As private equity helps practices ‘bulk up’, what should smaller practices do that want to control their own destiny?
The accounting news is regularly filled with information about exciting practice mergers and acquisitions. These deals are now much more likely to be backed by external financing – typically in the form of private equity.
This second wave of consolidation in the market is a staggering 20 years on from the first wave; the early noughties saw a number of major players form but collapse under the weight of growing too quickly, often paying too much, and struggling to create a governance and ownership model that allowed the firm to develop.
But times have moved on, and a lot of water has gone under the bridge. In a world where more clients require more support, and real-time bookkeeping and tax filing is on the horizon, where do smaller practices fit?
The new-wave consolidators will argue that they are creating mass to enable them to offer lots of specialist services, backed by back-office automation and efficiency to help maintain (or improve) their margins. However, this will inevitably lead to smaller clients being priced out of these firms’ offerings – surplus to requirements.
Bigger practices also have more flexibility, more options, around their resourcing strategy – they can outsource and offshore tasks but still retain a workforce that they can train and develop. Smaller practices are at the sharp end as far as recruitment is concerned.
Australia’s accounting development
AdvanceTrack’s development in Australia has allowed me to understand the structure of their accountancy market. It certainly has fewer generalist practices than the UK. In particular there are lots of small firms offering high-volume processing or niche, focused firms.
It’s increasingly likely that this will develop into a self-service model, where clients’ accounting and tax information is retrieved automatically and then checked, validated, by an accounting professional.
But we also see in the UK that many smaller firms have specialist, niche knowledge in particular sectors – whether, for example, it’s academies, farming or dentistry. Others focus on technical specialisms such as VAT or R&D.
Firms need to make big decisions around their direction of travel, and how they’re going to deliver that offering. Skillsets, technology, operational structure and governance should all form part of that discussion.
The quicker you move the quicker you will be able to differentiate from the competition.
Vipul Sheth is founder and MD of AdvanceTrack Outsourcing
We are working with practices who are automating and outsourcing tasks to free up their people’s time to better support clients. We’d love to speak to you about supporting your practice’s development – you can contact us by clicking here.