Research Insights—The Role of SMPs in Providing Business Support to SMEs
In our just-published literature review, The Role of SMPs in Providing Business Support to SMEs—New Evidence, and its companion, Key Findings, we updated the 2010 IFAC Information Paper. Our research with Professor Donna Street, the Mahrt Chair in Accounting at University of Dayton, which was facilitated by the University of Dayton in accordance with an agreement to increase IFAC’s research capacity, discusses the results of more than 90 academic research papers on the role of small- and-medium practices (SMPs) in the provision of business support to small- and medium-sized entities (SMEs). It also identifies remaining gaps in the knowledge base concerning the SME-SMP relationship, and recommends avenues for future research.
The literature addressing this area is diverse and has grown considerably since 2010. The results of our review can help inform professional accountancy organizations, practitioners, and policy makers by providing a broader understanding of how SMPs provide business support to SMEs.
SMEs and Demand for Business Support
According to the research, only a subset of SMEs is interested in growing or in seeking maximum return, and many choose to remain small or not to grow. These may attach considerable importance to non-financial objectives and pursue a range of other goals in addition to, or alternatively to, growth. Factors driving SMEs’ demand for business advice from SMPs, among others, include company- (i.e., size, debt, age, growth, and available resources) and environment-related factors (i.e., economic conditions, including regulations, and competition).
Personal characteristics of SME owner-managers also impact the decision of whether to purchase business advice from accountants. Some owner-managers are more open than others to seeking and utilizing external advice. Furthermore, personal factors including the relationship, trust, and perceived value of services moderate the impact of company- and environment-related factors on SMEs’ demand for business advice.
Recent literature indicates that generally the SMEs most likely to purchase business advice are larger, younger, carry higher levels of debt or intend to obtain new funding, and exhibit higher growth rates or intentions to grow.
SMPs and Business Advisory Services
In general, the majority of SMPs’ revenue is generated by traditional services including compliance, audit and taxation. However, recent literature identifies an increase and diversification in the provision of business advisory services (e.g. corporate advisory, management accounting, human resources and business development) and highlights the associated potential for future revenue growth. Recent research furthermore reveals that differences exist in SMPs offering of business advisory services by geographic region, size and strategy. Larger and more proactive SMPs offer more business advisory services.
The literature indicates that networks play a growing role in the expansion of SMP expertise, especially in attracting new clients and providing new services. SMP networks and networks of SMPs with other professionals (e.g., bankers, lawyers, HR, and environmental specialists) facilitate the broadening of expertise and visibility to clients.
Recent literature shows SMPs have differing expansion strategies. Some SMPs are reluctant, while others proactively seek, to expand their service offerings. The desire to expand is influenced by factors including size, level or availability of competencies (e.g., networks and training), clients’ demands, and geographic location. SMPs’ expansion choices are also influenced by level of diversification, appetite for risk, and growth aspirations.
Research indicates that irrespective of jurisdiction, accountants, and especially SMPs, continue to be the preferred advisors to SMEs. The main factors an SME considers when determining whether to purchase SMP services include any prior relationship with the accountant, the image of the accountant, and the SME’s perception of the roles and competencies of accountants. Industry, type of advice, and personality of the SME owner-manager may also impact the selection of an advisor.
Due to the multitude of factors involved, interactions between SMEs and SMPs are complex. In general, the desired interaction embodies a long-term, personal relationship based on trust and communication. However, the literature reveals complexities in that trust is not easy for SMPs to obtain and is linked with other factors, e.g., integrity, competence, and empathy.
Gaps in the Literature & Recommendations for Future Research
Our review reveals several gaps in the literature, so caution should be exercised in generalizing the findings of the studies reviewed. Research continues to focus on a few countries and on a specific point in time; therefore, results cannot be generalized to all countries. Comparative studies are needed to observe similarities and differences on regional and international levels. Moreover, changes may occur over time. Therefore, longitudinal studies are needed to understand the magnitude of change over time. Generalizability is also impeded by sample size and the data collection methods used.