Webinar tackles the plight of ageing accountants
On average, the accountancy profession is getting older and practitioners in their 50s, 60s and 70s are caught in a financial trap, argued Mark Lloydbottom in the recent AccountingWEB Live webinar, The trouble with… an ageing profession.
Official figures from the Office of National Statistics (ONS) point to the shifting demographics within the profession: in 2015-16 32% of profession was most heavily concentrated in their 30s; two years later, the thirtysomethings accounted 27%, while those in their 40s had taken over as the largest group, rising from 23% to 28% between 2016 and 2018.
Trainee numbers peaked at 172,241 in 2010 and the intake has been anaemic ever since. According to the FRC last year 164,210 trainees in the UK and Ireland embarked on accountancy careers.
But the issues ageing accountants are facing aren’t just demographic. Along with Lloydbottom, ICAS assistant director of practice Jeremy Clarke and compere Richard Sergeant explored the financial and psychological challenges of “baby boomer” accountants.
During the past 20 years practitioners have weathered GDPR, Making Tax Digital and the cloud accounting revolution. “They’re facing more deadlines and more technology in a profession that is driven by things they don’t like,” Lloydbottom said.
The financial trap
The biggest lock keeping older accountants shackled to their desks is lack of capital – and the reluctance or inability of successive generations to meet their valuation expectations.
“I thought my business would provide handsome capital for retirement – but that’s not the case for sole practitioners,” said Lloydbottom.
Jeremy Clarke described the “perfect storm” facing the generation of accountants born after World War II: “People want to move on, but they can’t. They viewed their practice as a pension pot, but are disappointed by falling values. They can’t get enough for their practice to realise that... The further down the career track they get, the less they want to invest – they’re nearer the end [of their career] than the beginning.”
As a result, their firms fall further behind the curve in staffing and technology levels and often go into a downward spiral. “The longer you hang on, the less the value of what you have is, because you’re not reinvesting in the business. It’s a Catch-22,” Clarke warned.
Attitudes and the financial constraints on younger accountants are adding to the pressures. Accountants coming through practices in their 20s and 30s are much less interested in hierarchical structures and more interested in flatter, more collaborative, working structures, Clarke explained. After university, three years’ of accountancy training and working their socks off for several years, they’re expected to come up with a hundred thousand pounds or more for a share of the practice.
“Really?” Clarke responded on their behalf. “Why don’t I just set up on my own and crack on?” The cloud accounting generation has had a visible impact here by reducing the cost of entry to practice dramatically.
“There’s a whole new conversation around brownfield vs greenfield accountancy firm development. Why put money into a dilapidated Victorian house when instead you can build a house to support the lifestyle you want to live?” asked Clarke.
There are no easy ways out of the financial trap. Many practitioners hold onto the hope of being picked up by one of the regular surges of activity from consolidators, but probably only 100-150 practices have been acquired by these players, according to Mark Lloydbottom. That still leaves around 25,000 firms that can’t sell themselves consolidators.
Among the remedies discussed during the 45-minute session were the possibilities of new ways of working and ownership structures that made it possible for retiring partners to “self-fund” the handovers.
Lack of profitability and access to capital was holding back many ownership transitions, the presenters agreed. To overcome this hurdle, the older generation needs to overcome its reluctance to get involved with new technology and more profitable advisory services to make the practice more attractive to potential buyers.
Seeking to resolve the financial trap, Clarke said, “The profession is going to have to look at divorcing ownership and management a lot more. If people can’t afford to take their capital out, the logical conclusion is they have to leave it in for a time after they leave the business.”
In the US, Lloydbottom pointed to the growing trend for profits to be shared between equity owners and non-equity owners. “They’ll respect the 40-year-old’s desire not to put in a [lump sum], but give them a share of the profits,” he said.
Under this arrangement, successors won’t get their equity until there’s enough time to pay the departing partner for it - so the current owners will have to fund the new owners for a time.
With the option to jump to their own “greenfield” practice always in the background for younger accountants, these handovers can be as tricky to navigate for the retiring practitioner as a sale to a third party – potentially leaving them marooned at a firm that won’t fund the lifestyle they anticipated in their later years.
Yet Mark Lloydbottom noted that “probably only 10% of firm owners are entrepreneurial”. Many of the generation of leaders coming through might also have more of a “minder” mindset and not be prepared for the risks and responsibilities of becoming a practice partner or owner.
Tune in to the next edition of Richard Sergeant’s The Problem with… webinar series to find out more about the next question on his agenda, “Why bother making partner?” at 1pm on Tuesday 18 August.
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