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.”
“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.”