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Up to 20 per cent of accounting firms in a study conducted by a specialist national firm face an average to severe risk of financial failure.
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Thousands of accounting firms labelled at risk
24 April 2017
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The industry snapshot by SmartFee, in conjunction with SV Partners’ Commercial Risk Outlook Report, revealed that up to 2,000 firms were classified as ‘medium risk’ with a further 98 firms falling under the ‘high risk’ band.
Over 10,000 practices were analysed according to a number of factors, including commercial bureau information, trade payment behaviour and level of defaults.
Adrian Jenkinson, managing director of SmartFee, said that the industry was facing a multitude of challenges that were pushing many firms to a tipping point but could be reversed if accountants adopted fundamental best business practices.
“The core challenge for many accountants is the fact that a lot of the services they provide are being commoditised, and there’s a high demand from small business owners to get the best solutions for the cheapest price,” said Mr Jenkinson.
“Overall business practices need to be managed well in terms of managing cash flow, managing resources, managing client and managing outputs.
“Unfortunately, sometimes, accountants are great at looking after their existing clients [but] they are so busy that they often don’t have the opportunity to really focus on managing their own business properly.”
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Mr Jenkinson also highlighted the growing shift in the industry towards business advisory services but warned against jumping on the bandwagon.
“The direction that an accounting firm takes in the future will in part be prescribed by what type of clients they are looking to do business with and what the service and life cycle of that client looks like in the future,” he said.
“But I don’t think it is prescriptive to say, ‘We used to do compliance and now we do business advisory’, because if everyone is moving to business advisory, then you are basically regenerating the same cycle of potential commoditisation in the future.”
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