SME clients on the decline: Does it matter?

Profiles of most accounting practices with fees of up to £3m would include a wide range of clients, explains Keith Underwood of Foulger Underwood.

These typically would fall into personal tax clients, sole traders, partnerships, limited companies and audits. Fees generated from the larger sized clients are usually critical in ascertaining the level of advisory and one-off work which the practice is able to secure from its client base and from which it will deliver a satisfactory service with in-house skill sets. 

The number of SMEs is declining, there is a natural flow of retirements in various industries and the search for critical mass, in many sectors, has driven consolidation. The typical small accounting practice which once relied on its SME business for advisory services and which contributed to a significant part of its profit may not exist in the same format and in the same numbers compared to the early 2000s up to 2007. There will in the future be fewer SMEs, look at your own listings of clients in 2006-7 and compare it to 2013.

The cost of entry into almost any industry is now significantly higher than it was back in 2005 to 2007. New entrants will...

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Comments

Surely there's more SMEs, not less?    8 thanks

Ken Howard | | Permalink

Given the huge increases in number of company formations and self employed, I don't think there's a fall in the number of SMEs - it's a reduction in their average size that's the issue.  

20 years ago, in the practices I worked for (which were 2-5 partner town centre firms), most clients would have say 5-25 staff, turnover of £500k to £5m,  and yes, the practices did quite a lot of work, including quarterly/monthly accounts, forecasts, business advice, etc.  What was notable was that they regarded the true "one man company" as a pain the posterior.  In those days, there were higher barriers to entry, i.e. even the smallest businesses needed at least admin staff, if you wanted to sell something, you needed a shop, etc.

These days, barriers to entry are far lower and so we have lots more smaller businesses.  They can use virtual assistants for admin, accounts, marketing, etc., drop shipping or Ebay instead of a shop, etc.  

In tandem with this, accountants are likewise more likely to be "one man" firms these days too.  We don't need a typist for the accounts or letters to the tax office anymore.  We don't need a library of Tolleys, we don't need staff - all due to cheap software we could only dream of a decade ago.

The problem I keep seeing and hearing is that many of the traditional town centre accountancy practices just havn't evolved and still do too much the old fashioned way.  That's why they're struggling.  Too many of these firms still think Sage is the answer to all clients' book-keeping needs, they poo-poo the cloud, they still charge time based for every phone call, every time someone touches the file, etc.  As a result of this, they aren't attractive to the new breed of "one man band" business which has embraced the cloud and other modern practices.

So, it's the practices themselves that aren't adapting quick enough to be attractive to the new business model.  It's not that there are fewer SME businesses.  Practices need to change their ways to be streamlined and efficient so that they can compete with the one man band accountants and online accountants - for whom there seems no shortage of new clients.

 

dbowleracca's picture

I agree with Ken    1 thanks

dbowleracca | | Permalink

I'm struggling to understand where the data has come from that says there are fewer SMEs?

I think there are probably more, for the reasons Ken states. It's so easy to set up a business these days with little capital and little risk thanks to drop shipping, the Internet generally and the large number of redundancies etc that have happened has created a massive surge in the number of one man companies.

The work required for these businesses is less though, thanks to all the software out there and reduced regulation, so you do need a lot more of them to have a decent sized practice.

That said, there are still lots of good businesses out there that need regular information, advice, etc and they're willing to pay well for it if they can see value.

.    3 thanks

ireallyshouldkn... | | Permalink

What Ken said.  Cost of entry higher? No. Lower. Less work? I would say more with all the micro businesses. 

What has changed is the TYPE of clients. Agree with that. And if you cant keep up, retire. 

Tom 7000's picture

£1m turnover and 5 SMEs

Tom 7000 | | Permalink

Perhaps 5 M's...but you would expect 700+ S's