialized growth-stage CPA expertise.
Source: Canada Accountants

SMEs in Canada are experiencing rapid growth and expansion. This has advantages and disadvantages. For instance, growth, especially rapid growth, brings with it operational friction that requires more care and attention than the usual year-end reporting.

Resulting operational pressures include:

• Recruitment must be carefully considered. Will the hire support scaling operations? Can current systems be customized to carry out the bulk of the tasks? Can training current staff manage the rest?
• Capital allocation is more important and more complex because business owners must evaluate investment opportunities and financing structures. 

Financial decisions become even more important, especially when it comes to revenue and liquidity management. Revenue must be optimized to protect fragile margins, while liquidity management is necessary to protect working capital. 

Many SMEs struggle to engage effectively with financial information

“Asked what the most irritating things their clients do on a regular basis are, Canadian accountants said ‘not sending required information’ (64.7%); not reading financial reports (50.2%); not making time to discuss financial reports (48.4%); not paying invoices on time (47.8%); submitting information with ‘bad math’ (44.5%) and; not listening to recommendations (44.3%).”
Source: Newswire

This kind of transformation must go both ways. If SMEs expect more from their accountants, they must keep up their end, like providing the right data when asked. Not only the right data, but accurate data. Business owners who submit data littered with errors hobble accounting firms because they must first resolve errors before they can start analysis.

SMEs must also commit to actively reading reports and engaging with their accountants to get full value out of outcomes-based processes. 

In addition:

• Poor financial visibility can result in badly timed hiring decisions. 
• Efficiency may lag behind competitors when business leaders don’t work with their accountants to understand financial observations.
• Paying insufficient attention to financial reporting and insights can result in cash management issues.

Accountants don’t shoulder the responsibility for optimized advisory services alone. SME owners must engage with the data and communicate with their financial partners to complete the transition from compliance to advisory services. 

Digital adoption is widespread, but integration remains limited

92% [of SMEs] use some digital tools, but only 10% are fully digitalized. Most have limited integration across operations.
Source: CFIB

SMEs don’t necessarily lag when it comes to purchasing software solutions. The problem is that they tend not to take full advantage of the features. Another issue diminishes the effectiveness of digital tools: the lack of integration. 

Often, there are disparate systems that provide fragmented data. Sometimes SMEs use manual workarounds to solve the issue, but this is time-consuming and can increase the number of errors. Data isn’t unified, and context is lacking to facilitate better financial understanding.

Current tech adoption issues include:

• Digital tools aren’t integrated for clear data flow and a complete view of SMEs’ entire financial setup.
• Financial data is trapped across multiple platforms, which creates data silos and duplicate data entries.
• Manual workarounds slow down consolidation and reporting processes; errors increase, and financial insights are delayed or inaccurate.

Disconnected systems, like payroll, operations, and finance, don’t allow for real-time financial visibility, which maintains reactive rather than proactive behavior.

Spreadsheet dependency still shapes SME financial management

23% of businesses still rely on Excel or spreadsheets.
Source: Canada Accountants

Spreadsheets are still popular because, when integration is missing, they can bridge disconnected systems. SMEs also find that spreadsheets provide functionality lacking in some accounting software. This tends to relate to flexibility and the manipulation and analysis of data. 

However, there are plenty of risks, including:

• Increased risk of calculation errors.
• Version control issues when files circulate internally.
• Exporting data results in delays and obsolete insights.

Overall, spreadsheets are limited in terms of data collection, analysis, and reporting. This is problematic in evolving business landscapes that require rapid decision-making to keep pace with industry developments. 

Accounting firms are becoming the outsourced finance layer for SMEs

“Clients who are juggling multiple entities, growing rapidly, or facing decisions with significant financial impact are most likely to benefit from your strategic guidance.”
Source: Thomson Reuters

It’s not surprising that SMEs are turning to accounting firms for advisory services. Many can’t afford an internal financial department that combines compliance tasks with strategic capability.

It’s more convenient and more affordable to outsource accounting tasks, especially those related to financial interpretation and guidance. 

The trend is partly driven by:

• The need for professional evaluation of financial risks and opportunities. 
• The need for advisory support for multiple entities.
• The need for a strategic sounding board to clarify decisions.

What does the new partnership look like?

Communication: It looks like open, honest, regular communication. It also covers more than financial services, extending to hiring, pricing, strategic capital planning, and operational decision-making. 

The way in which the Canadian SME economy is evolving shines a spotlight on accounting firms and the services they provide. SMEs’ needs are expanding, so while compliance services remain important, they must be supplemented with advisory work, such as financial interpretation.

Accounting firms are expected to break down barriers to financial insight and nurture partnerships that support long-term SME growth.