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AVN’s three predictions for 2008

19th Dec 2007
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Accountants may have little to look forward to next year if Steve Pipe’s predictions for 2008 come true. The head of the AVN Group believes half of all practising accountants will make big losses in the coming year. Here’s why:

Prediction 1: Indian accountants will start to steal the clients of UK practices

For the last few years practitioners have been able to benefit by buying cheap outsourced labour from India as cheaply as £10 an hour, and some have been selling it on at mark-ups of up to 1000%. But Pipe reckons it’s only a matter of time before these highly trained Indian professionals cut out the middleman and market the client directly. They could increase their own hourly earnings and undercut the competition at the same time.

“Whilst they may not be able to provide ‘up close and personal’ value added services, for the bulk of compliance work they will represent a very acceptable and cost-effective solution to many UK businesses,” says Pipe. And if the global credit squeeze does leads to an economic downturn, many businesses will be actively looking for lower cost alternatives – which would accelerate the whole process.

Prediction 2 - Clients will pay less than ever before for accounts
Better software and the existence of outsourcing options have been making many accountants’ jobs easier, but the client is catching on to this. He’ll be expecting a share of the benefit too, in the form of lower fees, especially with the increasing regulatory burden.

“Clients are not stupid,” as Pipe puts it. “They also recognise that, from their position as the people paying the bill, annual accounts are as useful as an ashtray on a motorbike. There’s going to be intense downward pressure on prices.”

Prediction 3 - The profession will become increasingly polarised

The next twelve months will see some partners buying their first Ferrari, while others will be shopping in Aldi. Preliminary results from the 2007 AVN benchmarking survey, which looked at 200 UK independent accountancy practices outside the “Top 50”, show that over half of all practices are currently making an economic loss. On the other hand, some independent practices are making well over £200,000 profit per partner.

This polarisation will become even more marked in 2008, Pipe predicts.

“The vast majority of firms will see their profit stagnate or even decline,” he says. “Some of the firms that lose out will have no idea what hit them.”

Are half of Britain’s accounting practices really running at a loss? Here’s what AVN says:

“Preliminary benchmarking results suggest that the average practice earns c £77,000 per partner before partner salaries or drawings. However, once this figure is adjusted for arms length partner salary costs, the average partner actually makes a loss. And, since the average in question is the median rather than the mean, this implies that at least 50% of all UK partners actually make losses.”


Replies (6)

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By Anonymous
10th Jan 2008 15:13

With India guzzling so much oil acting as a catalyst for high levels of economic growth may it be the case that Indian accountants may move their attention from the U.K to their homeland? Was the reason that India provided cheap outsourced labour because of the low standard of living and weak economy? Now that it is showing serious signs of growth will the audit, vat and tax affairs of the Indian population not become more lucrative? Just wondered what anyone thought about that? Maybe I am wrong but as India and China seem to have an unquenching thirst for oil to fuel their economic growth, I thought that perhaps those markets would become far more valuable and concentration will be directed their as opposed to here where the economy seems to be slowing down?

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By AnonymousUser
19th Dec 2007 16:38

Pretty strong predictions from Mr Pipe!

Given the fact that he is not silly, and given the fact that he knows the market place i would urge people to take on board what is being said.

The threat from India may not happen this year as Steve predicts but rest assured it is on its way like a stealth bomber, under the radar and then bang!

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Dennis Howlett
By dahowlett
27th Dec 2007 06:39

I've been talking about these trends for the last year or so and have no problem identifying with Steve's predictions. I don't however believe that the Doomsday scenario Steve depicts is a done deal. There are moves afoot that could yet see the profession transformed.

More here

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Dennis Howlett
By dahowlett
31st Dec 2007 10:45

What part of...
Don't you just love it when people look at the world through uninformed rose coloured spectacles? That's exactly what the last commenter is doing. Whimsical thoughts equivalent to 'there will always be an England' are precisely the kind of thinking that will see the small practitioner killed off.

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By AnonymousUser
29th Dec 2007 16:32

Is it not a question of time and investment in our future?
The services offered by accountants are essential, because compliance is at the heart of the statutory returns process.

Compliance and Money Laundering

The law changed on 15th December 2007. HM Treasury have issued new
guidelines for registering bookkeepers and business administration

It is also worth remembering that smaller SMEs, Sole Traders and Start-Ups
are our bread-and-butter business.

Busy periods and work-life

There are times when we are all looking over our shoulders, because of the
HMRC time-lines. And there are always a few clients who leave their work
to the last minute, or challenge and pinch our social hours..

Is this an opportunity to impress
our clients with additional services?

Nobody can predict the future! The break down of communism, 9/11 and
global warming are poignant reminders that business planning is a
constantly evolving "state-of-mind".

In my opinion, the smaller SMEs will continue to look for UK based service
providers, because a (monthly or quarterly) visit from a bookkeeper will
help to focus the entrepreneur's mind:

1) To keep the business admin and bank reconciliations neat and tidy
2) Make sure debtors and creditors are not overdue
3) Answer the vital question concerning missing receipts and other discrepancies, before memory fades

Outsoursing locally?

Eastern Europe, China and India may be a cheap option for high-volume

Let's keep the 80/20 rule in perspective and bear in mind the thousands of
smaller SMEs who need our help and will gladly pay, if the price is

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By AnonymousUser
03rd Jan 2008 08:29

Real answers needed ...
The eminence of your experience and written articles on the Internet is clear, Dennis.

As a guest in Scotland and England since 1971 and, knowing the historic relations and trade rivalry between our respective countries, maybe you will reconsider your reference to "dyed in the wool ..."

I would prefer a solid private discussion

{1} to discover synergy and
{2} how to support, not extinguish,

the efforts of the smaller accountancy practices in the UK.

Look forward to hearing from you.

[email protected]

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