Small practices are feeling the pinch. Work is hard to come by as clients feel the recessionary pressure. Audit work is disappearing as the threshold for companies needing that service rises. More and more clients are taking advantage of IT developments to bring their bookkeeping and accounts preparation in-house. And the proposed cash accounting for tax purposes may lead to smaller clients taking control of their own tax affairs.
Little wonder then that a recent ICAEW practice survey highlighted acquiring and retaining good-quality clients as the biggest challenge for practices.
John O’Donnell was in practice before moving to ICAEW, first into quality assurance and now as a practice consultant. In his current role he visits firms to review and give advice on different aspects of their operations, so he is in no doubt about the challenges they face. "This is a world in which the environment is changing and competition is tight," he says.
He urges practices to be nimble to respond to the evolving marketplace. Take audit, for instance, where many firms complain that they don’t make a profit from audit services. "Perhaps it would be better to turn that audit client into a consulting client and give them advice on how to grow," he suggests.
Practices could differentiate themselves by providing accountancy services to a niche area. Some already do this for professions such as doctors and dentists and O’Donnell has seen small businesses creating a role for themselves in more esoteric areas, such as specialist IT.
Some have honed their expertise to offer a UK-wide service via cloud computing. According to ICAEW former head of practice services Gill Sykes, practitioners doing general accounting work for their clients could use cloud computing to increase efficiencies. "Practices can work online to make amendments needed to prepare monthly or quarterly accounts," she says. "The efficiencies can free up practitioners’ time to sit down with clients and concentrate on business issues, offering much broader strategic advice.
"This doesn’t have to be complicated. It could be as simple as sitting down and asking: ‘If you were to flex your selling prices what impact would that have on your cashflow?’."
Despite the recession new business is continuing to come practitioners’ way. Eric Kench is the managing director of Kench & Co, whose clients include several start-up businesses. "Our clients tend to be in service industries," he says. "Many of the people who come to us have been made redundant and want to do something similar either as a consultant or as a full-blown business. They need advice on which type of business form is most suitable for them."
New clients come to Kench through a variety of channels – more than half through recommendations, others via the internet. The firm has beefed up its website to include more than 600 pages of information. While Kench admits that few visitors go to the detailed technical pages, he believes providing this information has a positive impact on potential clients.
"At the early stages of their business they think: ‘This is comprehensive and I’ll use this knowledge’. Later on they forget it’s there or they realise that they don’t need information, they need advice. And that’s what they come to us for."
Although start-ups are bringing new business through their doors, accounting practices are also developing services to generate new income streams from their existing client base.
One promising area is wills and probate. Traditionally the province of solicitors, many accountants deal with estate planning and trusts so are well placed to expand into the area. Will writing is not yet regulated – though the Legal Services Board last month launched a consultation on proposals to recommend reserving estate administration and will writing. For the moment, accountants are still able to offer these services. Accounting firms can already apply for probate if they are executors of a will. And ICAEW is applying to become a regulator and licensing authority for all probate services.
Peter Hollis of Hollis & Co and chairman of ICAEW’s Practice Committee, believes accountants are actually better placed than solicitors to handle a lot of this work. "I suspect most clients would rather have their will drafted by an accountant they deal with on a regular basis than by a solicitor they’ve not met before," he says. "Dealing with estates requires empathy and is mainly an accounting function. It also links in well with the inheritance tax advice we offer."
He would like ICAEW to provide help in these areas. "Practising accountants aren’t used to rolling out new services, so it would be useful to get advice on areas like drafting wills, engagement letters, office procedures, controls and risks."
Practices could consider moving into investment advice. O’Donnell says changes being introduced by the Retail Distribution Review ("Opportunity knocks", August 2012) represent a possible opening. "You might think that because of the recession this is not a good time to talk to clients about investment. But it might be precisely the right time, as investments they were advised into 10 or 15 years ago may no longer be right for them," he says.
Clients might also need help with mandatory employee auto-enrolment for pensions, which came into effect last month. These regulations are being introduced in phases to ease the impact on smaller clients. But, as Sykes points out: "All practices should be starting to think how they can integrate this with existing payroll functions and be ready to step in when clients who have been dealing with payroll find this additional regulation just too much for them."
If adding new services isn’t feasible, it may be possible to collaborate with other businesses that have compatible areas of expertise. Kench’s firm has linked with a consultancy specialising in inheritance tax planning – an area his firm had not previously covered. "This is a relatively new venture for us but if it works, as we think it will, the arrangement we have with this consultant could be expanded into different fields," he says.
Ultimately, says Sykes, small practices need to find the time to reflect on their strategy. "Many are so busy running their business that they don’t feel they have time to stop and consider in detail what they want to do with their practice and how they want it to develop," she says. "It’s not easy to find the time to do this but just ploughing ahead assuming that accounts and tax work will keep coming in isn’t wise."
It is about thinking laterally, says O’Donnell. "If you can lead your client to new areas you will be regarded as a valued adviser. Our members are well placed to deliver advice that adds value."
Succession planning is key
While about 250 new ICAEW member firms are established each year, a large proportion of existing member firms are run by accountants who would under normal circumstances be thinking of retiring within the next decade.
Anecdotal evidence of this demographic comes from sole practitioner Dale Prince. When he joined his local practitioner’s society 17 years ago he was the youngest member of the group. "I’m still the youngest accountant there," he says.
ICAEW’s former head of practice services Gill Sykes believes several members are likely to want to retire from sole or small practices in the coming years, either by selling up or merging with another firm. But few practices have been put on sale in recent years, mainly because of the difficulty of getting a good price.
Hollis & Co owner Peter Hollis is less pessimistic about the market for small practices. And he thinks more would be going up for sale if it weren’t for practitioners’ pension concerns. "Practitioners are often working longer because they haven’t enough of a pension to retire on, largely due to the collapse in annuity rates," he says.
Whatever the reasons for holding on to their business, succession planning is an important issue for older practice owners. "We’re seeing a lot of interest in our succession planning workshops right now," says Sykes.