How can you make your practice one that people want to buy when you want to move on? Here three industry professionals explain why a multi-service model could be the best platform for a graceful exit.
By Marina Williams
Business sustainability is one factor driving the increasing number of mergers between accounting and financial planning practices. The outcome is a more valuable practice than one entirely dependent on compliance services, according to three industry leaders.
CEO, Connect Financial Services
Paul Tynan says a combination of good advice practices and compliance produces a more professional, holistic firm structure; one that is more appealing to potential investors and buyers. This in turn provides the retiring accountant with more succession and exit opportunities.
“However, success requires that all components of a merged business fit together comfortably,” he adds. “Business owners rely heavily on their accountants as ‘trusted advisers’ to provide good, solid technical advice. But the average suburban practice does not have the same competency, for example, in the provision of succession-planning advice for small to medium enterprises (SMEs).
“Far too many SMEs start their exit and succession journey when retirement is just on the horizon, and this is an area for greater focus and service offering by accountants and planners working together to address this issue.”
Technology will also continue to influence practice operations, Tynan says, as will the outsourcing of non-core related services and streamlined administrative processes.
“Although the future potential will be rich with professional advice and related services for planners, the industry is currently working against new planners seeking to enter the sector, and at the same time hindering mature-age practitioners from exiting the marketplace,” he observes. “The concentration of marketplace control within the hands of the major banks, AMP, IOOF and industry funds is the primary reason for this dilemma.”
Advice and compliance practices merging, or establishing “mutually beneficial commercial alliances” to service SME and consumer needs, is one solution to overcoming market control, he says. But Tynan warns that an alliance or merger will fail if the cultural fit is not right. “Once the all-important cultural fit is established, responding to market and client demands, the application of new technologies and efficient processes should ensure the alliance or merger does well.”
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Jim McDonald FCPA
Principal, Surety Valuations
A mature practice based on advice services is likely to attract a higher valuation than a compliance-based practice, says Jim McDonald, because it will include compliance services as part of its offering.
“Compliance services are more repetitive in nature and therefore derive a lower blended hourly rate than multi-service, advice-based practices. It’s also more likely a client will jump between compliance practices because they can shop on a like-for-like basis, whereas the quality of advice may vary between providers, leading to a much higher level of trust between a client and a multi-disciplined provider than with a compliance-only provider,” he explains.
“The only adverse effect on a valuation outcome might be the level of personal goodwill associated with the partners or key staff members of a mature practice. If a partner changes firm, some clients may follow the partner or even go to another firm. A small advice practice may be difficult to sell, whereas the larger the multi-service practice is, the greater amount of business goodwill might attach.”
McDonald believes the thriving, competitive practice of the future will be a multi-service provider offering accounting, compliance, taxation and financial services. “Changing regulations and increasing compliance complexities, leading to client decisions having a range of possible impact points, support the need for multi-service firms. Compliance-only service providers will suit larger client firms with highly skilled advice-based professionals in-house.”
As compliance-based practices gain efficiencies by using online and cloud software, technology is pushing down pricing for this segment. But it’s not doom and gloom for the industry, McDonald says.
“Changing times and a changing market require accountants to develop a more sophisticated service offering. Working more closely with clients and increasing the level of professional services will ensure the longevity of the professional.” ?
Greg Hayes FCPA
Director, Hayes Knight
While strategic planning specialist Greg Hayes agrees that an advisory practice should be more profitable than one offering compliance services only, he points out that the “mature practice” label can equally apply to a compliance-based firm, as compliance skills are the “bread-and-butter work” of accounting firms.
“The advisory practice should be more profitable as advisory services are charged out at a premium, especially if providing specialist services,” he explains. “The situation can be compared with a GP and a specialist physician – you go where you need the specialist skills to help your business.”
Accountancy is constantly changing in response to client demands, says Hayes, with practitioners needing to broaden their skill sets to match the demographics attending their practice.
“The typical Australian practice starts off compliance-dominated. Most practices derive 80 to 85 per cent of revenue from compliance-based services in response to their customers’ demands, client demographic and business location. Some practices then provide additional services such as advice. While some are advisory-only practices, this is not particularly common. The most common is providing compliance services in addition to advice services.
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