With small accounting firms coming out of a tough tax season, we thought now would be an appropriate time to look ahead for the balance of 2010. This article looks at economic trends, accounting industry dynamics and social trends in analyzing what's ahead.

Economic Trends

1. The current recession has many small accounting firms on edge because the duration of this recession has been so long. Since 1854, the average length of a U.S. recession has been 17 months from peak to trough, according to the National Bureau of Economic Research. For perspective, the Great Depression lasted 43 months. Our current recession started in December 2007 and the end is not yet in sight. And when things improve, economists are saying it will be gradual. To compound this issue, there is still a liquidity crisis which makes it difficult for the small business market to pick up the slack and reverse this crisis.  
2. Shift in type of employment. Small business employers are shifting from full-time employees to part-timers, freelancers, outsourced services, partnership arrangements and other forms of contingent workers.  
3. Micro-Businesses will rise. As more and more skilled workers are on the sidelines and become disenchanted with the prospects for gainful employment, there will continued increases in micro-businesses (solo owners with no employees). This movement will be fueled by the Internet, low-cost of technology, and ease with which a home-based business can be created.

Accounting Industry Dynamics

1. The top accounting firms will reduce overall staff levels in 2010.  According to one industry publication, the top 100 accounting firms had net revenues decline by 2.8 percent in 2009 and overall staff decline by 2.3 percent. With the length of this recession, we anticipate overall staff levels will decline 3 percent to 7 percent this year in the same top accounting firms.  
2. Small accounting firms will dramatically increase use of Cloud Computing, SaaS, portals and hosted solutions. Among small accounting firms with less than five people, we anticipate a large shift from desktop accounting over to cloud computing usage. This rapid transition will be fueled by the need for higher levels of data security, online filing demands, cash flow constraints as small firms switch from annual software renewal to fixed monthly subscription fees and enhanced features that software providers wrap into online SaaS/hosted applications.    
3. Microsoft 7 and Office 2010 will fuel replacement of dated computer equipment. With the negative press around Vista, many small accounting firms have delayed replacement of office equipment. Many firms will replace dated computer equipment this year. Trends are towards dual monitors, laptops and smart phones and away from traditional desktop computing.    
4. Surge in growth of new accounting firms. The bleak employment picture will persuade many accountants to hang out their shingle this year.
5. Business development and new business acquisition are back in vogue. Now, accounting firms are much more interested in business development and new business acquisition. This is a shift away from staffing and recruitment of a couple years ago.
6. Continued evolution towards paperless. Much like the evolution towards online filing, true paperless is seldom attained and is an evolutionary process. Those that embarked on paperless years ago will move further down this path.  Many on the fence will test the waters this year but operate as a hybrid.  

Social Trends

1. No Place Like Home for Small Businesses.  With the bleak economic outlook, the trend towards home-based businesses will continue. This trend is fueled by the need to conserve cash, low technology costs, and presence of office space in many homes today.  
2.  Membership organizations will continue to see enrollment declines.  Local non-profit membership organizations (networking type) will see continued declines in enrollment as networking tools (LinkedIn, Facebook) make it more efficient online and cheaper.