05 May 2022
By Stuart Clark, Managing Director at Russell & Russell Business Advisers.
The pitiless logic of business dictates that big is better, that scalability is the ultimate goal and that survival depends on relentless growth. Which may explain why the future of many small accountancy firms is often subject to debate.
The long bull run in accounting firm start-ups, driven over the past decade by cloud accounting and tax digitalisation, started to falter in 2017 and, by 2019, the profession saw a net loss of some 500 firms as inevitable consolidation started to bite.
While consolidation has been commonplace in the sector over the past 30 years – it led to the establishment of the global behemoths of the Big Four – in a more local context, it caused the disappearance of some very well-known names.
The reasons for consolidation taking place are sound. The process creates greater coverage and encourages the development of wider industry expertise. And it generates greater fee income, which in turn enhances a firm’s reputation. It introduces the supposed advantages of scale.
Another reason, a cynic might say, is that it is only the big players who can afford to access the business loans necessary to complete the deals. From my own experience it is highly challenging to obtain funding for our own MBO at Russell & Russell.
However, it has to be said, it is not a universal recipe for success. The battlefield of consolidation is also littered with casualties, including Mid-Tier and Big Four names which have had to beat a retreat from their stated ambitions.
What the imperative towards a less fragmented industry almost certainly will do, however, is increase the gap between the Big Four and the Mid-Tier firms on the one hand, and the army of one-man band enterprises which sprang up from the fallout of 2008 on the other.
And it is into this gap that the more adventurous and forward-thinking of the smaller firms can push to their significant advantage.
Even in an accounting sector in which the number of firms is contracting, the choice for clients does not have to be binary, i.e., between the big boys and the sole traders, the whales and the minnows.
There is a range of firms, such as Russell & Russell, at the bigger end of the small firm market which have a broad range of expertise across a spectrum of different disciplines. They also have impressive client portfolios which speak loudly about the results they achieve.
Firms in our corner of the market are big enough to provide a cohesive and rewarding multi-service offering while still being able to retain the personal relationships which make smaller firms attractive to so many people.
In this milieu, accountants have the space and time to become allies of business owners, understanding enough to help them not only with the basics but also with crucial aspects such as financial goal setting, long-term tax planning and exit strategies.
There is also the opportunity for smaller firms with an eye to the future to make their own acquisitions as an add-on to organic growth, particularly among firms which have not been proactive about the changes which are sweeping the profession.
In every downswing, there is opportunity. In a consolidating market, you just need to spot it.
