Don’t look back in anger
Accountancy Age asks eight UK managing partners what lessons they’ve learned in the last 12 months and what they expect for the year ahead
Accountancy Age asks eight UK managing partners what lessons they’ve learned in the last 12 months and what they expect for the year ahead
Bishop Fleming managing partner Matthew Lee:(Accountancy Age Top50+50 rank 40): “Like many mid-tier firms the identification and nurturing of future talent remains a real challenge. For example, we have had a partner vacancy that we are very keen to fill and it has taken almost a year to identify a suitable candidate. Whilst we attract a large number of graduate entrants in many cases they do not have the skills or indeed the work ethic that we seek. The work life balance for many of the youngsters takes precedence which is a challenge when you have clients who have an ever increasing service level expectation.
Deloitte CEO and senior partner David Sproul (Accountancy Age Top50+50 rank 2): 2013 was marked by a degree of uncertainty, not least in the shape of regulatory change. We are also seeing an important role being played by the profession broadly, specifically in rebuilding trust in business. For example, this might be through explaining the value of audits, or attempting to reconcile the conflicting messages on tax.
Shelley Stock Hutter managing partner Stephen Adler (Accountancy Age Top50+50 rank 83): Undoubtedly it has to be about managing client expectations and service levels in this tough climate. There are some clients who continue to put downward pressure on fees while expecting the service level to remain the same, or in some cases increase.
Wilkins Kennedy managing partner Dave Fenn(Accountancy Age Top50+50 rank 21): With our continued growth this year, an element of increased governance was required while still maintaining the collegiate supportive ethos. The change in structure to include the introduction of regional managing partners has enabled local decision making to continue to take place with national support.
BDO managing partner Simon Michaels (Accountancy Age Top50+50 rank 6): Making the right judgement calls to exploit a recovering economy and increased opportunity. The good news is that the recession taught us the skills to respond well to change.
Grunberg & Co managing partner Robert Bean (Accountancy Age Top50+50 rank 100): Significant changes to legislation, countering the current implications any tax advice given is either immoral or suspect; communicating with the ICAEW to support small firms of our size and position in dealing with micro-entities, client fee resistance, reduced margins and debt collection problems; as well as finding and retaining top quality staff.
Wilkins Kennedy: Opening our third Kent office earlier this year has given us a much needed presence in the area, the successful merger with chartered accountancy firm C W Fellowes, giving us a new total of more than 500 staff, two extra regional offices in Portsmouth and Southampton and significantly enhancing our local presence in the South of England.
Grunberg & Co: Continuing to grow in a difficult market; breaking into the top 100 firms of accountants; initiating a succession structure with the firm.
KPMG UK chairman and senior partner Simon Collins (Accountancy Age Top50+50 rank 3): We have invested in new businesses that will help us deepen our specialist skills and make our client proposition more compelling – such as our acquisition of Makinson Cowell, a equity market advisor. Also, the launch of our KPMG Capital fund has been a real highlight – and first for the industry.
BDO: Without doubt, our merger with PKF is at the top. We successfully delivered a proactive and strategic merger this year, which is notoriously difficult in the professional services industry. I’m also proud of the role we played in working with the Competition Commission to effect change in what we – and the CC – believed to be a flawed larger company audit market. Financial performance is not the only barometer of success and I’m delighted we’ve retained the badge as number one in the industry for client service for the second year running (according to Mid Market Monitor).
Deloitte: This year we held 23 innovation events which supported £1bn of client investments, held 100 bespoke client workshops, and while in its first year our social innovation pioneers programme helped 30 social enterprises generate average growth of 45%. We also filed our first extended audit report, for Vodafone. We became the first firm to redesign the way we report audits, moving away from the traditional report to one more detailed, transparent and goes beyond the new FRC standard to be more tailored and of genuine interest to shareholders.
EY UK managing partner Steve Varley (Accountancy Age Top50+50 rank 4): We’ve had numerous accolades this year which reinforce our ethos to be an employer of choice. We also won the European Diversity Awards 2013: Outstanding Employee Network Group of the Year for EY’s disability working group; posted 6% organic revenue growth in the UK; launched our new global vision and purpose – building a better working world with our new brand name, EY.
Shelley Stock Hutter: Undoubtedly it has to be about managing client expectations and service levels in this tough climate. There are some clients who continue to put downward pressure on fees whilst expecting the service level to remain the same, or in some cases increase. Our outsourcing business, which has been going strong for ten years, has helped deal with the highs and lows of clients’ business and means we can be flexible on pricing and service levels. We’ve managed to overcome the obstacles and our fee income has grown in excess of 15% over the last 12 months.
Bishop Fleming: For the second year running we are the fastest growing accountancy firm in the Accountancy Age Top 50 – at least half of our 70% growth over the last two years has been organic rather than acquired. We won the Lexis Nexis Best Tax Team in a regional firm, award; and reaccredited by IIP – having been the first firm of the accountants in the UK to get the standard to still be up there after 16 years is great news.
Grunberg & Co: To sustain current profit levels, after absorbing investment in improved technological systems and staff; to appoint an additional partner; to join an international group of accountants; to find a way to deal with the usual struggle of finding a suitable employee with the correct level of experience for us.
Deloitte: The challenge for the UK will be to build on the positive second half of 2013 and move beyond signs of recovery to sustained growth. Clients routinely expect consultants to provide a service which delivers from strategy through to implementation, at a global level. We would expect this trend to continue through 2014. There has also been appetite for IPOs and the majority of companies to have listed have seen their stock outperform the market. The past five or six years have seen several false starts in this regard, but with confidence returning and FTSE 100 cash reserves standing at well over £100bn, this time could be different.
Bishop Fleming: I believe that we will continue to grow albeit at a slower rate. We are investing a lot of time and energy into the development of the next generation of partners and we hope to see that bear fruit in 2014. We have been developing sector initiatives for the last few years so I’m cautiously optimistic 2014 will be another good year for us.
EY: To continue to build the brand. Early autumn we announced plans to recruit 2,400 experienced staff in the UK over the next 12 months, from Inverness to Bristol, in response to growing demand from clients for our service. Globally EY plans to recruit 55,000 people. We continue to pursue growth across all four of our service lines.
Shelley Stock Hutter: We’re in a good position to build on this year’s growth and we are expecting staff count to grow by at least 10% in the coming year. The outsourcing team will continue to be the driver of much of our new business both domestically and abroad. The last quarter of 2013 has already seen an increase in activity and we believe there will be additional M&A activity for the firm during 2014.
KPMG: Clients are once again cautiously optimistic about the future, tentatively exploring transactions and looking for routes into new, faster growing markets. We have emerged in good shape from 2013 and I’m confident that we will see robust performance in 2014.
BDO: We want to support our mid-market clients as they positively respond to the economic upturn and grow alongside them. We expect to maintain steady growth in areas such as financial services and specialist tax.
Wilkins Kennedy: The practice will continue to grow as one firm, working together and all offering the specialist services created over recent years.
Bishop Fleming: The overall market will remain stagnant. The reality is that the accountancy sector has not grown that much over the last few years. Corporate finance is showing strong signs of recovery but that is matched in some respects with a continuing slow-down in the level of business recovery work.
Grunberg & Co: Mergers and acquisitions of accountancy practices are likely to increase, although fewer firms will undertake audits. However, there will also be a polarisation of newly qualified staff between those who can do audits, but not-micro company accountants and vice versa. Also, we might see more non-affiliated firms/companies coming to market offering an inferior service for “bucket” prices.
KPMG: I expect most firms to enjoy better business in 2014. Audit regulation will remain in the spotlight, especially given pending audit reform decisions in Europe. Tax will continue to be topical. Both issues are major pillars of the efforts we need to make to restore trust between business and society.
Shelley Stock Hutter: Practices that have remained stable, strengthened their team and have a broad skill set to offer their clients can expect to see significant opportunities in 2014. Also as clients start to grow again, opportunities will materialise with existing clients along with new business. There are good reasons to be optimistic.
Deloitte: The Competition Commission investigation, FRC guidelines and ongoing debate in Europe has already led to a material increase in audit tenders. This will continue in the year ahead. Safeguarding audit quality will always be the utmost priority, so firms are likely to become more selective in the audits that they bid for.
Wilkins Kennedy: The economy is showing signs of recovery and with the banks changing attitude to lending this becomes an exciting period. There are opportunities for growth within the practice market, as well as growth in international trade and more activity in the M&A market.
BDO: Domestic and global transformation is taking place. We’re seeing mid-tier consolidation, audit market reform and broader market optimism. Coupled with a competitive market, price pressure and an upswing in recruitment, and we will continue to see significant impacts on the industry.
EY: I would expect to see more transactions globally – from acquiring specialist teams to consultancies I also expect it to be highly competitive both for audit and non-audit services – it’s all part of the fun of the job.
EY: Cyber-security/ big data; how to grow when the tendency to exercise caution in terms of investment remains high; SMEs and mid-caps getting access to capital; overseas expansion – and managing the political risk associated with that (not just in fast-growth markets).
Wilkins Kennedy: Interest rates are still a concern and any material rise will affect many aspects of business. It is not just the cost of finance that poses a threat but the survival of some businesses and knock on effect of failed companies.
Deloitte: The recovery would be seriously rattled by any significant economic shocks. While the Bank of England paints an increasingly rosy picture for the UK, a setback in Europe or lower rates of growth in the US or China could put that back in doubt.
Bishop Fleming: The imposition of auto enrolment is now starting to hit the SME sector. In most cases SME’s cannot get pension providers interested in taking on their schemes as they are not lucrative enough for them. Their employees are disinterested and the administration is a major burden. We are seeing people who are faced with having to increase staff numbers in their payroll departments to cope with the administrative burden of a system which many do not want. The penalties for non-compliance are pretty nasty, knowledge is low and costs are high. 2014 is going to be the year when this starts to affect them.
KPMG: We need to make sure we don’t regulate companies into the ground. For example, the banking crisis – while undoubtedly requiring a robust response from regulators – has nevertheless created such a welter of new rules that there could be a complete dearth of senior management in the banking industry in ten years’ time because no one wants to work there. Business must restore trust – but simply being regulated more and more tightly won’t get us there.
BDO: Not being in the right place to respond to international opportunities. Half of mid-market businesses told us that ‘exporting to new markets’ is core to their growth strategy but many don’t know where to start. Clients need to better understand the international opportunities open to them.
Shelley Stock Hutter: The growth of many clients will continue to be restricted by the appetite of the banks and other funders to risk and lending. The ability to obtain credit insurance on customers, along with the required finance to fund working capital requirements will continue to be a real threat to the growth of many businesses.
Grunberg & Co: Lack of prime bank funding; fewer good quality financial directors/controllers available for employment; using non-professional accountants/tax advisors through cloud based accounting systems; competition threats from overseas such as from China & India etc., where cost structures are lower.
Deloitte: The biggest challenge firms face over the coming four, five years and more, is talent. Attracting, retaining and developing the best people is critical to our success as a firm as well as having the right intellectual mix from across a variety of backgrounds. That makes the recruitment market competitive. It also raises the question as to whether we have the same flow of business-ready graduates coming through in the next decade as we saw in the last, and asks whether business could do more to build links with educational institutions.
EY: We are all waiting to see what will come out of the EU on Barnier. EY continues to support proposals that help underpin our ability to perform high quality audits across the EU.
KPMG: It’s tough to single out one thing! But I guess I’d have to go for the obvious and say – the economy. If growth is sustained, that opens up things for all types of business. If momentum peters out and recovery is blown off course – then that creates a very different scenario for everyone.
BDO: Recruitment, finding the right talent in the market.
Shelley Stock Hutter: The growth of many clients will continue to be restricted by the appetite of the banks and other funders to risk and lending. The ability to obtain credit insurance on customers, along with the required finance to fund working capital requirements will continue to be a threat.
Wilkins Kennedy: In 2014, it is essential that confidence on the recovery is maintained so that businesses can continue to invest and grow.
Grunberg & Co: Continued changes in legislation making short/medium term planning difficult.
Bishop Fleming: The demise of the listed accountancy practices and the failure of a number of firms have resulted in large write offs for banks, which is having a major effect on how the industry views the profession. I doubt finance to buy practices or equity will be as easy to find as it was and therefore the capita; expectations of many retiring members of the profession will have to be seriously moderated.
Also, we are yet to see the backlash from clients who’ve been sold tax products by firms which may be found to be ineffective. It’s clear many clients were missold these and at the moment, matters are still in the air as HMRC review each product. When the clients have to repay the tax and pay interest plus penalties, they’ll be looking to blame the person who sold them the product. This will have a knock effect on PI premiums.