IFAC: Practice Management Tips for SMPs
Helping Small- and Medium-Sized Practices - Meet the Challenges and Seize the Opportunities of Tomorrow
How to Make Your Small Practice a Big Success
How to Build Your Business Advisory Practice
Additional Resources for SMPs
Helping Small- and Medium-Sized Practices - Meet the Challenges and Seize the Opportunities of Tomorrow
Interview with Giancarlo Attolini, Chair, IFAC Small and Medium Practices (SMP) Committee
How important are small- and medium-sized accountancy practices?
Small- and medium-sized practices or SMPs constitute the vast majority of accountancy practices worldwide and, in many areas of the world, are believed to employ the majority of professional accountants working in practice. SMPs provide a broad range of high-quality professional services - from the traditional audit, accounting, and tax services, to value-adding business advisory - to meet the needs of their clients who are typically small- and medium-sized entities (SMEs). SMEs are crucially important to the health and stability of the global economy: SMEs account for the for the majority of private sector GDP, employment, and growth globally, and, moreover, hold the key to the global economy’s recovery from one of the deepest economic downturns in modern times.
IFAC recognizes that addressing the needs of SMPs and SMEs is important. And its members echo this sentiment. The most recent IFAC Global Leadership Survey, which polls the presidents and chief executive officers of IFAC member bodies, found that addressing the needs of SMPs and SMEs is the second most important issue facing the Global Accountancy Profession in 2012.
Why do SMEs often choose SMPs for various professional services?
Our global research as summarized in the IFAC information paper The Role of SMPs in Providing Business Support to SMEs, has indicated that SMEs look to SMPs for a range of professional services for various reasons, most notably their reputation for competency and trust, responsiveness, and geographical proximity.
Why did IFAC establish the SMP Committee? What is its role?
In recognition of the importance of SMPs, especially in supporting SMEs, IFAC created the SMP Committee in 2006. Since then IFAC, largely at the behest of its member bodies, has increased its commitment to helping cultivate robust SMPs. Today the SMP Committee supports SMPs in various ways. It does this primarily through IFAC member bodies - helping them support their SMP stakeholders. The committee develops guidance and tools and works to ensure the needs of the SMP and SME sectors are considered by standard setters, regulators, and policy makers. The committee also speaks out on behalf of SMPs to raise awareness of their role and value and the importance of the small business sector overall.
What changes do you see in the global landscape in so far as SMPs are concerned?
The global economy has changed a lot in the past few years and the accounting industry has not escaped these changes. Hence, it’s no surprise to find that SMPs are facing a changed economic and regulatory landscape—one characterized by significant challenges, but also with great opportunities if the results of the fourth quarter IFAC SMP Quick Poll are anything to go by. The poll revealed that regulatory burdens and economic woes continue to top the list of challenges faced by SMPs and their small business clients. Of course, the overall results mask some significant regional variations. But a key lesson, if there is one, for SMPs is that they are best placed to thrive in the new global economy by changing with the times.
What are the key challenges that SMPs are facing?
The fourth quarter IFAC SMP Quick Poll pulled in over 2.400 responses from around the world thanks to the promotion efforts of many IFAC member bodies. In all regions barring Europe, burden of regulation ranked as the top challenge faced by practitioners’ small- and medium-sized entity clients. Meanwhile, economic uncertainty ranked as the top challenge in Europe. When accountants were asked to name the biggest challenge facing their practices, keeping up with new standards and regulations ranked first, followed by attracting and retaining clients in almost all regions (in Asia, these top two were reversed).
The poll showed that respondents were generally more positive about 2012 compared with 2011, though Europeans were noticeably less optimistic about the future than those from other regions. As the global economy starts to pick up, SMPs should adapt to capitalize on the emerging opportunities.
How can SMPs best overcome economic uncertainty and other challenges?
While SMPs are facing significant challenges, the poll showed that respondents were generally more positive about 2012 compared with 2011. As the global economy starts to pick up, there will be emerging opportunities and SMPs should be ready to adapt to embrace them.
First, boost marketing and promotion efforts – According to the poll, growth in practice fees will be driven primarily by winning business from new clients.This will demand more and smarter promotion and marketing efforts that should focus on what distinguishes SMPs—as mentioned before, most notably their reputation for competency and trust, responsiveness, and geographical proximity. Accounting and compilation services are perhaps worth special focus as poll respondents saw this as the fastest growing source of revenue, and the marketability of compilations should increase with the release of the International Auditing and Assurance Standards Board’s new standard on compilation engagements.
Second, focus on advisory/consulting services – These services, ranging from tax consulting and financial management to newly emerging services like wealth management and advice on sustainable business practices, are a crucial growth area for SMPs. The poll found it was the second fastest growing source of revenue after accounting and compilation. But perhaps most telling was the finding that insufficient partner time and marketing services to clients jockeyed for the position as the top challenge in building advisory/consulting services work. This suggests SMPs need to free up partner time to make it work, perhaps use value-based pricing to ensure a good return, and, as mentioned previously, increase their marketing and promotion. The poll also revealed that an existing client relationship is the main reason that SMEs seek advisory/consulting services, suggesting practices should, where ethical rules allow, promote them to existing clients.
In what ways has the world changed and how can SMPs change with it?
First, internationalize - Cross-border trade, in goods and services, and investment is growing exponentially and great advances in transportation, IT, and communications infrastructure are making the world a smaller place. As a result, SMEs are increasingly doing business internationally. SMPs will, therefore, need to internationalize themselves if they are to effectively support these SMEs. A good place to start is to have a strategy, which might include joining an international network or association of practices, possibly to affiliate with a national firm with international connections. The value of an international network or association comes from the local knowledge that member firms can offer to clients. This means even a small practice can help a client go global and may help the practice retain clients that might otherwise choose a larger firm.
Second, exploit emerging technologies – Emerging technologies like cloud computing offer the opportunity to both increase your practice’s service offerings and, generally, do more with less. From a remote location, SMPs can now provide SMEs with a full range of services, from basic book-keeping and payroll to virtual CFO, in a way that is safe, secure, and more cost effective than traditional face-to-face delivery. SMEs can thus enjoy many of the same benefits of having an in-house professional accountant that larger entities enjoy.
What are the potential implications for policy makers, regulators, and standard-setters?
Even at a time of global economic uncertainty, concerns around regulation and standards are still uppermost in the minds of SMPs and SMEs for whom compliance may be disproportionately burdensome. And according to an earlier poll, the nub of this concern seems to be the pace or speed with which regulation and standards are changing, more than complexity and volume.
Regulation is intended to bring benefits, for example by helping markets operate fairly and efficiently. We somehow need to ensure that these benefits outweigh the burden and are widely recognized. IFAC has spoken out on these issues. IFAC believes that regulatory reform should not create unreasonable obstacles for the progress of SMEs: costs and complexities that will impose burdens on, and threaten the sustainability of, the small business sector must be carefully examined.In addition, international standards should be applicable, accessible, and cost-effective for SMPs and SMEs. The committee plays a pivotal role here by stressing the need for a stable platform of regulation and standards that are relevant to SMEs and SMPs and capable of being applied in a manner proportionate to size of practice or entity.
What role can individual SMPs play in shaping the global policy, regulation and standard setting agenda?
While an individual SMP may feel that it is too small to make a difference or that it lacks the capacity to contribute in a significant way, it needs to be remembered that the strength of the SMP voice comes from their sheer numbers. Therefore, it is important that we all play our part, no matter how small, and get involved in some way, be that by writing a comment letter on an exposure draft, responding to a survey or poll, or participating in the initiatives of the SMP Committee. The challenge, however, is to ensure one cohesive, clear, and collective message. The SMP Committee aims to act as a mouthpiece for the voice of SMPs. The committee has an online Discussion Board and conducts regular polls, which we encourage our member bodies to promote to their SMPs so that we can channel the voices from a global representation of this sector.
See www.ifac.org/SMP to learn more about the IFAC SMP Committee and its support for SMPs through collaboration with IFAC member bodies.
About Giancarlo Attolini
Giancarlo Attolini became chair of the Small and Medium Practices Committee in January 2012 having served as deputy chair in 2010-11. Nominated by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (CNDCEC), he has been a member of the committee since January 2008 and served as deputy chair in 2010.
Copyright © March 2012 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact permissions@ifac.org for permission to reproduce, store, or transmit this document.
How to Make Your Small Practice a Big Success
By Giancarlo Attolini, Deputy Chair, IFAC SMP Committee and Paul Thompson, Deputy Director, SME and SMP Affairs, IFAC
Introduction
Today, small- and medium-sized practices (SMPs) are confronted by a range of operational, market, and regulatory challenges. According to the January and April editions of the SMP Quick Poll, regulation and the pace of regulatory changes are among the top challenges for both SMPs and their small- and medium-sized entity (SMEs) clients. To alleviate these and other challenges, IFAC’s Small and Medium Practices (SMP) Committee is collaborating with IFAC member organizations to assist SMPs globally. Perhaps the most tangible example of this collaboration is the resources, tools, and advice aimed at improving the ability of SMPs to provide high-quality professional services (see list of resources at end).
Despite the challenges, SMPs can and do prosper. This article suggests some simple tips to help SMPs improve the management of their practice and increase their chances of success.
7 Tips for Success
The following practice management tips can help your SMP succeed:
1. Develop a mission statement, vision, and strategic plan: Write a compelling mission statement that focuses on your core values and publicize this statement; a statement such as "Helping small businesses become big businesses" could be persuasive with potential clients. No matter how small the practice, you should support your mission statement with a strategy and plan.
2. Identify your edge and carve a niche: Evaluate your practice’s skills and capabilities and identify what sets you apart. SMPs should continually look at how they can differentiate themselves from the competition by offering additional services or becoming experts in a particular area.
Once your practice is able to identify its edge, it should identify its target clients. Do these clients fall into a particular category? Does your practice know about a particular industry, or do you have special expertise in a particular area or trade? If so, you may want to consider developing a niche and marketing your practice to a specific target audience.
3. Offer business advice: While the April SMP Quick Poll results indicated that traditional accountancy-based services, such as audit, accounts preparation, and tax services, are their main sources of revenue, SMPs are increasingly offering business advisory services in areas such as financial planning, risk management, and human resources, alongside or in place of their more traditional offerings (see The Role of SMPs in Providing Business Support to SMEs). You should look closely at how your practice can better help its clients and consider providing a broader range of services to help them successfully run and operate their businesses. In the longer run, this should result in more successful and more satisfied clients, which can translate into more business and increased revenue for your practice.
4. Target small businesses: SMPs are especially well positioned to serve small businesses. As small businesses themselves, they share similar aspirations, concerns, and attributes. SMPs’ clients are almost exclusively small businesses, and as a result of this specialization, SMPs develop considerable understanding of and expertise in such businesses.
5. Promote the practice: Accountants generally have little expertise or experience in promotion or marketing; it is not typically part of their core education and training. This can impede growth for SMPs. Therefore, you may want to consider hiring an external marketing or public relations consultant who can develop a plan and strategy to best reach your particular clients. Alternatively, you could develop this skill set in-house by training an existing employee. Appropriate channels and activities to promote and demonstrate your practice’s expertise should be chosen depending on your objectives and target clients. For example, you could host a call-in radio show, write a newspaper column, or write a blog about small business accounting and tax issues. In other cases, it may be appropriate to establish a leadership position within local business or trade associations to promote your practice’s niche and attract new clients.
6. Develop relationships with other firms: SMPs should establish relationships with other professional firms, both accountancy and non-accountancy - such as legal, HR, and IT firms - to meet client needs that fall outside their area of expertise. By working together with other firms, SMPs can leverage resources and help convince clients that they have the capability of a much larger practice. Having a relationship with other firms may also result in client referrals.
To further leverage economies of scale and synergies, your practice may want to consider joining an accounting network or association, or merging with another practice. When developing relationships with other firms, it is important to ensure that your firm’s mission, values, and objectives are complementary to those of the other firm(s).
7. Embrace new technologies: To compete effectively, SMPs should consider automating their processes to improve efficiency and turnaround times and, in turn, lower costs. In addition, they should stay aware of new technologies—both to help their own practices and so they can advise their clients on technologies that may help them operate more effectively. Helping clients identify and implement new technologies can serve as a value-added service, which can help generate new revenue, as well as boost client satisfaction and loyalty.
For translations of these and other resources, visit IFAC’s Translations Database.
Copyright © June 2011 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact permissions@ifac.org for permission to reproduce, store, or transmit this document.
How to Build Your Business Advisory Practice
By Stuart Black, Member, IFAC SMP Committee and Paul Thompson, Deputy Director, SME and SMP Affairs, IFAC
This article examines the business case for small- and medium-sized practices (SMPs) to develop a business advisory practice and offers tips for getting started.
Introduction
In the future, SMPs may no longer be able to rely solely on traditional accountancy-based services as their main source of revenue and growth, as demand for these services declines. In many countries, fewer small- and medium-sized entities (SMEs)—the typical clients of SMPs—are being audited, as thresholds are introduced or increased and governments move toward self-assessment of tax to reduce compliance costs for SMEs. In addition, technology is commoditizing many of the day-to-day compliance services traditionally supplied by SMPs, reducing the need for a professional accountant and driving down price.
The good news is SMEs are increasingly demanding a broader range of professional services, in particular, value-added business advisory services, which SMPs are well positioned to provide. As small businesses themselves, SMPs share similar aspirations, concerns, and attributes with their clients and are in an ideal position to become trusted advisors.
Why SMEs Look to SMPs for Business Advice
SMPs should leverage the following unique qualities when building their practices.
Competency: SMEs often lack a full range of managerial expertise in-house and outsource some managerial functions, such as CFO, to SMPs that have the required technical competencies and expertise.
Integrity and Trust: As members of a regulated profession with codes of ethics, accountants enjoy "institutional" trust. Their provision of compliance services wins them "competence" trust. This is a time-proven formula. Unfortunately, there can also be a reluctance to utilize advisory services until the expert has already provided a specific demonstration of their competency.
Responsiveness/proximity: SMEs rate highly SMPs’ responsiveness to their demands. The proximity of SMPs to their SME clients is also important as many owner-managers appreciate personal attention from their advisers and value ease of access.
A Full Menu of Business Advisory Services
SMEs are demanding the following services, which SMPs can provide. These services can help ensure the efficiency, transparency, and sustainability of SMEs, improving their financial performance and boosting client satisfaction (and possibly demand!):
Business development: strategic business planning, budgets and projections, sustainable business practice, virtual CFO, etc.
Corporate advisory: business structuring, valuations, litigation support, forensic accounting, treasury, debt/equity funding, equipment finance, due diligence and business buy/sell, etc.
Wealth creation and preservation: financial position evaluation, investment strategy development, asset allocation, estate/succession planning, pension planning, etc.
Tax consulting: tax advice and/or representation on tax matters to revenue authorities, etc.
Management accounting: budgeting, management reporting, cost accounting, benchmarking, product/customer profitability analysis, etc.
7 Things to Consider When Building a Business Advisory Practice
The following considerations can help SMPs succeed when building or laying the groundwork for a business advisory practice.
1. Modify your mission statement, vision, and plan
When expanding or changing the direction of your practice, set out a clear vision for the future and a roadmap for how to get there. You should also revisit your mission statement and adjust it as needed to reflect your practice’s modified or expanded service offerings, such as "We are dedicated to adding and sustaining value for families and their businesses."
2. Educate and train your people
Providing high-quality business advisory services demands a different skills base than that to provide traditional accountancy-based services. You can develop the capacity for business advisory by expanding both the technical and soft skills of existing staff. Some accountants can make the transition to business adviser through experience and self development, while others may need training or coaching.
3. Focus on a specific industry sector or specialization
Few SMPs will be able to gain and maintain the knowledge and skills necessary to be competent in all areas of business advisory. Therefore, SMPs should consider carving out a niche and participating in a referral network of SMPs that can provide the other services. A common model is to focus on a specific industry sector, such as hospitality, or to develop a specialization, such as sustainable business practices, in order to differentiate your practice from the competition.
4. Develop relationships with other firms
Referral networks offer many potential advantages, such as helping your practice increase its client base. Participating in a network is an effective way to satisfy the increasing breadth of demands from SME clientsand can help demonstrate to new clients that you have the capability of a larger practice. Referral networks can extend beyond accountancy to areas such as legal, HR, and IT.
5. Promote the practice to existing and new clients
Promoting and marketing your practice, and the value of your services, will be crucial to success. There are a number of reasons why SMEs choose SMPs to provide business advisory services (see above). SMPs should leverage these qualities by promoting them to potential clients, who are often unaware that their professional accountant can provide these services. As accountants often have little or no expertise or experience in promotion or marketing, you may want to hire a marketing consultant or train an existing employee to do this. Your marketing expert can help you determine if you need to change the way your services are marketed and help you explore new channels, such as social media.
6. Change your business model
Business advisory services may require a different business model from that of traditional accountancy-based services. For example, business advisory services may be better suited to a business model based on selling intellectual capital rather than time. This lends itself to value pricing. To supplement this, you might wish to emulate the airline industry model, which divides their client base into premium and economy and offers a different value proposition to each—for the premium clients, a high-end service, at a correspondingly high price, and for the economy clients, a basic "no frills" service that frees up time to devote to the premium clients.
7. Embrace technology
Advances in technology present a significant opportunity for SMPs to operate more efficiently, reduce costs, and offer additional value-added services. Cloud computing, for example, allows SMPs to more actively engage with their SME clients on a day-to-day basis and offer services such as virtual CFO cost effectively.
For translations of these and other resources, visit IFAC’s Translations Database.
Copyright © July 2011 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact permissions@ifac.org for permission to reproduce, store, or transmit this document.
Additional Resources for SMPs
The following resources (all free of charge) are accessible via IFAC’s International Center for SMPs:
Publications
PM Guide User Guide
Presentations and videos from 2011 IFAC SMP Forum in Istanbul, Turkey,especially Session 3, SMPs Evolving to Better Serve SME
Quarterly SMP eNews
Relevant Links (especially the categories 'business advisory' and 'practice management')
Putting Ideas into Action
To help you build a business advisory practice, we encourage you to download the IFAC Guide to Practice Management for Use by Small- and Medium-Sized Practices (PM Guide). This free guide comprises eight stand-alone modules on topics ranging from planning and building your firm to managing people and client relationships. It features case studies, checklists and forms, and an office procedures manual.
