Mar 1, 2017
There is no doubt that there are changes in the accounting market. These changes are occurring at an ever faster pace! How you respond to these changes will significantly affect what your accountancy business looks like in a few years' time.
Potential “fee slippage” is a relatively new problem for accountants. “Fee slippage” is caused by a number of things including:
What is the potential cost to an average accounting business from “fee slippage”?
The “authority” in Australia on accountancy businesses' fee composition is Benchmarking.com.au. In the Australian Benchmark Report Accountants 2016, Benchmarking.com.au identified the “average firm” as being the “All Firms Average”.
The analysis identified that the “All Firms Average” had:
The fee category under $3,000 would represent clients who had paid for tax return preparation work only in the majority of accounting businesses.
This is the group of clients that are most vulnerable to “fee slippage”.
A 20% fee slippage for this group of clients in the “All Firms Average” would amount to $115,853.
If this was your accountancy business have you developed strategies to offset this “potential fee” loss which many commentators believe is inevitable in the changing Australian taxation services market?
New Opportunities
There are new products and services that you can offer your clients to offset the “potential fee slippage". These products include:
It is interesting to note the reported activities of big four accountancy businesses and other firms relative to the small/medium enterprise market. Recent announcements include:
Would this interest from the “big end of town” in small/medium enterprises have anything to do with the imminent passing of the legislation for Crowdfunding Equity Raising in Australia? This legislation, when combined with the Early Stage Innovation Company legislation which has operated since July 2016, opens up a wide range of potential work that could be undertaken by smaller accountancy businesses including:
Many of these companies will require audit (even though the Crowdfunding legislation gives Crowdfunding companies a five year exemption from having to have an auditor) and also will require directors with financial experience to be appointed to their Board of Directors.
In analysing new opportunities, accountants should be evaluating your current clients who pay between $3,000 and $10,000 per annum. The benchmarking.com.au report for the “All Firms Average” identified that there were 101 clients in that category paying $670,342 and an average fee of $6,637.
This average fee payment probably only includes the preparation of an annual set of financial accounts and the business entities' income tax return and perhaps business activity statements during the year with the possibility of a quarterly Profit and Loss Account and Balance Sheet being prepared. There is very little room for any business advisory services activities to have been undertaken!
If the “All Firms Average” firm was able to have a conversation with those 101 clients and was able to convince 30% (31 clients) to commission business advisory services work totalling $5,000 per client, this would generate an income of $151,500. This would more than offset the potential “fee slippage” discussed earlier.
Our key recommendation is that accountancy businesses should be closely examining three key areas relative to your current fee income. These are:
Whilst current trading conditions are difficult and there is “fee slippage” occurring, there are many opportunities for accountants to be offering a wider range of business advisory services to your small/medium enterprise clients.