Midweek Money: Size is not everything

Mergers are not the only route to survival in the accounting field.

THE CONSOLIDATION at the top of the accounting market is generally reckoned to have put the squeeze on firms nestling just below what are now the Big Five - to such an extent that another round of mergers is seen to be inevitable.

However, while some of these so-called second-tier practices are known to be exploring such deals, Pannell Kerr Forster is adamant that they do not represent the only route to survival. While not ruling out a link- up all together, Martin Goodchild, the recently appointed managing partner, points out that in this area "marrying cultures becomes very difficult". In particular, he says, such a deal "has got to make commercial sense, rather than just mean getting bigger".

This "size is not everything" attitude carries through into his strategy for the Hatton Garden-based firm. Explaining why he is pleased to have reported fee income for the year to 30 April marginally ahead of the last 12 months, at pounds 74.4m, Mr Goodchild says: "We've concentrated on growing profit rather than turnover. There's no point in growing revenues if you're not making money."

Quite. But Mr Goodchild and his team have achieved in the past year only a negligible improvement in net profit, from pounds 15.7m to pounds 15.9m. The rise is more dramatic when it is put in terms of average profit per partner - pounds 126,000 against pounds 112,000 last time round - because the number of partners has been reduced from 140 to 126.

To some extent, Mr Goodchild is right when he says that increasing partners' earnings in this way is an important basis for future growth. After all, nothing makes partners more disgruntled than the perception that they are falling behind in the pay league.

And, as one or two other middle-market firms have found, once such people start to vote with their feet the organisation as a whole is on the slippery slope. Stressing that some partners have been with the firm for decades, he says that "partner loyalty is very good".

But whether Mr Goodchild has come up with a sustainable strategy for remaining an independent force depends just as much on his other policy - restructuring the firm to "meet future challenges".

This has already seen such moves as the disposal of the Aberdeen practice and the Worcester practice's insolvency arm - which means that growth on a like-for-like basis is in fact stronger than the headline figures indicate, he adds.

One area that will remain crucial is that of hotels and leisure, where the firm has a longstanding expertise that it is now using to diversify into buying and selling hotels. It also claims to be the only middle-market firm that can compete with the Big Five in developing software - and has sold programmes to organisations as diverse as the Lloyd's of London insurance market and the Kennel Club.

But whatever area it is operating in, the firm is determined to come across as entrepreneurial. Mr Goodchild's own career certainly bears out that policy, since he was for some time closely involved with the development of Sanctuary, a Stock Exchange-quoted entertainment business that is perhaps best known for managing the heavy metal rock group Iron Maiden.

"It's part of our entrepreneurial culture," explains Mr Goodchild, on the firm's policy of encouraging such links. "It gives an insight into what a real business is doing."

Consequently, he argues, it gives the firm greater credibility when seeking to advise clients that might have started small but are looking to expand internationally.

"They want a personal service from experts who understand their business," he says.