KPMG shutters small business accounting unit

KPMG small business accounting unit
KPMG
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KPMG has confirmed that it will close its small business accounting venture after just five years in the market.

The service, which offered cloud-based bookkeeping to small and microbusinesses, launched amid much fanfare in 2015 with a pledge to “disrupt and dominate the SME market”, and promised small businesses that “you can pay us the same as your current accountant, but we’ll give you more”.

However, rumours that the service was struggling gain traction in a crowded market began to surface and this gathered momentum when Bivek Sharma, who headed up the small business accounting unit, was put on gardening leave.

AccountingWEB received word this week that KPMG was writing to clients using the service asking them to “make alternative arrangements,” and earlier today a spokesperson for KPMG in the UK told AccountingWEB that the Big Four firm is proposing to “withdraw the provision of its small business accounting (SBA) service” in the UK.

“This follows the decision by our UK leadership to refocus our business on the services which are core to the firm’s growth,” said the spokesperson. “SBA services continue to be offered by KPMG in many other countries and are unaffected by this announcement.”

The majority of UK staff currently working on the unit will be redeployed into alternative roles within KPMG, while a small number of employees will continue to manage existing SBA clients to “ensure a smooth handover to alternative suppliers”.

“We remain passionately committed to working with fast-growth and privately owned businesses across the UK through our KPMG Enterprise team,” continued the statement, “which provides a wide range of advice and support, including tax and accounting, scale-up strategies, funding requirements and growth via overseas expansion.”

The news comes as profits at the accountancy giant soared in 2018, with the firm recording a 53% jump in profits from £301m to £462m off the back of improved investment returns in technology and Brexit-based advisory work.

No traction in a crowded market

The service launched in October 2014 after an 18-month trial, with the firm offering two dedicated ‘centres of excellence’ and more than 200 staff to handle client work.

Each client was promised their own dedicated accountant with an average of between three and 13 years of experience, and service lines offered in the small business package included accounting and bookkeeping, along with tax, compliance and payroll.

Speaking at the time of launch Sharma claimed the firm had “completely ripped apart and re-engineered” its back-office processes, with billing managed automatically by direct debit, client onboarding digitised and automated, and practice management processes streamlined.

However, rumours began to circulate that the service had not gained the traction KPMG had hoped for, and businesses that had made the switch were unhappy with the level of service provided.

Commenting on the Any Answers forum in 2017, AccountingWEB member NLB stated that they had picked up a number of clients from the service. According to NLB particular gripes were “mainly related to the clients being unhappy about their level of knowledge of their business, mistakes being made and the churn of client account managers who [seem to] change every six months.”

Northeast-based accountant Glenn Martin added that several clients had signed up to the service expecting a proactive, almost virtual FD service, but ended up with a basic compliance service at a price higher than their business could justify.

Commenting on the news Daren Moore, group commercial director at TaxAssist Accountants added: “Servicing the small business market has always been about building a good relationship with the client to provide sound advice alongside the compliance piece.  

"Attempting to deliver that service remotely presents a number of challenges which technology won’t always solve alone. Clients want, and rely on, that relationship and the high street accountant has adapted to deliver a best of both worlds approach with local relationships on the ground alongside smart digital solutions to help people run their business."

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)

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06th Feb 2019 19:46

there was no chance they would ever make it pay , it was simply an adventure in muscle flexing , big firms are not the answer for SME

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By NLB
06th Feb 2019 20:12

A real shame for all the hard working people in that team. It just didn’t come together for their clients. To deliver world class small business accounting (and the promised advisory) at that scale to that wider industry sectors would require EXCEPTIONAL planning and execution. It is just not that easy. Thoughts with the team today and kudos to all the smaller practices out there smashing it.

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to NLB
08th Feb 2019 10:07

Big accounting firms have no clue when it comes to SME's.

Irrespective how much money they throw at it.

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07th Feb 2019 12:57

Interesting read Tom, I should be on tomorrow’s world calling that it would not work in 2017

They should have just asked my advice and saved the heartache

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to Glennzy
06th Feb 2019 21:12

Thanks Glenn. Could I trouble you for Saturday's lottery numbers as well please?

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to TomHerbert
08th Feb 2019 10:17

TomHerbert wrote:

Thanks Glenn. Could I trouble you for Saturday's lottery numbers as well please?

You have Saturday's, I'll have Friday's.

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07th Feb 2019 11:46

There was never much chance. The whole ethos of these large practices is shafting their staff and clients as much as possible in order to have maximum profits per partner. Ethics are not really part of the culture despite all the fine words in the mission statement.

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07th Feb 2019 09:26

In a few years time they will make another foray into this market.

In the mid 1980s I joined KPMG's small business unit which was always seen as a feeder unit for growing businesses.

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07th Feb 2019 10:39

Well back when this was launched in March 2014, some impertinent bean counter said

"My charge out rate over 15 years ago at KPMG as a newly qualified is still higher than my current one. not too worried quite frankly, as KPMG's idea of "very competitive" and mine differ somewhat. "

And so it has come to pass. Small businesses didn't want to pay a 50% premium to have KPMG file their books.

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to ireallyshouldknowthisbut
08th Feb 2019 12:29

Ha ha - I left KPMG almost 20 years ago and could still day the same thing!

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07th Feb 2019 14:42

I think this is what Nietzsche meant by "eternal recurrence".

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07th Feb 2019 15:19

The department must be in a pretty sorry state as they seemingly didn't even try and sell it. Not sure how many clients they had but a staff complement of 200 means it would have been a pretty sizeable number. Nice add on for someone like Crunch et al.

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By DJKL
to exceljockey
07th Feb 2019 15:32

If they have any sense then if the staff involved are to be released they ought to agree with KPMG to depart with blocks of fees and set up their own practices, they are surely in pole position albeit no doubt currently restrained by restrictive covenants in their employment contracts.

If KPMG handled this well they could offload the client base to such new smaller firms whose owners might then view KPMG favourably and if clients outgrew these new firms KPMG would possibly be the natural bigger firm to which the new practices would feed up the "grown too big clients", which was likely the object of the exercise in the first place.

In effect outsource the operation whilst say offering a high end technical support environment to the fledgling new firms.

I have a larger Scottish independent who are available for my practice re technical issues and organise events and seminars for smaller local firms, in effect they could act as technical/high end consultants for other firms.

In years past the firm I was then with referred to KPMG our higher net worth IHT work, they did not poach and we provided our clients with a service we could not properly offer in house, win win.

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to DJKL
07th Feb 2019 16:43

That's a good idea in principal but many don't get the working together idea and see everyone as competition or a threat.

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By DJKL
to Glennzy
07th Feb 2019 20:28

I have a relationship with Johnston Carmichael up here in Scotland, I received a letter from them a few years ago offering to link with smaller practices re supporting them with their clients- my employers had previously used a niche set of tax planners in Newcastle but that relationship had run its course and we needed third party scrutiny re ideas and planning.

Previously I had Grant Thornton as external auditors and re tax, but tax ran out of Glasgow, not Edinburgh ,which was not wholly helpful and I had also consulted re tax planning with KPMG, but neither relationship was totally satisfactory, both were just a tad too big.

JC have 11 offices in Scotland, including one in Edinburgh, and the relationship has to date worked pretty well- they have become a sounding board when I have the framework of an idea , usually re tax, and they have earned fees in consequence.

I currently have a further client where I have been trying to suggest they consult and my employer may also need some structured input re IHT and succession planning where we may well use them.

In my opinion small firms do their clients a disservice not having such technical back up, I also have a vat consultant when I need input, the fact is the field of knowledge required by the general practitioner is, imho, too wide for a single employee firm of accountants to offer a fully robust service.

My gut feel is national firms these days may be too big for the role, so KPMG may not fit the right size, too many niche departments and different contacts.

What I have got from JC is one contact point and he then sits as point man re the in firm team he consults, when I used to talk with KPMG all these moons ago it seemed to be someone new each time which did not really work.

Still, it is their business to run, I am heading fast towards the practice exit door and how firms work over the next 20-30 years will not be my concern, but certainly if I was making decisions in KPMG I would have considered the idea .

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to Glennzy
08th Feb 2019 11:47

Principle, not principal.

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By RGS
to DJKL
11th Feb 2019 20:40

Hi

I work for Crunch and we would very much like to support all exiting clients.

If you have any contacts at KPMG I would hugely appreciate an intro

I know it’s a long shot but worth asking - hope you don’t mind

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By DJKL
to RGS
12th Feb 2019 21:02

The only person I had any contact with was Head of Tax in Edinburgh a long time ago who is now long retired.

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08th Feb 2019 10:06

I guess they could not shake as much money out of SME's as they hoped, also I guess SME's do not pay enough tax and tax avoidance schemes were not relevant to SME's, ie their fees were greater than any tax savings available.

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08th Feb 2019 10:10

E&Y is also trying with "bespoke" SME accouting software based on Microsoft Azure platform.

Lots of promises which I know they cannot deliver. Waiting for the announcement that they are withdrawing. May take them a few years seeing they have deep pockets.

Dont see QB or Xero very worried.

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By mkowl
08th Feb 2019 10:16

Smugness alert from every small firm of accountants in the UK that actually knows what that sector requires and delivers it well. Big 4 Nil Real Accountants 1

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By Peter-S
08th Feb 2019 10:22

Interesting to read that KPMG have found that tech isn't the answer to everything, but HMRC still think it is.

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08th Feb 2019 10:24

Oh dear...Not enough traction, ie clients.

But someone on here said there were 100 people in the department. That's actually pretty big.

If you could sign up enough clients in 4 years to have 100 staff, it would be like winning the lottery.

Its taken me 19 years to get to 30....and the nice QAD man from the ICAEW said that was a lot :)

And they couldn't even sell it off....

I guess its small potatoes in their world.

Let me run it, let me run it, pleeeeeeeeeease :)

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08th Feb 2019 10:43

I love acting for small business owners, mainly because you can build a really close relationship with them. The core of the service is that we are local to them and then can pop in any time they have a query and to drop off records, have a coffee and go through any questions
. Having trained with one of the Big Firms I really struggle to see how they could have offered the level of expertise these small business owners need at a viable price.

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08th Feb 2019 10:44

Didn't KPMG invest something ridiculous like £40M to launch this? Ouch!

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08th Feb 2019 11:37

How surprising!

Since the Big Boys know squat about SMEs, their problems, threats, and how damned hard it is to create decent revenue , let alone create real wealth, in what is, thanks to myopic Government and its agencies including Treasury and HMRC in particular, then how and why might KPMG address the SME market with comprehension and empathy?

After all, as I have, over many years, tried and failed to explain to Government Ministers et al, the SME sector of the UK economy generates:

2017:

Small Businesses accounted for 99.3% of ALL Private Sector businesses and 99% were Small to Medium sized.

Total employment in SMEs was 16.1 Million; i.e. 60% of ALL Private Sector UK employment:

The combined annual turnover of SMEs was
£1.9 Trillion i.e. 51% of ALL Private Sector Turnover in the UK.

Source: ?? Well, err, the UK Government!

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

Yet when considering any sea change in regulation and particularly taxation (MTD springs to mind!), to whom do the Great Gods fly, seeking guidance and critique?

Well, such as the KPMGs of the world and, naturally, CCAB... Oh and according to Middleton and Stanier, the Office of Budget Responsibility!!

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to Michael C Feltham
08th Feb 2019 13:43

Well said. Everyone knows SMEs succeed despite what the Government does and not because of it. Ronald Regan famously said something similar I think re the US.

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By Locutus
08th Feb 2019 13:33

When I first heard about this a few years ago, it seemed strange, as I couldn't see how an entity with a huge cost base like KPMG could make it work.

I expect most of the grunt-work would have been done by trainees and I shudder to think what their chargeout rates would have been.

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08th Feb 2019 14:05

Interesting,but the big boys come up with this rubbish a lot of the time.Most Mid Tier firms have an SB Unit and presumably they will go the same way ?
However I am surprised a “one man band “ operation could survive with just 30 such SB Unit clients ?For that sort of fee level would it really be sustainable?
Does make you wonder where the industry is going.

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By DJKL
to Michael Davies
08th Feb 2019 15:05

I thought it was 30 staff not 30 clients that was mentioned, but maybe I got that wrong or we are at cross purposes?

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By RGS
09th Feb 2019 22:03

just noticed the below mention re: www.crunch.co.uk

We would happily support all exiting clients. Do you have a contact st KPMG please?

I work for Crunch.

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11th Feb 2019 09:39

Out of interest, does anyone know how Propel by Deloitte is doing?

Looked good initially but the website has less information than it used to.

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11th Feb 2019 11:33

Was pretty much doomed to fail, as you can't fit small clients into a big firm where they think nothing of charging clients thousands of pounds for 'partner review' to justify their enormous cost base and huge charge out rates.

Most small business clients want a bespoke service with one point of contact and someone who understands their business- and then stays with that business for the long term.

This is a common failing of big businesses and indeed the bigger contractor firms- they either don't understand or don't care as they consider high churn rates a part of the business, as long as they can squeeze maximum revenue from the client.

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11th Feb 2019 18:23

My thoughts are with the clients who have been left unsupported and abandoned following this withdrawal by KPMG - who is supporting them now that KPMG have decided the SME space isn't worth their attention. My company actually professionalises the accounting functions of UK SME businesses between £0.5m and £2.5m, providing business class book-keeping and insightful management information which we take the time to explain to clients. We take the SME market very seriously, after all 95% of all UK businesses are <£1m, right? (approx. figure). We're interested in supporting these clients, who's with us?

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to JenniferARaines
12th Feb 2019 09:53

professionalises ??

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By tbk
15th Feb 2019 15:07

I recently picked up a bookkeeping client who had KPMG as their accountants. On closer inspection KPMG were expensive and just doing the compliance work, by their own admission, but no business development support of the sort a smaller independent accountancy firm offers which is what my client really needed. We ended the contract with KMPG before this news came out and I am not surprised to hear it.

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