Small accounting firms that have not kept up with accounting in the cloud could find themselves on the endangered species list in the face of innovative and disruptive business models being rolled out by the Big 4 accounting firms.
In the past SMEs have been served by the thousands of small firms of accountants but these two to 5 partner firms up and down the country have been guilty of standing on the side-lines as their clients increasingly adopt SaaS-based bookkeeping software. And now there are signs that the Big 4 accounting firms are using their deep pockets, national scale and breadth of expertise to fill the vacuum.
A study quoted in Forbes says 78% of U.S. small businesses will have fully adopted cloud computing by 2020 more than doubling the current 37% as of today. Added to which a 2015 study by AICPA (American Institute of CPAs) suggests that the delivery of digital business processes to clients will become a key differentiator among accounting firms in the next five years.
Yet despite the scale of the opportunity, only 8% of CPAs believe the profession is future-ready. Asked to indicate the primary way they access their write-up and bookkeeping software, more than 70% of firms replied that they use applications installed on-premise. The percentage of firms primarily using purely SaaS offerings, (described as software accessed through a website login), failed to top 9% in any of the revenue categories.
In the past the large professional firms have been wary of serving the mid-market – a sector that can be costly, demanding and resource intensive. But the cloud has transformed the economics of investing in small businesses and offers significant benefits for those that are prepared to wait. Recognising that SMEs are the ‘engine room’ of most economies and a vital source of growth, the Big 4 accounting firms have taken decisive steps to fill the vacuum left by small firms.
In the last 12 months, KPMG has launched its Small Business Accounting Service offering a complete accounting, bookkeeping, tax, pension and payroll service with unlimited access to a dedicated KPMG accountant, based in the UK. The package, which includes a subscription to the popular online accounting package Xero, starts at just £125 a month. An enhanced package which includes bookkeeping support and VAT return preparation and submission starts at a fixed monthly fee of £250.
What KPMG has understood is that small firms need more than just bookkeeping and transaction services. “Think of your dedicated KPMG accountant as being like your outsourced Finance Director. In a big company the CEO can rely on their FD for expert advice concerning the strategic direction of the business – where to raise funds, for example. We can play that role for you – and at no extra cost”, says the firm.
PwC’s My Financepartner offers similar capabilities using Sage Live business software as the platform for its offerings to businesses of £1m turnover upwards. Although this service starts at £350/month, PwC are offering face-to-face meetings as part of the package.
For the Big 4, these cloud-based services could be transformational. It allows them to serve a market that holds considerable potential for future growth at the same time as exposing their young accountants to advisory services that help them improve their utilisation outside of the audit season as well as giving them a more commercial outlook that will serve them well in their later careers.
But if the big firms are the winners then the traditional small firm of accountants are almost certainly going to be the losers. It is difficult to see how they will be able to match such competitively priced services and offer the breadth of expertise on tap - all for a fixed monthly fee.
By Gary Simon, BSc, FCA, FBCS, CITP
CEO of FSN and leader of The Modern Finance Function Group on Linkedin with more than 44,000 members.