Slide 2IBIS have recently released a report on the Australian accounting industry. Let me give you a few key statistics.As per slideWhile many accounting services are essential for clients and therefore somewhat recession proof, the industry has been hit by declining demand for additional advisory services.Clients are also cutting costs, with services seen as discretionary getting the chop.This is demonstrated by the constrained growth in 2006 – 2011 with the GFC but is forecast by IBIS to improve going forward.
Slide 3Luckily we operate in a relatively simple industry with only a few key drivers.The slide provides a simplified representation of these key drivers and classifies them between external, over which individual SMP’s have little control and internal, where we do have control in the way we manage our practices.The industry revenue, and indeed that of our own practices is a function of the number of clients times their spend on accounting services times the amount of that spend we capture.Whilst the total size of the market is driven by the number of clients and real GDP growth , there is a continual shift of market share between practices.The average spend shown is rather simplistic and has been derived by dividing the total revenue by the estimate d number of SME’s. In reality the spend is across far more than just the number of SME’s as we provide individual tax advice to salary and wage earners, retirees and a range of services to public interest entities. Whilst we do not control legislation, we do have control over pricing, our service offering and the amount of cross selling we do.Individually we may not be achieving 100% of client spend as often more than one accountant provides services to a particular business. There is an opportunity for us to increase our share of spend compared to our competitors and we can benefit from the trend in clients outsourcing non core services. Who better to take over the back office function of small business than their accountant? Cloud computing promise to be a game changer facilitating this trend going forward.
Slide 4Business tax and advisory services amount for over 60% of the market place illustrating the importance of these areas of practice for the mid teir and larger SMP’s.Audit at 27% is in all likelihood overstated from an SMP /SME perspective as the proportion of revenue would be heavily weighted to Public Interest Entities. It is reflective of the high audit exemption thresholds in Australia that excuse most SME’s from the audit requirement.The low proportion of bookkeeping illustrates how technology has taken over the role of accountants in this area of practice.
Slide 5Over half the market is with businesses, providing opportunities to introduce far more services than households . The business sector is far less price sensitive due to the tax deductibility of most accounting advice in this sector.
Slide 6The slide illustrates the extremely long tail in the distribution of accounting practices by size. Most of the legislators and member body attention is focused on the top 100 which represents 49% of the market in revenue but just over 1% of practice numbers.It illustrates the difficulties that member bodies have in servicing the SMP segment of membership, particularly as like SME’s, SMP’s are not homogeneous as a group. The needs of a sole practitioner can be very different from a 3 partner firm which again can be very different from a 10 partner firm. A country practitioner can have very different needs to a city practice which in turn may be different from a suburban practice.The standout statistic is the number of sole practitioners at 60%. This in itself raises questions on the ability of a sole practitioner to have the expertise to handle the very broad skill set required to service clients today. The wise sole practitioner will service a specialist niche but the reality in starting out is that you can not always afford to be to picky with your clients while you build critical mass. We must also be wary of creating barriers to qualified accountants wishing to start their own practice.
Slide 7I would like to highlight the disparity between the number of listed companies, the majority of Public Interest Entities, versus the number of SME’s. I continue to be disappointed at the amount of energy spent on Public Interest Entities at the cost of SME’s, not to mention the burden placed on SME’s in trying to regulate PIE’s.
I have tried to summarize the challengers and opportunities for SMP’s in these next two slides.What became clear to me is that the opportunities well outweigh the challenges. I have tried to separate between external and internal to highlight those that SMP’s have more control over.On reflecting on my own experience I believe that the reasons SMP’s often fail to take advantage of these opportunities are many and include:Lack of business skillsUnwillingness to retrainLack of confidence and fear of failure in providing new servicesLack of time (working in the business rather than on the business)Inability to delegate or trust other staff, either from fear of losing a client or destroying an existing relationshipFailure to adopt a value pricing model and in some case moving to a fixed fee rather than a time cost model. Failure to invest in developing new products & servicesCommunicating their ability to provide additional services to clientsNone of these are really a good reason not to accept the challengers. There is an old saying that “if you keep doing the same think you will get the same result”The reality in accounting is that if you don’t adapt to change you will not survive.
Stuart Black - Helping SMPs Meet the Challenges & Seize the Opportunities of Tomorrow
IFAC SMP ForumMarch 19, 2012SingaporeSession 3 – “Helping SMP’s Meet TheChallenges And Seize The Opportunity OfTomorrow”Presenter: Stuart Black – Member of the IFACSMP Committee Page 1 | Confidential and Proprietary Information
Key Statistics Snapshot of the AustralianAccounting Industry In 2011 • Revenue $14.3 billion • Profit $2.8 billion • Practices 9,659 • Employment 101,571 • Annual Growth 2006 – 2011 (1.8%) • Projected Annual Growth 2011 – 2016 (5.7%)Source: IBIS World Industry Report Page 2 | Confidential and Proprietary Information
Key External Drivers No. SME’s Average spend on Revenue Accountants share Accounting circa 2M X services AU$715 (1) X of market 100% = $14.3B External External External • Real GDP Growth • Legislation • Competition • Globalisation • Outsourcing Internal • Pricing • Cross selling • Service offering1. Estimated by dividing revenue by number of SME’s Page 3 | Confidential and Proprietary Information
Product SegmentationSource: IBIS World Industry Report Page 4 | Confidential and Proprietary Information
Market SegmentationSource: IBIS World Industry Report Page 5 | Confidential and Proprietary Information
Practice Profile Market Share ($14.3bn) Top 100 Big 4 - 30% Mid Tier – 19.1% SMP’s 50.8% Pricewaterhouse Coopers10.2%Ernst & Young 6.7% 96 Practices 9,559 Practices KPMG 7.2% circa 60% SMP’s are sole practitioners (2) Deloitte Touche Tohmatsu 6.0% All statistics from (1) IBIS World Industry Report, other than (2) CPAA statistic Page 6 | Confidential and Proprietary Information
Australian Business Profile • ASX Listed Public Company 2,221 (1) • SME’s circa 2 million (2) • Government & Not for Profit unknown Notes: (1) The last ASIC Report noted there are 5,114 registered company auditors. It is suggested that many of these auditors are inactive. (2) The vast majority of SME’s are not subject to a legal audit requirement.1. ASX2. Article in The Australian, February 2, 2012 Page 7 | Confidential and Proprietary Information
Practice Challenges External Poor business growth outlook in medium term. Internal Time to work on business rather than in business. Commoditisation of many Extracting value from IP accounting services (i.e. (value pricing). bookkeeping, accounts preparation, audit). Culture / quality of staff (accountants not business Competition from other advisers). external providers (i.e. legal, investment advisers & management Lack of investment in consultants). training. Competition from other Breath of knowledge accountants / required in general bookkeepers. practice. Legislation. Page 8 | Confidential and Proprietary Information
Practice OpportunitiesLeverage trusted advisor status with clientHarness benefits of technology • Cloud computing • Improved workflow management • Business advisory • Document creation & management • Knowledgebase Strategic business planning • Client communication Cost cutting & restructuring Process improvementNew services Virtual CFO • Outsourcing (bookkeeping, accounting, audit, back office) Inventory costing & pricing • Wealth management & advisory Systems & process • Governance M&A • Business mentoring Funding • Forensic accounting & business valuation Due diligence • Environmental audit • Carbon emissions • Marketing • Human resources Page 9 | Confidential and Proprietary Information
Member Body SupportCPA AustraliaPublications & Multimedia Technical GuidesPublic Practice Communiqué Financial Planning & SuperannuationPractice Management Guide (IFAC Guide) TaxationDeveloping Referrals (video & audio file) Audit & AssuranceGrowing client services (video & audio file) Environmental, Social &GovernanceFirm of the Future ReportIn-Practice digital magazine for public practicesEmployment manual Practice Management Knowledge PortalSuccession planning pathway guideInterviews show rooming, public practice in Australia A library of forms and precedents useful for SMP’s.Public practice brandingRecruitment and advertising guidesForums of public practice business structuresRisk management guide for SME’sQuality Control ManualDisaster recovery tool kit for business Page 10 | Confidential and Proprietary Information
Member Body SupportInstitute of CharteredAccountants in Australia Resources & Tools Audit & Assurance Everyday ToolsPublications Australian Auditing Manual & Tool Kit (IFAC) CA Everyday Tools Audit Committee Guides Dispute Resolution Toolkit Business Briefing Series Mandatory Requirements of Clarity Auditing Standards Checklist Business Guidance Notes Superannuation Everyday Tools Concise Guide to Manage Business Valuation Risk Tax Everyday Tools Family Business Succession Guide Podcasts Financial Reporting for SME’s Guide on Incapacity or Death of a Sole Practioner Independence Guide e-bulletins Differential Auditing Professional Indemnity Comparison Guide Accounting & Assurance (weekly) Quality Control Guide (IFAC) Tax Specimen Account Superannuation (fortnightly) SMSF Audit guide & SMSF Administration Guide Practice Thought Leadership Papers Enhancing Not-For-Profit Annual & Financial Reporting Member Support CA Advisory Group (confidential counselling) Beyond Blue Partnership (supporting members mental health) Free Legal Service Job Search Mint (profound development) Page 11 | Confidential and Proprietary Information