Research carried out by my colleagues at Moorhead Savage has shown that there has been a huge increase in the number of accountancy firms going into liquidation in recent years and the trend is for more firms to become insolvent in 2014.
Last year saw 119 firms being wound up, an increase of 50% on 2012. And the number of insolvencies involving accountants has been steadily rising since 2007 and it seems likely that there will be many more insolvencies in the coming months and years.
I believe that there are many factors that are all contributing to the problems in the accountancy profession. And accountancy firms are not alone: whilst these factors may be causing problems for accountancy firms at the moment, there are similar patterns to be seen in other areas of the economy.
In my opinion, accountants are suffering from the same commercial pressures that are causing havoc in many different sectors at present.
The recession has made business owners much more savvy about where and how they spend their money. Accountants cannot rely on getting work from the same clients, year in and year out, just because they always have done so in the past. Increasing competition, with new entrants setting up micro-practices with very low overheads, has led to downward pressure on fees. Client-side access to accounting systems has increased, with cloud-based solutions reducing the cost of acquiring accounting information.
For larger firms that traditionally relied on audit fees for a large percentage of their income, changes to the accounting and reporting rules means that fewer firms now need an annual audit. This has meant that larger firms can now shop around and don’t need to only instruct firms with an audit certificate. Even if they do stay with their existing accountants, they may struggle to justify the same level of fee that they used to charge for an audit.
For consumers of accountancy services, the question that they are asking is, “What value do your services bring to my business?” Hopefully the answer is better decision-making through clear financial information and proactive advice on the impact of those decisions.
So life is changing for accountancy firms in a similar way to changes that are being encountered by other professional firms. Accountants are not an endangered species; but to survive, firms will need to make sure that their clients understand and appreciate the added value that they bring.
If you would like a free, impartial and no-obligation consultation about how we can help to turn around struggling professional services firms, call us today on 01709 331300.