Head of Insight AccountingWEB
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Can giant firms handle small company accounts?

14th Feb 2019
Head of Insight AccountingWEB
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QuickBooks Live online bookkeeping service
QuickBooks Live
QuickBooks Live online bookkeeping service

As the dust settles on KPMG’s attempt to crack the small business market, word reaches us that QuickBooks is planning to offer bookkeeping services in the US.

For the past week accountants around the world were dancing on the ashes of KPMG SME Accounting and offering refuge for abandoned clients in need of new accountants.

There were structural and internal problems that were unique to KPMG’s ill-fated offering, but most AccountingWEB commentators echoed richardterhorst’s view that “Big accounting firms have no clue when it comes to SMEs.”

There are relevant lessons from AccountingWEB’s Accounting Excellence Awards – now open for entries until 31 March. Our figures over seven years show that the highest satisfaction scores are recorded by small firms who maintain direct personal relationships with their clients. The better mid-to-large firms succeed by putting in place processes and technology that help them maintain service consistency and clear communication between departments as more people become involved with the client.

Experiences so far shows that formula falls over when the biggest firms attempt to widen the net to grab volume among the smallest tier of businesses.

This view was confirmed by one insider, who explained on LinkedIn that the staff turnover characteristic of big firms was a big issue for KPMG. “We couldn't retain our good staff. Clients faced changing accountants all the time.”

Along with the carousel of staff, KPMG built one platform for the SME service and replaced it with Xero when the prototype proved unviable. The quality of work fluctuated, reducing the firm’s unrealistic margins, and clients would get disillusioned and leave.

Once the Big Four firm’s risk assessors took a look and discovered that KPMG-signed accounts were doing the rounds of investors and lenders, it was a matter of time before they pulled the plug on the service.

Other big firm SME services are available

KPMG was not alone among the big firms to target cloud accounting in the small and medium business market. Grant Thornton made a stab at it and ate through almost as many millions as KPMG before it mothballed its Geniac service last year.

BDO, meanwhile, is still in the market with BDODrive, a business outsourcing service built around Microsoft Dynamics Business Edition Financials.

The other three Big Four firms all have cloud-based finance outsourcing experiments on the go in the shape of PwC’s MyFinancePartner, Propel by Deloitte and EY’s Absolute service. The difference with KPMG is that these services are aimed more at medium-sized enterprises than KPMG’s offering, and set the bar slightly higher in terms of functionality and finance-department style services.

Yet even these efforts carry the baggage that comes with large accounting organisations. Rachel Fisch, who looks after accountants and alliances at Sage Canada commented on LinkedIn, “As a former Deloitte employee working on a similar model as well as consulting with firms in my current role, there are challenges to large firms that in some cases will never change.”

She listed the barriers to big firm success in the SME market as: “The way they currently measure expectations in regards to chargeout rates and recoveries, attracting and retaining talent who are skilled in accounting technology, remaining competitive with High Street accountants, building and optimising a tech stack, standardising processes, understanding not every client will be a good fit for this model, and essentially the entire hierarchal structure and the politics that follow. It was brave of KPMG to learn their lesson and close the doors.”

Closer to home, 2018 Accounting Excellence Pioneer and Crunch founder Darren Fell has been watching the comings and goings of large firm competitors for many years. Crunch offers a software-driven web-based service model for microcompanies. With more than 12,000 clients, Crunch has demonstrated that it is possible to scale up a volume service – so long as you concentrate relentlessly on serving the kinds of clients who fit the service model, according to Fell.

Looking back at the KPMG scenario, Fell told AccountingWEB: “There’s a pattern with these firms who think they can replicate the hybrid Crunch-style model, but it takes years to perfect. KPMG and other big firms do not understand the customers and processes involved.

“For us, it’s all about client selection and determination to make it work. I started with very little money and came at it as a technologist rather than an accountant. We can’t fail or I would lose my house. Everything is riding on this. If I had trained as an accountant, the firm would have been constructed in the image of what I was trained in.”

The evidence shows so far that the big accounting firms can’t scale down to meet the needs of small businesses. If they can’t do it, what are the chances that a big technology company like Intuit could make that jump?

QuickBooks Live online price list

Blogger Blake Oliver stirred up a rumpus on LinkedIn this week by highlighting a bookkeeping price list for QuickBooks Live (pictured above), starting from $200/month. Amid cries of betrayal from outraged bookkeepers and CPAs, Oliver pointed out that the writing has been on the wall since Intuit launched its TurboTax Live tax prep service two years ago. The service exceeded expectations and has opened up a very tasty new revenue line for the QuickBooks giant. Oliver’s LinkedIn post quotes liberally from comments former CEO and current chairman Brad Smith made to analysts at last year’s investor call.

“We wanted to see is if we could... get people out of tax stores and CPAs [with TurboTax Live]. And so far, the mix of new customers as we finish this season also looks like we’ve been successful in proving that hypothesis,” said Smith.

“So, as we lean into next year, the primary objective is going to be to transform the $20bn assisted tax prep category and begin to bring more of them into the do it yourself category. We think that will be the big opportunity for us over the long run.”

The word from our US colleagues on AccountingWEB.com is that following the initial successes of its tax preparation experiments, Intuit put about 75 of its top US ProAdvisors onto the prototype bookkeeping experient. But since they all had to sign non-disclosure agreements to take part, no one with any real knowledge of how it works can legally say anything. It’s also worth pointing out that whenever Intuit develops a new service – be it online accounting, direct commercial finance or integrated accounting and tax filing processes – it can take a very long time for it to transfer to other international territories.

Will Farnell was one of the first UK practitioners to pick up on the story. In relation to KPMG’s experiment, he commented: “The mid-tier has been squeezed at the top and the bottom for some time, and this will just intensify that. They are caught in the trap of clients who will always be looking for cheaper alternatives. The big firms are just pushing the squeeze down the pecking order.”

The QuickBooks Live model is a different animal coming at practitioners from the other end of the market. “There’s always been talk about and Intuit is saying they’re just testing the market,” he said. “But they’re clearly excited about where they can claw market from enrolled [tax] agents and CPAs.

“Because of where we are as a digital firm, I’m not concerned about it. The UK a very different market. This is really just another shot in the arm.”

Over at Crunch, Darren Fell was also not losing sleep over QuickBooks Live. “I’ve been speaking with them for two years and they have been very complimentary about our hybrid model. TurboTax Live has been running for two years and is very similar to what we do – we’ve always sold Crunch as a complete service.

“I wouldn’t worry about them if they try to bring it to the UK, but it would be interesting to see how its received by their accountant channel.”

Drawing on our Accounting Excellence database, we predicted four years ago that the brand awareness of the Big Four could never match or supplant the close bonds and client understanding displayed by the most successful small firm practitioners. The same barrier applies for QuickBooks.

As Will Farnell suggested, no amount of machine-learning can power a meaningful business advisory relationship and adjust to the needs and psychology of stressed business owners. With TurboTax/QuickBooks Live addressing the millions of low end “tax shop” clients in the USA, it’s worth noting that QuickBooks Online Self Employed, the cheapest version, is designed specifically for sole traders and gig economy workers. These are the clients that few accountants are interested in, aside from Crunch perhaps.

With workforce casualisation, off-payroll IR35 rules and Making Tax Digital for income tax on the horizon, there are going to be a lot more of these kinds of client in the next decade. When new Intuit CEO Sasan Goodarzi talked about his vision to move the company more into compliance last November, he might not have been talking about software, but the service opportunity.

As Farnell put it, “There’s clearly something there. The old way isn’t going to work again here.”

Replies (4)

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By Tim 59
14th Feb 2019 12:30

Back in the 1980's when working for a what is now top 4 firm I transferred to their integrated services department. The small businesses came in on the back of an acquisition. It was quickly apparent that the internal compliance procedures were to expensive to be absorbed by small clients. Good staff were too expensive to use on demanding, often administratively incontinent small clients. The skill set of our staff was too limited to be efficient, and it was too expensive to use the tax services, company secretarial departments. The major issue was risk to professional reputation. The risk reward did not equate. Major audits enjoyed fee discounting by some times as much as 50% but in ISD client's were charged at full scale rates. As a manager it was impossible to be successful.
The new models assume that clients will input all the information and be aware of all the issues. The provider through detailed letters of engagement will not be responsible for errors and omissions. Amex tried it, the banks have tried it, KPMG have first hand experience. Accounting in bulk to a diverse and sometimes less than competent/honest clientele usually ends in tears.

The idea of top four firms providing virtual finance directors is another experiment doomed to fail. The idea that a staff member that has completed his ACA/ACCA training, never worked in industry, probably only bought and sold a second hand car and submitted expense claims can be a business adviser is ambitious.
We have seen that the partners struggle with basic accounts and audits.

Thanks (4)
By ireallyshouldknowthisbut
14th Feb 2019 12:59

Looking after small business is not about technology, its about long-term relationships and a trust in our knowledge and competence.

Thanks (2)
By Glenn Martin
14th Feb 2019 17:05

Big firms cannot just do not what a small business needs in the same that I couldn’t service 5000 clients with the same attention I give my 100 clients

Stick to what you know would seem best advice

Thanks (2)
Replying to Glennzy:
Hallerud at Easter
14th Feb 2019 22:57

I suspect they can but they likely need to run the offering as multiple small local/regional practices with a clearly demonstrated career structure within same to attract staff wishing to work in the SME sector and make a career in same.

I trained with a smaller office (Circa 20 staff) of a mid tier national firm, whilst the firm did have much larger clients on the audit/tax side, mainly run from the larger offices, there was space for our office to work on the audits of subsidiaries , some local authority audits whilst also servicing a large number of SMEs.

The catch for the larger firms to operate a mixed model will be their willingness to allow smaller entities within their structure to operate with autonomy, this will have issues re local pricing and may be a step too far for them re protecting their brand.

One way might be to relabel the SME offering slightly differently.

I still think local firms operating as distinct feeder firms (maybe regionally) may be the way for them to try again.

Thanks (0)