Accountancy firms face margin squeeze as AI disrupts compliance services
Most UK accountancy firms admit margins on traditional compliance services are under pressure from automation, as professional services firms rethink strategies in the age of AI.
According to a report shared exclusively with City AM by Ravical, while most British firms believe margins have increased over the last three years, the majority (63 per cent) believe compliance will be only marginally profitable or worse within five years.
As it stands, a third of per-client revenue growth comes from compliance fee increases, the same area that the industry expects to stall as a result of AI.
While only a third of the fees come from advisory services, including everyday tasks such as cash flow management, pricing analysis and forecasting, to more strategic offerings such as M&A and restructuring, most firms agree that this is where future growth must come from.
“Accounting firms are at a crossroads,” said Joris Van Der Gucht, founder and CEO of Ravical. “By almost every measure, the industry is performing well today, but there is an acute awareness that the sector needs to change over the next few years, not least because of shifting client expectations driven by AI.”
Billable hours hammered
Almost 40 per cent say technology is reducing billable hours, 38 per cent say they are struggling to differentiate themselves in the market, 37 per cent blame pricing pressure, and 36 per cent say clients are using AI tools first.
The report, based on 500 senior decision-makers, shows that the sector largely agrees on future direction but is held back by a lack of systems in place.
There is an infrastructure gap in accountancy firms: most are set up with compliance infrastructure, largely driven by automation, but only 17 per cent have automated their advisory services.
“Firms who only look at AI for efficiency savings are missing the point,” Van Der Gucht added.
This comes as nearly 9 in 10 accountancy firms were approached by private equity firms last year. There has been a flurry of deal activity over the last couple of years, with notable cases such as Evelyn Partners’ accountancy and advisory business, which was sold to private equity firm Apax for £700m.