This article was first published in April 2011 in Accountancy Futures
To evolve with the changing nature of owner-managed businesses and the regulatory environment, accountants will have to market their services more effectively to prospective clients instead of passively relying on referrals, new research from ACCA has found.
The research also underlines how for some accountants the idea of becoming a salesperson is anathema, with some arguing that a greater marketing effort would erode their credibility, integrity and ethics. One accountant interviewed during the course of the research said: ‘I’m not a particularly gregarious character who goes out and woos my clients with charisma. More work comes my way due to my work ethic.’
Another said: ‘I don’t knock on doors! It does not have the same credibility as a referral. It’s not a hard sell of the services, but a hard sell of you as someone with ability, credibility, integrity and ethics.’
The clear reluctance of accountants in small practices to become more proactive in marketing their services raises the question of whether or not the accountancy profession should, and could, increase its level of service marketing, the research found. More marketing may be counter-productive, requiring the accountant to play a role ‘out of type’ – a change of character that may breach the very foundations of trust and empathy that small businesses require from their accountant as a trusted adviser.
The report, Business Advice to SMEs: Professional Competence, Trust and Ethics, by Kingston University’s Robert Blackburn and Monash University’s Peter Carey and George Tanewski, presents the results of ACCA’s study of small and medium-sized enterprises (SMEs) and their behaviours in seeking business advice.
Although accountants are traditionally viewed as trusted business advisers by small business owners, the main reasons why SMEs seek advice from accountants are for compliance and tax reporting purposes. Based on this assumption, the ACCA research wanted to present a detailed understanding of the nature of the services that accountants provide their SME clients in Australia and the UK.
Specifically, this sought to examine the role of professional competence, trust and ethics, to uncover the factors influencing SMEs’ purchase of business advice and to look at the implications of the results for the accountancy profession.
Business practices don’t stand still. Over the past few decades, accountants have developed their firms into multidisciplinary practices offering a more diverse range of skills and services to reflect the modern needs of their clients. These go beyond the traditional compliance and tax work typically associated with accountants.
Also, regulation has changed. The requirement for a statutory audit has declined as exemptions have risen, for example. Whereas the ability of large accountancy firms to provide non-audit services to audit clients has been restricted, no legislative restriction has been placed on accountants providing statutory and non‑statutory advice to their SME clients.
Despite these developments, SMEs do not always seek helpful external business advisers, even though there is clear potential for accountants to expand the management accounting services they provide to smaller companies.
Moreover, the kind of work accountants provide to their SME clients – typically compliance and tax – is seen by owner-managers as adding no value to their business. It is simply something that SMEs have to do in order to comply with regulations. Indeed, accountants themselves consider this a burden of sorts to their clients.
To be able to offer value added services, such as advice on succession planning or international trade, could help change the view that SME owners have of their accountants.
One possibility is for accountancy firms dealing in the SME market to restructure and align their services more closely with the needs of their clients. However, respondents pointed to the fact that most small accountancy practices have a diverse range of clients operating in very different industry sectors, making it difficult for accountants to be specialists in all those different sectors.
‘To understand [a client’s] industry is really hard when you have 40 to 50 clients, basically across every industry, and it’s hard to be an expert in them all; probably of all the things clients say they want it’s the hardest [demand to meet],’ responded one accountant.
Other options recommended that could accommodate the evolving needs of SMEs would be for accountants to employ a business development manager or develop strategic alliances with other professional services firms with specialist expertise. What was clear from the responses and analysis is that further research is needed on these complex issues of marketing to SMEs.
Yet there remains a solid platform on which to develop the relationship between accountants and owner-managed businesses. The notion of trust provides a firm basis that accountants can build upon.
The study found that trust was crucial to the relationship between the two parties. But, perhaps contrary to belief, the research found no link between the length of an SME’s relationship with its accountant and the level of trust, which suggests that such factors as service quality and delivery are more important than longevity for the establishment of trust.
One reason why accountants are not seen as a normal source of management advice to small businesses was that they lack the requisite knowledge and business expertise. This finding again feeds into the issue of the unwillingness of many accountants to market themselves and their services effectively.
The research findings show that SMEs seek business advice from a variety of sources. Instead of extending their relationship with their accountant, owner-managers prefer to use other sources.
For example, one SME respondent used an external accountant for compliance advice, a financial planner for wealth management advice, and an independent business adviser for business advisory services.
This analysis highlights an ‘expectation gap’ between what the SME owner believes accountants can offer and the services today’s accountants actually provide.
‘The market for business advice is highly competitive and while external accountants are well placed to gain this work, they need to convince clients that they have the necessary business expertise to deal competently with the owner-manager’s issues,’ the report states.
Importantly, the study discovered that during so-called crisis points, SMEs did tend to seek external business help. If ever there was a time when SMEs were facing turbulence on many levels it is now.
The economic upheaval shows no signs of abating in the immediate future, while regulators and legislators around the world are hard at work scrutinising financial frameworks to uncover the failings that led to the global financial crisis.
This has led to a variety of regulatory and legislative changes – with more to come. Research has shown that such an environment gives rise to a demand for business services, particularly for businesses starting up.
One accountant who was interviewed for the study said: ‘Problematic economic times can drive demand, or one-off events such as divorce, a more competitive industry or a highly geared business.’
The report comments: ‘Such events could be termed “milestone” events and may prompt the SME owner to seek out the services of the external accountant, having already built a continuing relationship of trust.
Most small firms do not have sufficient in-house resources, certainly to deal with “one-off” events such as a rapid growth spurt or, on the other hand, business exit, and this means that they tend to look to their external accountant to fill the gap in their experience and knowledge base. In such situations, accountants could be regarded as an external resource.’
Currently, opportunities for accountancy firms to expand their services are ripe. Whether practices can take advantage of that moment, in helping their clients grow, exit their businesses or simply survive these tough economic times depend on their willingness to adapt. And that is something that lies in their hands.
Michelle Perry, journalist
FACTORS INFLUENCING THE PURCHASE OF BUSINESS ADVICE
Size: The larger the business, the more likely it is to take advice from its external accountant. This finding counters the assumption that SMEs have a greater need for advice because they may lack such important skills as knowledge of financial controls.
Age: The age of an owner‑managed business influences its demand for advice. Previous research shows the relationship with external advisers is more important during the earlier stages of the business, as the owner navigates unfamiliar regulatory and operational challenges.
Finances: SMEs facing heightened risk are more likely to seek external advice to help minimise the risk, particularly when a ‘crisis point’ is reached. Lenders may exert pressure on SMEs to seek advice from their accountants before providing additional funding.