The Future of Small Practices & Service Offerings
There’s mounting evidence that small- and medium-sized practice (SMP) revenues sourced from advisory and consulting services are rising fast—faster than revenues from practice areas centered on compliance services like audit and accounting. Increasingly SMPs, like their larger counterparts, are establishing, or ramping up existing, advisory and consulting services.
Click video for an in depth look at identifing the right advisory service for your clients.
A recent piece of compelling evidence confirming this trend are reflected in the results of the IFAC Global SMP Survey (see full report and summary), which provides a global snapshot of the issues and trends impacting the SMP sector. What can be gleaned from this survey? How important are advisory and consulting services to future practice growth? What types of advisory services do clients most want or need? What might this all mean for the future of SMPs?
What Are the Most Significant Challenges SMPs Face?
According to the survey, the most pressing challenges facing SMPs included attracting new clients (47%), keeping up with new standards and regulations (44%), and differentiating from the competition (43%).
Over the next five years, survey respondents believe environmental factors will most likely impact their practice. These include the regulatory environment, competition, and technology developments. Some experts, such as Daniel Susskind, co-author of The Future of the Professions and interviewed recently by the Gateway team, argue that technology may wipe away many staple compliance services, like accounting and tax preparation. In a recent interview for Gateway, Cathy Foley, Director of Technical Sales at XCM Solutions, noted that workflow automation enables clients to perform many operations without the helping hand of an accountant.
These demand that SMPs build new services—services like advisory. According to Robert Ripp, Founder and President of Fintelligent, technologies like cloud computing and data analytics provide the means by which accountants can offer well-informed real time advice to clients, anywhere, anytime.
In a Gateway video series IFAC SMP Committee Chair, Giancarlo Attolini also discussed the potential of new advisory services and noted that these services might prove to be an effective strategy for attracting new clients and standing out from the competition.
How Well Do SMPs Expect to Perform in 2016?
More than one-third of respondents forecasted that fees would increase in 2016 with advisory and consulting services expected to be the fastest growing revenue source.
In some jurisdictions the growth in this practice area is striking. For example, Accounting Today reports that over the 5 years from 2010-2014, the top 100 accounting firms in the US experienced 91% growth in revenue from advisory services, which is far higher than any other service line. Similarly, the world’s largest practices appear to be growing robustly off the back of strong growth in fee revenue from advisory services. Earlier this year, the International Accounting Bulletin released its World Survey 2016 based on fee income and staff data of accounting networks and associations globally. The survey indicates that advisory services have been the star performer for professional services firms in recent years and that “this is unlikely to change in 2016 and beyond as companies of all sizes continue to expand internationally and have to deal with technologic advances, regulatory scrutiny, geopolitical risks, and economic tensions.”
If SMPs do not emulate the US and larger practices, they risk an erosion of market share as revenues from compliance services continue to shrink and larger practices secure the lion’s share of revenue from services. Fortunately, there are some encouraging signs that SMPs are increasingly turning to advisory services. Last year, the Gateway ran a micro poll as part of the article “Relevant Service Offerings—Future of Practice”, which revealed that 86% of respondents said they already offered advisory services. All other respondents said they plan to in the foreseeable future.
What Types of Advisory and Consulting Services Should You Offer?
There are a number of types of services SMPs might offer. In the survey, we offered a list of the most common and asked respondents to indicate which they offer.
Most respondents (84%) provide some form of consulting service. The most frequently provided business advisory and consulting services are tax planning (52%); corporate advisory, including advice on mergers and acquisitions, valuations, and legal issues (45%); and management accounting, including planning, performance, and risk management (41%). Larger practices are more likely than sole practitioners to provide business advisory and consulting services. This raises various questions: do the smallest SMPs lack vision, failing to recognize the potential in this area? Or, do they suffer from a lack of resources and road map?
The survey offered some interesting intelligence about small- and medium-sized entities (SMEs) that might can SMPs better understand what types of advice might best serve these clients. When asked about the challenges facing their SME clients, the prominent responses were rising costs (58%) and difficulties accessing finance (51%). It’s easy to see how SMPs might offer advice on how to contain costs and access finance, including innovative new types. The survey also found that about three-quarters of respondents’ SME clients are engaged in some kind of international activity. As globalization continues to spread, it will become increasingly important for SMPs to provide advice to their clients on their international activities.
What Should SMPs Do to Offer Advisory and Consulting Services?
Many argue that building advisory and consulting services will demand substantial changes in terms of technology, talent, and management. It demands a different skillset from that of the more traditional compliance services, such as audit and accounts preparation. Instead, it requires an investment in the technology that can provide an SMP with the data to provide clients with timely and in-depth insights and implications. And it calls for practices to open their minds to new, innovative, and inspiring ways to manage. Jennifer Wilson, Co-founder & Partner at ConvergenceCoaching, believes that many practice leaders make the mistake of managing their advisory and consulting services as if they were compliance services. In an article, Wilson argues that the practice areas are inherently not the same. She goes on to summarize the main differences, including business models and staffing, as well as sales and marketing support. To the mix one could add culture. Advice on building a business advisory service is also available from AccountingWEB, which recently issued a three part series.
Overall, the IFAC Global SMP Survey results underscore that SMPs foresee significant growth in advisory and consulting services. But realizing this growth may demand a significant investment in the right technology and talent as well as a different approach to management.
What is the most significant challenge you are facing in offering advisory services?