Challenges Facing SMPs
The recent IFAC Global SMP Survey showed that attracting new clients is a top concern for SMP accountants with 58% of respondents rating it as a high or very high challenge. This challenge is particularly significant in the Middle East, where as many as 80% of respondents rated it as a high or very high challenge, and in Central/South America and Europe (66% and 59%, respectively). The IFAC Global SMP Survey is conducted annually, and the 2014 edition received more than 5,000 responses from accountants operating in small- and medium-sized practices (SMPs) around the world.
Pressure to lower fees is also worrying accountants in some of these regions. As many as 68% of accountants in the Middle East, 56% in Asia, and 52% in Africa consider fee pressure a high or very high challenge for their practices. This is happening in the context of increasing amounts of regulation. The survey found that keeping up with regulations and standards was rated as a high or very high challenge by 57% of respondents. Increased regulatory responsibilities and potentially lower revenues driven by fee pressure make a very dangerous combination and may compromise the ability of professional firms to continue operating in the future.
Changing Business Environment
Accountants need to adapt to the changing environment as their work and that of auditors is changing enormously. On one hand, technology is simplifying and converting to commodities some of the tasks that were previously part of the specialized knowledge of accountants. On the other hand, electronic invoicing, cloud access, and the ability to submit tax returns online are making it possible for companies and professionals to meet some compliance requirements without the skills and experience of accountants.
Business complexity and competition are also key environmental factors impacting both SMPs and their clients, typically small- and medium-sized entities (SMEs). Competition is very steep, and so differentiation from competitors is critical; and increasing complexity making the right decisions are getting more and more difficult. Excellence in managing legal and tax matters, information management, risk assessment, human resources, and many other factors are essential to keeping a good position on the market. Being close to their SME clients, accountants’ skills and specialized knowledge, such as professional skepticism, objectivity, ability to quantify business impact, and risk analysis, can play a significant role in helping SMEs find solutions to their complex business issues and make good decisions.
But in this complex world, a multidisciplinary approach is essential. The right solutions to SME problems require teamwork and gathering enthusiastic and highly skilled people—it is essential for SMPs to recruit and retain talented individuals. Accountants should also be open to collaboration with other professionals to be able to handle the more complex needs of their clients. SMPs need to consider mergers, associations, or other means of expanding their capabilities to convince potential clients their practice can meet their needs. Therefore, the essential ingredients for SMPs are the right service portfolio with value-added services, superior capability, and excellent quality. These qualities and capabilities also need to be properly marketed and communicated to be sure that potential clients are reached.
Internationalization is also essential. Globalization means that a lot of fields that just a few years ago were local are now international. In some cases, local markets are limited, but today there are more opportunities for SMEs to change their business model and look internationally.
This is an opportunity but also a challenge for SMPs. According to the IFAC Global SMP Survey, the majority of respondents (57%) reported that only 5% or less of their SME clients have international operations. Except for those practicing in a particular market niche (for instance, insolvency, local charities, or very small local entrepreneurs), internationalization will be important for practices to keep their best clients and attract new ones. If an SMP doesn't solve clients’ problems, it will just be a matter of time before losing those clients. The good news is that 24% of practices are considering joining a network, association, or alliance, which can bring international service capability, and should, therefore, be sought after as a strategy to help attract and retain clients. The survey results also found that SMPs that are currently serving a larger percentage of clients with international operations are more likely to belong to a network, association, or alliance than the global average.
So with all of these changes and challenges, does the profession have a future? Of course. There are many elements in its favor: society is demanding more transparency; financial and non-financial information is considered a social good, not a private matter; companies need someone to provide assurance to increase trust in their financials and the business overall; and regulation and decision-making processes are more complex, so more independent and qualified people will be needed.
But, on the other hand, accountants need to adapt to the great changes that their clients are facing. Accountants need to make the profession attractive for talented, young people and integrate technology into their day-to-day work. They need to be innovative in attending to clients’ demands, and keep an open mind to different cultures and professions. Surely the profession will succeed in overcoming these challenges, as it has throughout time.