Transforming Challenges into Opportunities: Competition
The recent IFAC Global SMP Survey identified key challenges many small- and medium-sized practices (SMPs) face. This article is one in a series that breaks down the data from the survey and provides information, ideas, and tips to help SMPs address these challenges as well as best practice examples from IFAC SMP Committee members, together with the range of other tools and resources available.
Differentiating from Competition
Differentiating from competition came in fourth as one of the top global challenges identified by survey respondents, reflecting that competition is increasing. It is also in the top two challenges in Central and South America/ Caribbean and the Middle East regions.
Thousands of accountants provide similar services and there are many other service providers promoting themselves and competing for similar market segments. Existing and potential clients will need to decide which firm they engage. In making this decision, they are more likely to be influenced by differences between practices than by similarities.
Having a point of differentiation helps your practice stand out from other accounting firms, at least in the minds of clients. But this is not necessarily an easy task. After all, firms deliver similar services and operate under a similar code of professional ethics. But the fact that professional accountants in public practice are required to adhere to the highest ethical standards is an important differentiator from other consultants. IFAC member organizations are required to adopt and implement ethical standards no less stringent than those in the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants.
Firms often price their services in a similar way, and may even brand themselves in a comparable way. Many firms also pride themselves on their professionalism, confidentiality, communication style, and personality.
Differentiation can be achieved in a number of ways, such as through:
- how your firm communicates and engages with clients;
- the range of services provided;
- the depth of specialization in a particular area;
- how services are provided;
- price and pricing structure;
- office appearance and feel; and
- the network that your firm can connect clients into.
It can difficult to focus on work quality as it is hard for clients to recognize a difference in quality of work or advice, unless they have had a bad experience in the past. Generally, clients expect their accountants to deliver a quality product, and price is not an area where your practice may want to try to differentiate. Price competition requires a volume market to be profitable, and typically the delivery of professional services is not an area of high-volume transactions.
Differentiation is likely best achieved through the services offered and the way it is done. There is ample scope to identify what is delivered that will be meaningful to the target market. Once done, your firm can build a part of its marketing program and messaging around the point of differentiation.
Business Advisory Services
The Global SMP Survey found that the fastest growing service area is advisory and consulting services with 35% of SMPs reporting fee increases in this area in 2016 and 45% predicting increases in 2017.
83% of SMPs provide some form of consulting services with the three most commonly provided being corporate advisory, management accounting, and human resources policies and procedures and employment regulations.
The findings support the recent IFAC research report, The Role of SMPs in Providing Business Support to SMEs—New Evidence, which found that whilst the majority of SMPs’ revenue is generated by traditional services, including compliance, audit, and taxation, diversification in business advisory services is on the rise.
Differences exist in SMPs offering of business advisory services by geographic region, size, and strategy. In addition, the factors driving small- and medium-sized entities’ (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). 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. The research suggests that SMPs currently, and more so going forward, may play the roles of advisor, confidant, analyst, facilitator, and educator to their clients.
Trusted Business Adviser
Trust is the key to success in building up business advisory services. Your clients’ need to believe that their accountant’s advice—your advice—will have positive consequences. In this context, trust has three dimensions:
- capability: your client’s belief that their accountant has the required expertise, skills, and competences to perform the job effectively;
- honesty or integrity: your client’s belief that their accountant will keep his or her promises and adhere to a set of acceptable principles; and
- benevolence: your client’s belief that their accountant cares about their welfare.
Business advice is significantly enhanced when provided by an accountant with knowledge and insights into a client’s finances and business environment, as a result of providing traditional accounting services previously. New advisory and consulting clients are often driven primarily by existing customer-client relationships.
There are numerous opportunities available to firms wishing to step outside their traditional service areas and expand service offering into business advisory services. This demand is being driven not only by firms wishing to increase profitability but also by clients who need to compete in a globalized business environment. While the concept of providing consulting services presents a challenge to practitioners, many have come to realize that clients value advice on growing their business much more than traditional accounting services. IFAC’s Good Practice Checklist for Small Business can be used by practitioners to help determine what type of assistance a client may need.
Technology also enables SMPs to work in a global economy where borders are no longer relevant. Outsourced or off-shored compliance services can often provide much lower prices, meaning there is increased pressure on some firms to expand their service offering.
Sustainability reporting and advising businesses on how to be more sustainable is a relatively new but fast growing service area for accountants. In 2016, 14% of SMPs provided some form of enhanced corporate reporting service (integrated reporting, sustainability reporting, corporate social responsibility reporting).
Many organizations are keen to know how to do more with less as this may improve the bottom line. Accountants can advise on the benefits of reducing energy costs and pollution, from simple behavioral changes aimed at eliminating waste to investment in new equipment and alternate sources of energy or developing an environmental management system (EMS). EMS allow businesses to identify and control the environmental impact of their activities, products, and services; set and achieve environmental targets; and demonstrate that targets have been achieved. Creating Value for SMEs through Integrated Thinking: the Benefits of Integrated Reporting can help accountants and their clients in this space.
Additional tips to help SMPs build or lay the groundwork for a business advisory practice
- Modify the mission statement, vision, and plan. When expanding or changing the direction of your practice, set a clear vision for the future and a roadmap for how to get there.
- Educate and train staff. Providing high-quality business advisory services demands a different skills base than providing traditional accountancy-based services. Developing business advisory capacity by expanding existing staff’s technical and soft skills is critical. Some accountants can make the transition to business adviser through experience and self-development, while others may need training or coaching.
- Focus on a specific industry sector or specialization. Few practices and practioners will be able to gain and maintain the knowledge and skills necessary to be competent in all areas of business advisory. Therefore, your practice should consider carving out a niche and participating in a referral network that can provide the other services. A common model is to focus on a specific industry sector, such as hospitality, or develop a specialization, such as sustainable business practices, in order to differentiate your practice from the competition.
- Develop relationships with other firms. Referral networks offer many potential advantages, such as helping your practice increase its client base. Participating in a network is an effective way to satisfy the increasing breadth of demands from SME clients and can help demonstrate to new clients that you have the capability of a larger practice. Referral networks can extend beyond accountancy to legal, human resources/capital, and IT, for example.
- Promote your practice to existing and new clients. Promoting and marketing your practice, and the value of your services, is crucial to success. There are a number of reasons why SMEs choose SMPs to provide business advisory services, including their reputation for trust, competency, and responsiveness. Leverage these qualities by promoting them to potential clients, who are often unaware that their professional accountant can provide these services.
- Change your business model. Business advisory services may require a different business model from that of traditional accountancy-based services. For example, business advisory services may be better suited to a business model based on selling intellectual capital rather than time. This lends itself to value pricing.
- Embrace technology. Advances in technology present a significant opportunity for SMPs to operate more efficiently, reduce costs, and offer additional value-added services. Cloud computing, for example, allows SMPs to more actively engage with their SME clients in a “real time” environment and offer services, such as a virtual CFO, cost effectively.
The Global Knowledge Gateway also includes a number of articles, videos, and resources on these topics.
- Accountants: Uniquely Positioned for the Future
- 5 Steps to Being an Anticipatory Accountant
- What Makes a Successful Advisory Accounting Firm?
- SMPs Can Add Value with New Services
- Tomorrow’s Firm—Think Big, Think Advisory
- New Services for Accounting Firms: It’s about Reliance, Not Compliance
- Accounting Firms in Australia Have Reinvented Themselves & Their Services, and Your Firm Can Too
- The Future of Small Practices & Service Offerings
- Relevant Service Offerings—Practice of the Future
- The Evolving Advisory Role of SMPs in Supporting the Internationalization of SMEs
- Perspectives on Strengthening Small-and Medium-Sized Practices (SMPs): Part Three
- Perspectives on Strengthening Small- and Medium-Sized Practices (SMPs): Part Seven