AS PLANTS NEED THE SUN to develop and grow, the accountancy profession needs innovation to flourish, and any firm which doesn't understand this could find itself wilting in this competitive industry, according to recently released research.
The sector is "mature and oversupplied", enabling clients to play firms against each other, driving down fees. However, it is through innovation - such as finding different revenue streams, and a competitive edge, that will stand firms in good stead for the future.
There are three main factors hindering growth in the UK accountancy market. Firstly it is established and saturated. Secondly, we are in a "flat economy" with no obvious avenues for growth. Thirdly, and most importantly, there has been slow innovation across the entire profession from the largest firms down to the one-man bands.
More than 80% of those surveyed said there was either "some" or "no" innovation in the sector in the last five years - with many describing "some" as better use of email and marketing through websites`.
It is predicted building specialist services will be key in the next phase of growth for firms. There is a genuine opportunity for any size organisation to perform simple services efficiently, whilst developing a niche such as environmental or technology consultancy.
"Reaching the higher end of the value curve requires investing in specialist knowledge and delivering new services," said David Webb from the London School of Economics.
"Dynamic firms must see that the amount of revenue from basic audit is reducing as it becomes increasingly off-the-shelf,".
The larger firms generally already offer a rich variety of services, with niche practices, or specialist skills. However, smaller firms tend to rely heavily on good customer service and the loyalty of their client base.
Unfortunately competition is rife and unless a firm can find a which isn't supplied by many, it could find itself slowly squeezed out.
This squeeze won't happen overnight, and firms are already finding themselves with little option but to discount fees and hold onto clients.
"Accountancy firms suffer from the fact that some of their services represent compulsory purchases, rather than value-added purchases. So the CFO who must pay the bills is often compelled by shareholders or management to simply get the job done well enough at the best price," said Jon Holt, consultant at Carnaby Co.
Around 40% of respondents had seen a drop in fees over the last three years and four out of five discounted their usual fee rate to hold onto business.
Although this strategy might seem a necessity, firms should be defensive in this process and find ways around it.
"Instead of defaulting to discount, the need to do so should be properly assessed. Is it a competitive pitch? Is the client short of money? Has the client even asked for a discount?" said Holt.
"When a discount from the rate-card is unavoidable, firms should look for alternatives to fee reductions: complimentary advice, training, top-up hours and so on all represent less of direct attack on the bottom line than capitulating on the price of a job," he added.
Some firms are adopting new billing structures to maintain current fee margins. They obtain a client's budget and engineer a team and hourly rates to work within that cost - again allowing the client to dictate the price of the service.
The profession is faced with these harsh choices because of the growing "abundance of supply feeding a limited client pool".
More than 60% of firms feel competition has either increased or greatly increased in the last three years.
Previously firms had a particular structure that was similar to the business it serviced. Large firms worked with large businesses, medium firms with medium businesses and small to sole practitioners with small organisations. The smaller firms and one-man bands didn't have the expertise or the resources to work with international companies, but all that has changed.
Now with the growing use of the internet a business, large or small, is more likely to have an international focus. Accountancy firms were forced to adapt and set up international networks to allow them to continue servicing international clients. But, with this change the world became a smaller place and firms began crossing over into each other's territory.
Any firm that does not sieze the opportunity to add to its current service lines, through investment in specialist or unique services could find themselves left out in the cold as the landscape for successful accountancy organisations changes.
The research consisted of private conversations with some of the top 20 firms, and a questionnaire completed by 50 of the top 100 firms (with the exception of four) showcased in the Accountancy Age top 50 + 50 survey.
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