This article was first published in the October 2015 UK edition of Accounting and Business magazine.

The launch of KPMG Enterprise last October raised eyebrows, given its SME market remit – a radical departure for a Big Four firm previously focused on the stock market giants.

KPMG Enterprise targets the small business arena with the expected range of services, including bookkeeping, payroll, year-end accounts and tax returns. As well as these mainly cloud-based services, it is offering one-to-one specialist guidance via a dedicated accountant.

‘We think of the small business accounting element of Enterprise as being an entrepreneur’s bookkeeper, accountant and financial director, from as little as £150 per month,’ says Iain Moffatt, head of KPMG Enterprise. But while he acknowledges that the cloud-based technology is attractive to SME clients, he says the real selling point is the firm’s ‘deep experience at affordable rates’.

Even though margins on SMEs are a fraction of those on larger clients, the firm sees working with fast-growing businesses at their nascent stage as an investment, with an eye to a more lucrative relationship in the longer term.

Reaction to regulation

The introduction of mandatory rotation for audit firms and restriction of services is shaking up the market – particularly among the Big Four – and may be the impetus behind the Enterprise initiative. Although Moffatt says that the new regulation ‘hasn’t been a factor’ in the creation of Enterprise, the business creates another revenue stream for KPMG in a market where regulatory changes are affecting the service offering.

The key challenge is whether KPMG can successfully compete with many small and medium-sized practices (SMPs) that have built up strong, often personal, relationships with their small business customers. A deep understanding of the local market is also important. ‘Many business owners we speak to are very loyal to their advisers because of the financial intimacy their position brings,’ says Patrick McLoughlin, director of accountancy marketing specialist, Accounting for Growth. ‘In terms of KPMG’s market penetration over the last 12 months, only a handful of businesses have mentioned they were considering taking up the Enterprise offer.’

The move might look more threatening to SMPs if the rest of the Big Four were to go the same way. So far, Deloitte has ventured into the SME market with its UK Futures scheme, which aims to work with the 1,000 fastest-growing SMEs in the UK.

PwC has been working with start-ups and SMEs for some time, including through its cloud-based outsourced service MyFinancePartner, which it describes as ‘affordable accounting services for businesses of all sizes’.

And EY says it is working with SMEs, including through its Entrepreneur of the Year Awards, which recognise entrepreneurship in over 50 countries, and EY Start-Up Challenge for tech start-ups.

Time will tell

Some SMPs see no immediate threat from KPMG Enterprise and believe the firm may soon regret its move. ‘I’m certain they’ve made a big mistake,’ says Shaz Nawaz, managing partner of Peterborough-based AA Accountants. ‘It’s difficult to work on smaller margins when you’re used to working on bigger margins. It’s unknown territory for them and they’re taking a big risk.’

Others are more wary. ‘Eventually it is bound to affect the smaller accountants when clients are attracted to the Big Four,’ says Peter Mellor, partner at Doncaster-based Glover & Co. SMPs would need to adapt quickly if the SME market gets any more crowded. ‘Small firms with high-street locations and experience in the SME market may well sell out or merge with the larger firms, and be the actual service provider working under the larger firm’s brand,’ he adds.

There is also something that KPMG and other Big Four firms can offer SMEs that SMPs simply cannot: the reputational advantages of having one of the world’s largest firms as their accountant. The value that individual businesses will place on this benefit will vary greatly, but some will be willing to pay a premium for this positive association. So far there is no evidence of any great market shake-down, but it’s still early days.