So if it’s Brexit… what impact will that have on accountancy firms?by
Kirsty McGregor, founder of the Corporate Finance Network, looks at the impact Brexit may have on the future of accountancy firms.
The business world in the UK has already changed significantly over the last ten years; we dubbed it ‘the new norm’. And if we vote to leave the EU it will certainly change again. Have you changed as an accountancy firm over that time? Or are you still operating as you were when we entered the new millennium?
There have been around one million new businesses started in the past ten years, approaching one in five of all businesses that currently exist. These new businesses, often run by the ‘next generation’ of entrepreneurs in their 20s and early 30s, demand a new approach from us.
They will set up their own new companies on Companies House for £15. They will start trading and may even choose a cloud accounting package of their choice. And at some point they will find an accountant, typically when their first tax return is due to be filed.
From research I have carried out (to be published in more detail later in the year), many younger entrepreneurs don’t believe the accountancy profession can advise them about growing their business.
In my opinion, as an accountancy professional, aiming to position ourselves as the ‘trusted adviser of choice’ and an expert commercial sounding board over the past 20 years, has just not worked with these millennials.
Look at your client base. How many clients do you have under the age of 35? Congratulations if you have managed to acquire these younger businesses, and especially if they are using you for all forms of advice, and not merely year-end compliance work at the lowest rates in the market. If you haven’t achieved this bridge to the new generation, then read on, because the value of your practice is likely to be diminishing by the day.
So what does this have to do with Brexit?
There’s little doubt amongst economists that a ‘Leave’ vote will result in an immediate shock to the currency and stock markets, and result in a recession of some sort – the length of which is unknown and disputed by both camps.
The demographic of UK SMEs is aging. There are hundreds of thousands of businesses where the entrepreneur is already aged over 60. A large proportion of these suffered during the last recession, and although they have weathered the storm, they didn’t experience much growth. Will they have the ability and the appetite (or the health) to sustain another recession? How many of these will choose to exit their business rather than have another tough period?
From my experience of selling businesses, most are not ready for sale. They aren’t attractive to trade purchasers or equity houses, have no MBO team ready to take over and, although they are perfectly adequate lifestyle businesses, they are unlikely to be sold. Many will have to wind up.
This will be devastating to our economy, cause numerous redundancies and reduced tax receipts to the government. Attempting to turn around this outlook has been my career’s work, and I have a long way to go yet! But if these businesses choose to close their doors sooner rather than later, that will have an impact on your fees. And consequently, the value of your practice.
Nobody can predict with certainty what will happen in the event of Brexit. It’s unprecedented and determined by many unknown factors. But irrespective of whether we enter another recession later this summer or not, look at your client base. Consider what it will look like in the future. The speed of that change will be dependent upon the outcome of the vote. But these older business owners will have to exit their companies at some point – by choice, or not. It’s a fact of life.
To give the longevity of your practice the best chance, and therefore the best valuation, or the best risk profile for financiers, ensure your client base is well spread. Aim to attract all businesses of all ages to your firm. Don’t be reliant on the more established businesses of today with older business owners, because they will not be here forever, and the new generations are forcing us to change the way we operate as advisers, and as a profession.
Kirsty McGregor is a chartered accountant and founder of the Corporate Finance Network and the Association of Crowdfunding Experts
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Supporting the accounting profession with ideas & skills. Accountant-in-Residence at Capitalise.com. SME Champion. Proud northerner, pan-Pennine & around UK
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