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This article was first published in the February/March 2019 UK edition of Accounting and Business magazine.

Many smaller accountancy firms treat the grand topics of new services, digital transformation and talent development as background commentary, and accordingly fail to evaluate what their effect on fees could be. And while the biggest firms routinely take a more rigorous approach – often drawing up a management document or strategic plan to cover their investments in recruitment strategy, digitisation and a focused service – by no means all the big practices do.

Yet in a world where technology and expectation are significantly changing, practices need at the very least to consider organising a strategy day to think about what is over the horizon – and realign the business model accordingly. Developments in telecoms and data storage, along with shifting staff and client expectations, are happening so rapidly that tools and services are being overtaken and replaced over ever shorter timescales. The pace of change is such that products have shorter windows of opportunity for development, launch, sale and profit-creation before they are superseded.

Most small practitioners concentrate on the short term, but significant changes are coming down the line. Almost all clients now have needs and aspirations that will require their advisers to broaden their service offering. Both the direction of travel and the pace of change require sober evaluation and review. It is important to stress-test your practice to ensure that it is fit and flexible enough to take on board the changes to servicing and staff satisfaction that will impact all companies in the period from, say, 2020 to 2025.

Identifying change

With a little analysis it is possible to flag up some of the issues for your practice that are going to change at an accelerated rate, and for which you have to be prepared to remodel your business if it is to stay relevant:

  • Check your staff turnover at, say, three levels – work out the change in the rate of that turnover over the past five years or so.
  • Pick out your productive clients with annual fees above €2,000, and log client gains and client losses year by year over the past five years or so. The significance here is to identify if you are taking on and capturing new fees of significant size to generate advisory business, or are losing larger fees through natural causes – ie sales, competition, retirement – and replacing them with smaller fees that do not generate advisory work.
  • Review the office space your practice occupied in 2013 compared with 2018. For most firms, paperless technologies, hotdesking and home-working have cut the square footage requirement, and brought down the office costs incurred per €1 fee.
  • Do some simple fee-banding comparisons – look carefully at what your top 20 clients represented as a percentage of total fees in 2013 and what they contributed in 2018.

These are just a few examples of the elements of your business that are probably undergoing change. You may already have some under review, but others may not be monitored.

What you are trying to do is identify hidden trends and then see whether they can be extrapolated downwards or upwards over the next four to five years. You want to make sure your practice is prepared and flexible enough to manage those changes, which in the main are going to be external parameters and possibly outside the management experience of your firm.

You may think these are superficial indicators. But whether or not there are extenuating reasons in each case as to how the outcome trends can be explained, you still need to look forward and overlay future considerations on the historic trends you identify:

  • IT and digitisation. The pace of change is going to rise significantly. Early adopters will capture potential improvements in profitability, with digitised services also allowing pricing structure to change. Do not treat this as merely an internal change, as many of the features of digitisation will be external to your organisation and have a client impact. Clients will expect high levels of digitisation and an enhanced customer experience. 
  • Talent development. Practices’ historic pyramid people structure is being broken down. The modern recruiting approach is to shape qualified individuals, who can then take up senior positions in three, four or five years’ time and keep the day-to-day work ticking over. This, though, is not necessarily the most effective route for finding talent to service a firm’s business in, say, five years’ time. By 2025, millennials will be the significant part of the accountancy workforce, perfectly capable of adapting to the latest software, and impatient of legacy systems and structures.
  • Human resources. Millennials will expect a better work-life balance than has been the norm. Flexible working will become the rule. Management will have to delegate responsibility, and structured quality controls will need to be embedded in workflow and monitored remotely.
  • Management. Profit shares currently enjoyed by partners, members and directors are likely to be challenged unless there is investment in the business and a change in client approach. Larger firms can experiment with change by, for example, developing business units focused on a particular kind of service and delivery. Sub-€20m firms will need to make a larger percentage investment, will not necessarily be able to experiment, and will not have the same flexibility. They will, though, still have to make key decisions if they are going to survive into the 2020s with a modern and effective business that offers services valued by the market.

A new profile

A stress test evaluating the sort of aspects listed above may significantly change the profile of the practice. Redressing adverse financial trends may require management resource and investment in new services or marketing. All these elements can be modelled and tested before implementation.

The traditional practice has survived by adapting and evolving, but it is inherently inflexible and conservative. Stress-testing for the next five years may drive change or, depending on the age of the proprietors, may lead to a decision to merge or sell, with the resulting larger firm taking on the change challenge.

Keith Underwood is managing director of Foulger Underwood Associates.