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Do sole practitioners hold the key to the future?

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25th Jan 2013
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The recent failure of high street dinosaours HMV, Jessops and Blockbuster contains an important lesson for small and mid-size firms of accountants, writes Mark Lee. 

Those three retailers had evidently failed to respond to changes in their customers’ shopping habits. The internet had a major impact as did management’s apparent failure to adapt and evolve their business operations.

Many clients and prospective clients of accountancy firms are changing their shopping habits too. but to what extent do you need to adapt and change?

I am not just talking about the rise of the internet per se. What I am really interested in are other changes that follow from this major game-changer.

The rise of cloud computing is one such development, which I will leave for others to argue how much impact this is having and whether this will grow.

The area in which I want to focus on is the change that is driving prospective clients to seek out a specialist, someone who focuses on a niche area of work, clients and expertise. 

This development is one that follows from the growing use of online search engines. Few of us now seek generic solutions when we search online. Long tail search terms are as important now as generic ones.

For example, a dentist in Harrow seeking a new accountant might well search for 'good accountant in harrow for dentists’. They might also ask friends for details of a good accountant, but they are even more likely to ask other dentists for their recommendations. A generic solution is of less interest.

When I established the Tax Advice Network a few years back, we were probably ahead of the field in this regard. Our website enables you to choose an expert by reference to over 50 different tax specialisms.

But last week someone got in touch having noted that none of our tax experts seemed to have the expertise she required. The lady concerned said that she is: "A UK-based Forex online trader...looking for a specialist tax accountant in that field". 

She didn’t want to talk to someone with expertise in business tax, income tax or any of the other available options. This example reinforced to me the increased demand for niche specialisms.

There are many sole practitioners who are keen to grow their accountancy practice and equally there are many who have no desire to grow. Perhaps they simply want higher quality fees, to work fewer hours and to get more enjoyment from the work they do without stretching themselves any further.

In previous articles I have suggested that one huge step towards making such ambitions a reality is to focus on a specific niche.

Where you are the only decision maker in the firm you can make this a reality. However, where you have one or more partners some will inevitably be unhappy to compromise.

The consequence of this is that larger firms often struggle to focus on a particular niche. Even when they decide to do this it takes some years to migrate from being just another medium sized firm of accountants. Many clients will describe a firm with a even just a few partners as a large firm, but that’s more to do with perception than reality.

I have long believed that failing to effectively distinguish themselves will be the downfall of many mid-sized firms.

In time. They struggle to win competitive pitches, to attract new clients, to secure new partners with a following and to retain qualified staff. They are constantly fighting to become more efficient so as to reduce costs and maintain, let alone, improve profit per partner. The recession has reinforced all of these challenges.

The only mid-tier firms that will survive and thrive in the long–term are those with clearly defined niches. By this, I mean those that are known for having an area of expertise that makes them really stand out from the pack.

They recruit staff and partners specifically to bolster this expertise and they don’t waste time and money trying to be all things to all people. These firms will only survive as regards those specialist areas.

The more generic areas of their practices will shrink as partners retire or leave to go to smaller firms with lower overheads and potentially higher profits per partner. The smaller firms will often be less pressurised environments too – especially if they stick to clearly defined, promoted and valued niches.

Those mid-tier firms with no such recognised niche expertise already face increased pressure from the egg-timer squeeze of both the largest firms and of the smaller more focused and cost-effective firms.

The larger ones are perceived as having more credibility for the provision of a wider range of services when these are needed and valued. The smaller ones are able to provide compliance, advisory and special services more cost effectively.

There are relatively few small business clients that need the services of a mid-size or large firm of accountants.However, the real growth in the economy is likely to come from more small businesses.

Despite all of the money spent on brand awareness by the mid-size firms, most of their clients are loyal only to the partners who look after their affairs. If the partner was to move, the clients would want to follow too.

Richard Messik made the same point in his Accountingweb blog in July 2010 where he also noted:

“Most mid-size accounting practices have very little to offer that distinguishes them from each other. They will all boast excellent service, pro-active rather than re-active advice, value added input to their clients. I have used these selling points myself during my years in practice and I knew, even as I was repeating them that should the prospective clients visit half a dozen other firms, they would hear the same attributes being spouted by rote.”

This is why I predict that sole practitioners are the future of the profession. It seems inevitable to me that the generic mid-size firms will eventually shrink and fade away. Some will merge in a failed effort to stave off the inevitable. This has been going on for years but the drivers of change are now stronger than ever.

Clients want specific expertise to resolve their problems and issues even if existing clients appear to be happy with the status quo.  It is easier for small firms to make the necessary changes and for them to provide the sought after expertise at an acceptable price.

Those who stop trying to be all things to all people will find greater success than the larger firms in future. And they will outlive them, just like specialist retailers are outliving the dinosours on the high street.

Mark Lee is consultant practice editor of AccountingWEB and writes the BookMarkLee blog for accountants who want to overcome the stereotype of the boring accountant – in practice, online and in life. He is also chairman of the Tax Advice Network of independent tax experts.

Replies (22)

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By Tax Return Specialists.co.uk
26th Jan 2013 13:43

Survival

   Re Mark Lees article this was very interesting indeed and I would agree that the winds of change are sometimes difficult to understand which direction to go.   I find that despite having a reasonably good website for many years it is not generating much business but does look good on the notepaper.  My main point would be that after 45 years + in the business the days ofthe ONE partner firm are numbered due to a great extent on the need for specilisation and IT demands.   Mike   Mulcahy  Weybridge, Surrey

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David Winch
By David Winch
26th Jan 2013 21:20

One partner firms

If I understand Mark's point correctly he is suggesting that one partner firms (for want of a better description) may flourish in future but that they will not be firms of general practitioners (accounts, tax, book-keeping, audit etc).  Instead they will be niche firms so that you might, for example, have a firm that deals only in the accounts and tax of, say, farmers or CIS sub-contractors or public houses or some other niche trade.  Alternatively you might have, say, a firm that offers VAT advice but does not prepare accounts or deal with income tax.

Personally, I decided many years ago that if I spent the time necessary to keep up to date with developments in all the fields I was trying to cover for my clients - accounts (sole traders, partnerships and companies), tax (income tax, corporation tax, VAT, capital gains tax, inheritance tax), audit (for companies), investment business (including pensions and life insurance), as well as general business assistance (cashflow forecasts, loan applications, etc) and the IT relevant to all of that - then I would have no time left to actually undertake any work for those clients!

I now operate in a niche within a niche - I undertake forensic accountancy work but only in relation to crime and proceeds of crime.  Within my area of work I know what I need to know (although one learns something new every week) and I now have a good many years relevant experience.  Geographically I draw clients from throughout England & Wales (criminal law in Scotland is different).  I do not need a physical 'shop front' as clients do not visit (and most of the 'ultimate clients' are in prison anyway!) so I can keep overheads low.

But the only income tax return I complete every year is my own.

It's a very different world from that of the five partner firm of High Street general practitioners I was a partner in 25 years ago.

David

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Replying to emanresu:
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By BigBadWolf
27th Jan 2013 00:18

One partner??

davidwinch wrote:

one partner firms (for want of a better description)

David

Sole practitioner???

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By Zeb247
27th Jan 2013 09:15

I'm guessing David put it to demonstrate a dislike for the term.

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By The Doctor
27th Jan 2013 14:07

Specialism the future?
Whilst the benefits of specialising are clear, what about the advantages of being a GP to clients? We've started picking up work from national specialists, as we are specialist in being great local accountants ;)

Also how often do you get a forex trader coming along?

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Teignmouth
By Paul Scholes
27th Jan 2013 15:14

Niches changed

I understand Mark's comments in terms of the traditional firm which has, as its bedrock, basic compliance services, ie a bunch of staff churning out accounts, tax returns, VAT returns and payroll.  The partners hope that all that stuff can take place quickly & efficiently leaving them to concentrate on providing valuable consultancy and topup advice.

Firstly, from my experience, because of the sheer weight of compliance work (a significant chunk of which does not run efficiantly) the partners spend much of their time reviewing & fire-fighting the compliance side as well as dealing with time & fee issues, staff management or mismanagement, leaving the quality work they'd hoped they could do to be rushed or non-existant and certainly with insufficient time to keep in regular contact with clients.

Compliance work is not only vanishing (and will continue to vanish) but is diminishing in value to the client who, quite often can now do much of what their accountant regarded as niche 10 years ago, ie preparing someone's tax return used to be a niche service.

The medium sized firm will have to manage this shrinkage, with inevitable redundancies, and whilst many individuals will not be capable of diving into new waters of advanced tax advice or other niches, they should not miss the opportunity to use their good general knowledge of business to offer their clients the good allround business advice they have always needed.

Sole practitioners (or partnerless practitioners!) will find this far easier to achieve, and far more rewarding.

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Locutus of Borg
By Locutus
28th Jan 2013 00:35

Specialisation and sole practitioners

I partly agree with Mark's analysis, although I see specialisation for a sole practitioner a little differently.

Undoubtedly a lucrative living can be made if sole practitioners are able to specialise in a few niches and effectively market that niche expertise.  But it takes time to develop such niches and may not be practical for a young practice to be so choosy.

What I do see (and I do this myself) is define what work I don't want.  For instance charities, CIS, audits spring to mind.  So some practices will specialise in these unloved client types, as fewer generalists will want to bother with those types of client.

I still think in 20 years, though, there will be plenty of generalist sole practitioners around.

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Red Leader
By Red Leader
28th Jan 2013 10:33

@0103953

I agree, as a one man band, it's a case of eliminating the non-mainstream work.

Agree with the exclusion list and would add: book-keeping; high volume/low profit cash businesses; solicitors accounts (probably included in audit); "too large" businesses; UK subs of overseas groups; tricky non-dom cases.

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By david5541
28th Jan 2013 11:59

GENERALISATIONS

I am sure marks observations are mere generalisations.

the competitive threats in the profession come from newly trained accountancy students who dnt pass all their exams or just the AAT.

 

the Niche of what mark refers to as "high street" firms I am presuming he is referring to firms with en established reputation that can go back more than one generation..

 

alot of the likes of these already have and made the most of their competitive advantage by having a reputation. They will often in the main have left the high street to (already) relocate to out of town centres(local cattle markets in agricultural areas & industrial/office estates in industrial areas).

 

perhaps mark you should study a bit more about business strategy, instead of making general observations/genralisations.

 

The best accountants give solid sensible evidence based advice and are hence more conservative, but as we all know conservatism is no longer a concept of accounting principles, instead we have Mr tweedies conceptual framework which allows a wide interpretation of what should and should not go in the Income statement...............profit and loss account to most of us.

 

this was one thing that lead to the 2008 crash.

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By malcolm141
28th Jan 2013 12:36

You're right

 

@Mark - I am currently looking at this for my practice and think you are right.

I am not going to rely on advanced tax planning or compliance services to maintain my fee levels over the next 20 years. I do not want to expand in terms of taking on employees so do not want to work with two/three times the amount of clients, so I am looking at added value and doing this within a niche.

What I am finding is that there is a lot of work/preparation needed to do this properly. It's a case of building knowledge and resources for the niche. It is not the lazy route to practice development.

Malcolm Sackman

North London Accountant

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Man of Kent
By Kent accountant
29th Jan 2013 11:08

My niche is

small businesses.

Similar to Red Leader and 0103953's comments I exclude certain types of business, and now I'm well established I'm looking to refine this further and drop several clients.

Niche doesn't need to be sector specific it can be based on size (turnover or directors/emploees) or geographical.

I'll happily accept most business provided they fit my fairly broad niche which includes liking/respecting the owner.

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By cameret
29th Jan 2013 11:41

Survival of the smallest?

Mark Lee touches on some important issues, As an sole practitioner I have found a niche serving a few small high-tech companies trying to navigate the complex area of R&D allowances. Because I focus, research my area well, and have very low overheads, I am able to offer a high level of expertise at a fraction of the cost of specialists within large firms.

I am also a marketing academic researching at a leading university and understand his point that with complex services it is building trust and personal relationships that are key to retaining business, not advertising promises. Frequent changes in staff will inevitably lead to a loss of business. Customer's, as he rightly points out, are increasingly using the internet to research niche providers (across all services) who seem to match their requirements more exactly.

There will always be a need for the generalist practice, but the achilles heel is always the inexorable upward trend of the contractual fixed overheads which seems to blight both large and small practices who employ staff and operate from rented premises.

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By Paul Dunn
29th Jan 2013 12:51

Mark Mark's words

Great stuff, Mark.

I found myself nodding on every line.

And the niche within the niche is a great way to go too — I believe the phrase is 'inch wide, mile deep'.

Again, great stuff.

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By paulrnugent
29th Jan 2013 23:00

Niche Sole Practitioners

Yes - that's the way I believe it's going to be. I specialise in Tax Compliance, particularly for small businesses. My business has been 100% on-line to my customers now for over 5 years. The computers my staff had are now all doing different jobs, but on a network in my home office. Of course I was blessed with perhaps seeing all this starting to happen since I am ex- Inland Revenue and perhaps that could be an edge. But in these days of Smart Phones and On-Line Shopping, customers can indeed shop around from their arm chairs for the best deal that also meets their needs.....and.... 24/7, not just 9 till 5.  The problem is, those needs that they believe they need are not necessarily the right ones! So that's why I can handle queries on-line by a variety of communication tools to meet the customer's best preferred means. Mobile, Laptop, Home pc, Tablet... It is very noticeable that it's the younger people coming into the world of business that have the skills to communicate on-line, even to using on-line products or cloud products. My advice, get up to date with the times.... downsize and run your practice on-line. It reduces many overheads and equalises the market. Big or Small, we all look the same on a 'device'. If customers still need face to face contact one can always go and see them in their home or workplace provided they cover your travel costs at say.... 45p per mile ?

Paul Nugent

PRNCOM (Tax Clinic Hartlepool)

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By paulrnugent
30th Jan 2013 21:57

TLC

Yes its probably true that in these cost cutting days HMRC do not appear to have time for that all important TLC part of the job. However, remember that HMRC are moving towards Self Serve where Agents will be encouraged to take up many of the tasks previously performed by HMRC Staff. A kind of outsourcing of their own services ? But, I too am of the old school really.... and  I'll probably be retired by then.

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Teignmouth
By Paul Scholes
31st Jan 2013 08:09

The C words again

Much of the comment on this site (usually negative) revolves around "change" a fact that is as certain as death & taxes.  I know it's risky to generalise but I have to say that in my experience of our industry being "conservative" by nature many accountants have not been keen to embrace it, let alone drive it or just accept it as inevitable.

Jimess, I too lived through the old days but I don't see it as sad that they passed, the traditional office and "grey" areas of towns & villages was right for the time but it will vanish in all but rural areas.  The pace of change is slow because many business people have only ever known their traditional accountant but younger people starting in business are not looking in that direction, they will (rightly) want to find & work with an accountant online.

More than that, with the ease of DIY in acccounting and tax compliance, many are not bothering to find an accountant.

Given how boring and soul destroying basic compliance is, I see it a great step forward to automate it and take it out of our hands completely, let the clients do what they can if they want.  Jimess says clients are fazed by the documents & submissions, mine aren't, it's our job to explain and de-mystify this stuff.

This doesn't mean that we and our staff need to lose our expertise in business management and general/special tax knowledge, in fact this is an Opportunity, to enhance those services and to spend more time supporting and advising clients and convincing those who don't have an accountant that we can do more than numbers.

 

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By Jimess
01st Feb 2013 09:19

@ Paul Scholes

I don't find compliance work boring and soul destroying, quite the opposite in fact.  I like the challenge of compliance work.  Perhaps I may be in the minority, but compliance work is a big part of the client's expectations of us when we discuss the package of services they wish us to provide. 

Clients, above all else are human beings, who have their own issues, their own skill sets, abilities and most of all their own agendas.  Some are quite happy to do as much as they can and are very pro-active with the accounting side of their business, others are either just so busy working in their business to acquire the knowledge and the skills to understand the processes required to be fully compliant, others just do not have the mindset or the ability for record keeping.  I see it as my job to support and assist my clients as much as they want me to with regards to their record keepingand compliance processes, and not to alienate clients because they do not keep a perfect set of records.

I am sad that so many independent practices have either been swallowed up by larger firms or have just disappeared from our towns.  Not because I wish to return to the old days - they have gone and we march on with what we have to deal with today, but it is sad from the perspective that once our towns were full of industry, commerce and merchanting, now our High Streets are bare and our communities are suffering badly because of it.

 

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Teignmouth
By Paul Scholes
01st Feb 2013 10:27

@ Jimess

I agree 100% with your second paragraph, this is exacly the process we employ with our clients, ie matching the work to their and our capabilities and I too have clients at both ends of the scale.

You say that "compliance work is a big part of the client's expectations of us" however, from your 2nd paragraph, this now only applies to a proportion of your clients?  If you are like us, 10-15 years ago, all clients relied heavily on us for compliance work.

Using VAT as an example. even 10 years ago none of my clients would have considered completing & submitting their own VAT returns.  Some made a stab at doing it but always passed it through us, the majority however, gave us their books (or we were keeping their books) for us to complete, for them to sign.  Today, we only get involved in two VAT returns and in both cases we just double check their figures before they submit.

Similarly, with the advent of online accounting, some of my clients have shifted from not having (or wanting to have) a clue about accounts to doing it themselves, overnight they can now provide me with an accurate P&L and Balance sheet every month if I wanted it.

In my experience therefore, not only has our level of compliance work (in tax and accounts) shifted significantly towards the client's involvement, over recent years, but the time & energy spent by us and clients has also fallen.

In a couple of year's time my clients will be preparing year end figures for accounting and  tax and will ask us (perhaps) to check them over before they push the button and submit.  Many businesses, perhaps the majority, alrready do this without any involvement from an accountant.

I still see the traditional high street office as being a left over from clients bringing in their books & tax stuff. It's not to say I didn't enjoy those days, but I enjoy these days more because, increasingly, when I spend time with a client it's to consider their business and tax today and in the future, not last year.

We too are human and for me (after X decades) adding up columns & filling out boxes on a form (even if on screen) is boring & soul destroying.

 

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By Jimess
04th Feb 2013 09:50

@ Paul Scholes

Thanks for your response, and I can fuly appreciate what you are saying.  I can't agree with your sentiments on traditional offices, I think they still have a place.  Having said that I agree that the role of the "traditional" accountant has changed and that change was imminent as soon as self assessment came into play  in the late 1990's and it has been an ongoing movement since then.  However perhaps where you and I see things differently is that I don't always see some of the changes as being positive ones, or even necessary ones.  I am not a dinaosaur or a luddite - far from it, but I do think that the push for electronic solutions has had a devastating effect on our society, our high streets and our communities - we seem to have lost sight of the ethic that work equals worth and from that self worth.  By sitting at computers and pushing buttons all day the skills that we used to use have disappeared so some find the compliance aspects of our work as you put it "soul destroying".  There are always things that you can do to help clients - it is not all just compliance.  How many of those clients who prepare their own accounts and prepare their own online submissions will have more than a basic understanding of the complexities of tax and VAT rules.  Helping clients with compliance is not just about ticking boxes and filling out forms, it is also about understanding the nuances of their businesses and situations and how they affect their compliance situation. 

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Teignmouth
By Paul Scholes
04th Feb 2013 11:12

@ Jimess

Yes, more I think in agreement than not. 

Change is all very well & good where it happens over time and people feel as though they have a hand in it or, more likely, have the opportunity to cope with it, but change in such a short timescale and with such far reaching effects, as in the electronic age, puts society at risk, but it is what it is.

As it happens, having bought my first work pc in 1983, I've come full circle and so I look forward to switching the bloody thing off, during the day, just to talk to people or walk the dog.  Similary I now make an effort to use local shops where I can, even if it's more expensive than the supermarket over the road, or online. 

But, from comments on here and from the many accountants I talk to, I still see resistance to change in general whether that be a blinkered approach to seeing that there can be a benefit to say more efficient working or in fighting the inevitable rather than finding ways to cope with it.

Examples of this were 10 years ago when people started to suggest a move away from paper was beneficial (against calls for burning at the stake!) and today in preparing for cash accounting for small unincorporated traders and eventually, inevitably, micro-ltd companies.  It is rare that any change is wholly bad and you either embrace the good bits and cope with the bad or turn your back and moan about it till forced to join up....or retire.

You are right about the traditional high street office having life in it still.  There is, perhaps thankfully, inertia that will hold back the tide but, if we are to believe those in the know, with the move of humanitity towards city dwelling, as well as information moving electronically, the reason for them being where they are will dissolve.

On your final point about helping clients with compliance, yes, that is still a significant part of my life but it's done nothing but diminish over recent years.  Unless a government brings out something huge that goes against the grain of trying to cut red-tape and complexity and stops computers, and their apps, coping better with rules & regs then I don't see the tide turning.  Compared to 10 years ago, there is very little I do today for clients that can be deemend rocket science or where my judgment will change the outcome.

So, if I believe that the work will keep diminishing, then I feel I'm better off hastening it's demise and concentrating on more enjoyable and valuable activities, such as talking to clients about their business and plans or walking the dog.

 

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By Jimess
04th Feb 2013 13:16

@ Paul Scoles

Thanks for the conversation.  It is good to have a debate on these things. 

The dog walking sounds really tempting at the moment, as much as I enjoy the cut and thrust of January, I do confess to feeling a bit work weary at the moment.  A long walk might just get my mojo back.

Cheers.

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