Practice Management Special - High street revolution.
In a special report from last week's English and Scots ICA
In a special report from last week's English and Scots ICA
There’s a new breed of accountant appearing in the high street. He is young, aggressive and innovative.
He won’t charge by the hour, but instead offers a fixed price menu of services, stretching from the straight audit through to complex corporate finance issues.
One sole practitioner who leads his own practice claims to do zero chargeable hours – unthinkable a few years ago, but a sign the world of the general practitioner is being turned on its head.
There are many forces at work in the high street. Increasing competition from tax and other business advisers, the advancement of technology and the internet, and the race to provide so-called value-added services.
An added headache has been the shake-up in the audit market. Around 150,000 companies have effectively been taken out of the market with the increase in the audit exemption threshold to £1m.
Many thousands more will go if the threshold is raised, as trade secretary Stephen Byers has signalled, to £4.8m.
Potentially, these could all be lost clients to the chartered accountants and high street firms will have to find ways to replace the business.
Opening last week’s English ICA General Practitioners Conference, John Malthouse, chairman of the institutes practitioner panel, candidly said: ‘I’m here to make more money, but why does an accountant at Andersens make £200,000 to £300,000? It’s because he’s got an open mind.’
Malthouse’s message is unequivocal; chartered accountants will have to adopt and adapt to a new way of doing business if they are to stand any chance of survival. He firmly believes the chartered accountant will be able see off the competition from other sectors, be they bankers, solicitors, IFAs or unqualified tax advisers.
He said: ‘We have the ethics, training, honesty, competency and reputation. Being a chartered accountant counts for a hell of a lot.’
But this reputation alone will not protect the general practitioners from the harsh realities of a changing marketplace. Ian Fletcher, head of 2020 Consulting Group and a specialist in accounting practice systems, said, ‘partners spend too much time working in the business, not on the business’. He argues that if the business depends on the senior partner, then it isn’t a business at all. But to change the business the chartered accountant, according to Fletcher, would have to ‘get out of his comfort zone’.
Julian Roylance, head of Corporate Accountancy Solutions in Macclesfield has done just that.
He invested considerable time developing systems for his practice, losing the firm’s other partner along the way. Roylance also moved away from hourly fees, reduced the amount of audit business and saw fees treble to over £1m in three years.
The growth has come through providing business consultancy, particularly through what he calls ‘systemised service delivery solutions’ to the profession.
He said: ‘The only real profit dip came with the investment of personal time which plunged into loss for a while.’
As well as partners, firms may also need to dump unprofitable clients as well.
Gordon Sealey, of two-partner Cardiff-based firm Sealey Pugh, said: ‘We identified clients, met with the clients and sensitively removed them from the client list.’ This approach will go against the grain for many accountants, but it is argued that if the practices are to become more profitable such drastic behaviour may be necessary.
However, not all general practitioners are convinced the move to a systemised form of service provision will win through. There was a sharp intake of breath during the conference when delegates were shown how much one ‘systemised’ practice in Sheffield was able to charge for incorporation work. ‘I wonder what their client retention is like,’ mused one delegate.
It has been argued much of the accountant’s work is seen as a commodity, and some fear increasing automation could harm the integrity of the profession, becoming a case of ‘garbage in, garbage out’. ‘A computer does not have intuition,’ says Hertford-based Neil Jones of Meyer Williams.
Others are concerned that removing a company’s audit obligation could cause big problems in the future.
As one practitioner put it: ‘We are professional advisers, not bookkeepers. The removal of the audit could prove damaging to the business.’ Many feel there will be difficulties with retaining an audit licence if the number of audits falls to an uneconomic level. There will also be training concerns as it would be difficult to provide adequate opportunities if a firm only had a few audits to carry out each year.
According to Fletcher: ‘The next 10 years could be the most profitable, but not if the professionals continue to give their advice away for free.’ It is going to be a tough balancing act for the accountant in the high street.
MODERNISE YOUR PRACTICE
Conference tips on improving your firm;
– Do be prepared to work on the business, not in the business – how many other companies have the MD on the shop floor?
– Do achieve complete agreement from all the partners and staff on new direction of the business – it will not work if others continue with the ‘old ways’
– Do be prepared to lose partners and staff who are not comfortable with strategy – some tough decision will have to be made
– Do review client lists and remove clients that do not fit your strategic plan – some clients will simply not be interested in new services and can be unprofitable in terms of time spent on them
– Do systemise everything, especially a knowledge management system – every member of staff should have a PC or laptop on their desk, and knowledge should not walk out of the door when staff leave
– Do move from hourly fees based billing to a fixed rate menu – removes needs for write-downs and disputes over billing when costs are agreed in advance
– Don’t be afraid to increase your prices – you are after all offering a premium service
– Don’t forget to review the process on a regular basis – get feed back from staff, clients and your finance manager. Don’t pretend you have not got the time
– Don’t be afraid to bring in external advice – we all might think we know the answer, but sometimes it is better to hear it from someone else. After all, that’s the business you are in as well
– And finally, don’t give your advice away for free – it’s your only real asset.