Firms need a fresh approach

IS THE PARTNERSHIP model broken and does it need fixing? The answer depends largely on who you speak to. There has been a groundswell of opinion among the accounting profession that the traditional model is outdated, outmoded and in desperate need of bringing into line with the rigours of modern business.

Proponents would claim that the partnership structure has served the accountancy profession well for centuries. Partners are able to share profits and are shielded from the demands of shareholders, analysts and corporate governance standards.

The deficiencies, so the argument goes, is that the archaic nature of the profession stunts the development of talent, stymies innovation, restricts capital investment, deters new entrants, and can leave partners open to eye-watering liabilities.

The limited liability partnership, introduced 12 years ago, dealt with the threat of litigation by protecting partners from catastrophic legal claims. By maintaining the partnership structure, the remaining criticisms have gone unanswered.

One critic is Fiona Hotston Moore, corporate business partner at CCW. She points out that unlike many other financial services, the partnership model has not changed in the past 150 years.

“The traditional general partnership structure and business model is outdated. Often, the fixed partnership drawings are disproportionately high in relation to the firm’s overall profits and you have a lot of partners earning what is effectively ‘fixed’ substantial drawings, which means it can be difficult to reward those partners and staff who may be adding particular value,” she says.

Partnerships are going to struggle to find investment. If a firm is in need of more capital, partners, already leveraged after buying in in the first place, are going to find it harder to raise funds.

“Banks are far less keen to lend to partners than previously,” she says.

Identifying a problem is not the same as a solution. And many would point, with some fair reason, to Vantis and RSM Tenon, claiming that placing your future in the hands of the markets is fraught with risk.

Vantis and RSM Tenon both chose to list as ways of garnering investment from outside of the profession’s traditional sources. Vantis is dead while the future of RSM Tenon hangs in the balance.

Hotston Moore suggests that accountants, particularly partners considering striking out from their current firms, should consider using franchising.

“Starting a full-service practice from scratch can be very capital-intensive. A franchise may be an appropriate option,” she says.

Elaine Clark, who is MD of franchisor cheapaccounting.co.uk, says she is laissez faire about advocating any one structure, but agrees that franchising is a good way of building a national profile and establishing a brand.

“It gives you flexibility without exposing yourself to large costs,” she says.

Another problem partnerships face is succession planning. Having stumped up the capital to become partner, it is perhaps unsurprising that they aren’t in any rush to move on. They could expect, quite reasonably, to have a good few years to enjoy the fruits of their labour.

“If you look around the profession, there is an ageing group of senior equity partners, and a number of mid-tier firms where control and influence is held by partners approaching retirement,” says Hotston Moore. “There is a reluctance to change, which could cause medium-term issues for the younger partners.”

It is perhaps that reluctance – the accountancy profession is, generally, a cautious and conservative profession – that is really what is outdated. Rather than overhaul the profession’s trading models, those in the profession need to embrace the way it is changing.

With profit and fees in compliance work is reducing, partners need to become more consulting-based in their approach.

“The business model must change but it requires different attitudes and approaches to selling and delivering consulting rather than offering the traditional compliance service,” Hotston Moore says.

A key skill that is being overlooked is the accountants’ ability to sell themselves and their services. Marketing is not very high on the agenda, says Clark.

“There are an awful lot of accountants that don’t like marketing. They are rubbish at it,” she says.

Clark and Hotston Moore – both with active Twitter accounts – are vocal supporters of how the profession can use social media to tout their services nationally and internationally, and provide online-only services to new clients.

“There are an awful lot of people that do business online. They also want to do their accounts online and for some they want to do all of their accounts online,” says Clark.

“Going to a traditional accountant is like going to a dentist. You only go once a year or when you need to.”