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David vs Goliath? Small practitioners pick apart KPMG’s SME move

A TORRENT OF DEFIANCE and disbelief has been unleashed by accountancy practices across the UK after KPMG’s recent vow to disrupt and dominate the SME market by telling small businesses “you can pay us the same as your current accountant, but we’ll give you more”.

The Big Four firm plans to take on high-street accountants and the mid-tier accountancy firms focusing predominantly on the SME market. It follows KPMG’s £40m investment in its enterprise programme, which includes subscription-based cloud accountancy support for small businesses.

It is an already saturated, busy market. While many small practices struggle to get their heads around the red tape and legislative changes that affect their clients, or themselves, KPMG clearly sees an opportunity. The owners of smaller firms have, predictably, come out against the proposal, outlining a myriad of reasons while the Big Four firm will fail.

Price-match promise

Elaine Clark, founder of the nascent cheapaccounting.co.uk empire – a pioneer of cloud-based accounting services – is sceptical that the Big Four outfit can genuinely match the price and service level offering of existing professionals specifically targeting the smaller end of the market.

The KPMG-trained accountant says she will “lay down the gauntlet” to KPMG to take one of her firm’s clients at £33.50 per month and provide them with more. “We specifically target very small turnover clients. I can’t quite see what more they can bring to the space. Will [KPMG] treat a one-man band micro business the same as BP? I doubt it.”

Clark, who founded her business seven years ago, fears her former employer will offer non-qualified advisers, which could damage the wider cloud accounting brand – should they fail to deliver.

“I can understand their offer if it is to business turning over more than £500,000, but for less than that, can they really offer more than what we do for £33.50 a month? I doubt it. What else will they offer? They have far bigger overheads. We don’t have swanky London offices and big partner salaries to pay for.”

Peter Hollis, of Sheffield-based chartered accountants Hollis and Co, dubbs KPMG’s claim as “outrageous”, suggesting that most fellow accountants would view it with incredulity.

“It’s a completely ridiculous statement to make,” he says. “I doubt many people will believe it. But in fairness, KPMG have always been more heavily into the SME market than any of the other big firms.

“If they said they were going after some of the bigger stuff I look after, I could almost understand it but the emphasis seems to be, ‘is nothing too small for us?'”

Out of touch

Chris Try, senior partner at Hull-based chartered accountancy practice Try Lunn and Co, is equally scathing of KPMG’s strategy, but offers a different take on the matter. The 59-year-old says he picked up a number of former KPMG clients when the Big Four firm closed its office in the town in the mid-1990s – and has kept every single one ever since.

The sector, he believes, is too small for them to focus on or understand: “I don’t see KPMG as a threat, or any of the great big, or even national firms, as they have lost touch with this sector.”

As an aside, Try believes that the high street and smaller firms have kept many small business afloat during the “savage” recession, laying blame on the many economic problems at big auditors who signed off banks’ accounting.

“My part of the profession can walk very, very tall with what we’ve done – both in terms of setting the standards, coaching of colleagues on key issues like going concern, fighting the banks on their behalf and keeping them right, which we and all the 15,000 firms like ours – both chartered and certified accountants in the UK – have done,” he adds.

Try highlights BIS statistics that show much of the growth in jobs and UK GDP is derived from the 13 million people now employed by small businesses (50 staff and under), not large businesses or corporates. This, of course, is going to show the market up in an attractive light for new entrants such as KPMG.

However, SMEs want their accountant to know all about strategy, commerce, accounting, financial analysis and forecasting, explains Try. And they want that same person to be knowledgeable about income tax, corporation tax, PAYE and VAT. Large operators can’t deliver such a service in the guise of one person, he posits.

KPMG’s huge investment

KPMG’s Bivek Sharma, who heads up the firm’s small business accountancy proposition, robustly defends the Big Four player’s recent foray into the space.

“Clearly there’s a bit of nervousness from smaller firms and a bit of mud-slinging going on, but the reason we can afford to do this is that we have invested a huge amount of money on our processes and systems”, says Sharma.

He claims the firm has completely “ripped apart and re-engineered” its back office processes, with all billing now done automatically by direct debit, client on-boarding digitised and automated, and practice management processes streamlined.

And Sharma, who became the firm’s youngest ever partner when he was just 29-years-old, stresses that this isn’t a knee-jerk, opportunistic, decision.

“This is not something that we’ve just gone out with and said were going to do and were going to get it horribly wrong,” he says. “We’ve been testing and trialling it for a year and a half really nailing down the processes before we go to market on this. We’re are a Big Four firm and we are not going to do anything that causes reputational risk.”

Dedicated staff

Launching in October 2014 after an 18-month trial, the firm has two dedicated ‘centres of excellence’ to handle the work – one in Glasgow, with 180 staff and a newer site in Birmingham with around 30 employees. Sharma is adamant there will be no offshoring and all accountants will be UK-qualified, and based. The most junior level would be soon-to-be qualified or newly qualified and the average accountant would have between three and 13 years of experience. Each client would also have their own dedicated accountant, Sharma adds.

He said the market was “gargantuan”, with 400,000 new businesses launching every year, although around 50% failed within the first two or three years. He hoped that figure could be dramatically reduced with KPMG signed up as their accountants.

But Hollis floats the question about what would happen to British High Street practitioners if “in the unlikely event that KPMG are successful, they take say, £300m in fee income out of the High Street and lose more audit income when the limits go up? Where will that leave the institute who keep continually asking for fee increases?”.

Market watchers will be monitoring closely to see whether KPMG’s bold move into the High Street space proves to be a bloodbath, a damp squib or something more palatable to all parties.

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