Accountancy & Management: Troubles filter down to smaller practices: Roger Trapp on the fears and expectations that emerge from a recent survey

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The Independent Online
IT WOULD be easy to assume that all the changes affecting the accountancy profession apply only to the larger firms.

For instance, it is difficult to see how the debate over the relationship between consulting on the one hand and audit and accounting work on the other could concern a 15-partner practice in Sheffield.

But, although the big six and a few others could be said to inhabit a different world from that experienced by the likes of the Sheffield firm, it is increasingly clear that problems, developments and indeed benefits filter down. If, for example, large firms trying to keep up fee income cast their net for clients wider than before, that is bound ultimately to have a detrimental effect on the smaller practices.

So it is unsurprising that the recession is hitting not only those firms that critics say grew too large and encumbered themselves with heavy overheads. According to a recent survey, the economic climate has also hit turnover and profits at the opposite end of the spectrum, with the result that lower remuneration for partners, fewer students and qualified staff and an emphasis on productivity are all pressing worries.

Perhaps more remarkable is that this generally conservative segment of a conservative business lays the blame for its woes at the doors of other parts of the establishment. There is criticism of the Government, for its economic policy and for not reducing the regulatory burden on smaller companies; of the banks, for their 'hasty' and 'ill-considered' methods of dealing with the business conditions; and of the Institute of Chartered Accountants in England and Wales, for its approach to dealing with the image of the profession in the light of press criticism following high-profile corporate failures and to investigating allegations of bad practice.

The survey was conducted among 900 of the 9,000-odd UK accountancy firms that range from sole practitioners to 20-partner practices by Inform Corporation, an information technology company that specialises in supplying practice- management software to accountants.

Respondents were asked to list the areas of greatest concern in the welfare and profitability of their practices in the 12 months starting September 1992 and to say what internal and external factors could correct problems.

Cash flow was the biggest worry, with just under 54 per cent of respondents listing it. But it was closely linked with property and staff overheads and productivity, all of which were mentioned by about 40 per cent of participants.

About 8 per cent were worried about income level as a result of mounting pressure on fees through companies trying to cut costs by tough bargaining, taking more work in-house through computerised accounting packages and just reducing expenditure. Moreover, 62 per cent of firms expected losses from clients' businesses failing.

If all this sounds familiar, then the responses to the situation probably do too.

Recent months have seen widespread speculation about mergers in the so-called middle tier - those firms considered vulnerable to the chilly economic conditions because they are neither big enough to withstand it nor small enough to be true niche players. And there have been one or two alliances of this kind in the sector. But so have there been lower down the market. Cooper-Parry, Watson Sowter & Co, the largest accountancy firm in Derby, merged on 1 September with Prior Palmer, one of Nottingham's biggest practices, in an attempt to form a big player in the East Midlands region. At the same time, the Exeter office of Hays Allan linked up with that of Pannell Kerr Forster, one of the UK's larger international firms.

In the management of their practices the smaller firms are also echoing their larger brethren. Twenty-seven per cent of respondents to the survey said they were going to make much greater use of computers in running their affairs, which is no doubt reassuring to Inform. But more significantly, 45 per cent believed that appointing experienced business managers would make the biggest single contribution to resolving firms' trading and practice development problems.

Opinion is split over whether this should be done by introducing something like non-executive directors at partner level or using management consultants or even employing full-time business managers. But important long-term changes to operations policy are universally expected.

(Photograph omitted)

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