Accountants are known for poring over the books of their clients’ businesses, but what happens when the tables turn? This is one question NatWest tries to answer each year when it commissions a report looking at the financial health of accountancy firms with revenues below £35m. Now in its third year, the Accountancy Benchmarking Report 2019, authored by Robert Mowbray, owner of Taylor Mowbray, reveals some reassuring trends in a sector affected by the uncertainty of Brexit and changing market dynamics.
For NatWest head of professional services, David Weaver, the survey reflects a strengthening sector, in spite of the economic chill. “In a year when Brexit has continued to dominate our thoughts,” he says, “it is pleasing to see that, despite a number of headwinds, the accountancy sector continues to perform well and demonstrate growth both in terms of fee income and more importantly profitability.”
The report examines such practice fundamentals as fee income, profits and drivers of profit, lock-up and working capital, as well as finance more generally. One headline finding is that median fee per equity partner stands at £649,000 in 2018 – almost £100,000 higher than in the 2017 survey. But beyond this particular top-line performance, there are questions about what has happened to another: fees per fee earner. This figure has dipped from an average of £108,000 in 2017 to £80,000 in 2018, raising concerns about productivity as well as profits.
Over the same period the median profit per equity partner has increased from £141,000 to £150,000 – a 6% increase. In a time of uncertainty, such performance well above inflation does tend to support the view that accountants prosper during times of economic ill-health. Perhaps it’s no surprise that the sector compares favourably to legal firms, where profit per equity partner is £22,000 lower than among accountants. This can be partly explained by accountants pushing more work to junior staff at lower rates – a practice which is less prevalent among legal firms, where there is less depth to the typical team structure.
But this report is about more than making accountants feel good about the sector’s strengths, as Weaver explains: “When I meet legal and accountancy firms across the UK I am often asked ‘How does our firm’s performance compare to others you meet?’ In order to answer this question we are able to draw upon data and survey responses of a significant number of our customers who operate in the accountancy sector.”
And for firms that suspect their size and geographic location has a heavy influence on their performance, the details of the report offer some comfort. “Our findings provide highly valued insight comparing the financial performance of local and national peers,” adds Weaver. “We believe firms can employ this report to target areas of improvement to enhance profitability and working capital management.”
One of these areas, suggests the report’s author Robert Mowbray, is the extent to which better software and cloud services can be used to reduce costs. To this end, he says, “Firms need to focus on productivity and invest in their staff and technology, so that the best people are not enticed away and so that they can deliver sustainably profitable services.”
Another, connected issue, is attracting talent in the first place. Mowbray explains: “It is not getting any easier, as there are now other sectors developing with high rates of pay that provide interesting work to talented people.” But with accountants wary of how promotion to partner may impact on work/life balance, even succession is trickier than it has been in the past. But help is at hand, as Weaver is eager to point out. “NatWest remains committed to supporting accountancy firms in developing a successful and sustainable business,” he says. “Our specialist relationship directors understand the professional services sector and benefit from accredited training and regular sector updates. So please do get in touch.”
To download the full version of the report, click here.