86% of the Australian Accounting Industry are Small and Micro Businesses

86% of the Australian Accounting Industry are Small and Micro Businesses

The Australian Accounting Industry Commercial Risk Snapshot – April 2018 also shows that overall risk in the accounting industry had reduced with 80.6% of firms in the low to minimal risk categories, an improvement of 1.7% since their previous report issued in August 2017.

“It’s incredibly important for industry bodies, the ATO and the many business and accounting solution providers to understand the number and distribution of firms to ensure that their approaches and solutions are designed to support the smaller firm. This will have a significant multiplier effect across a broad base of SMEs in Australia.” said Adrian Jenkinson, Managing Director of SmartFee “These are the firms that provide compliance and business advice to the majority of the SME population yet they are SMEs themselves with the same cash flow, employee and competitive pressures as their clients.”

 

Peter Vessenes, CEO of ProfitSee, a global provider of advisory solutions for accounting firms added “Smaller firms will have the greatest difficulty evolving to a higher percentage of revenue coming from value-added services, as their capitalisation options are much more challenged than larger organizations. Much of the risk issues are a result of downward pressure on fees. The combination of technology and increased competition has an adverse effect on revenue.

Business owners expect accountants to know which value-added technologies are the right ones for their companies.  This requires a lot of research in a rapidly changing field, with little, if any, consideration to the accountant. More work, less pay. Once the larger firms figure out that value-added services are not just a dashboard, but actually advice driven, the pressure on the smaller firms will intensify.  I believe this will take place globally over the next three to five years.”

The research highlights the challenges for succession planning for many firms. Tony Sivaa from Grow Advisors commented that “Succession planning continues to be a massive hurdle for firms in this space. When the cost of entry is lower than ever for someone to start their own practice, future partners are challenging the value of the goodwill. Firms with a stable client base and revenues between $4M to $10M are generally finding fewer challenges with retaining senior staff than smaller firms. We see Partners, Directors, and Senior Managers leaving their firms because they are either disenfranchised with the direction (e.g. not investing in growth) or because they deem the valuation too high for what is on offer. The data in this Commercial Risk Snapshot alludes to this as well.”

“Overall the accounting industry shows low commercial risk and appears stable with a strengthening in the low to minimal risk categories as firms start to see the impact of diversification of services.” Said Mr Jenkinson.

“Our analysis does highlight a potential blind spot. With 42% of firms in Risk Band 6 there’s a large number of firms that have the potential to be impacted the most by the disruption. The biggest risk right now is the optimism bias that exists. With strong revenue and stable performance many firms believe they are insulated from the full impact of automation, artificial intelligence and changes in client expectations. Disruption risk is real and the good news is our analysis shows that many firms are prepared and they are seeing the benefits of early adoption of cloud technologies and diversification of their service offerings.”

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