The BRW Top 100 Accounting Firms 2013 survey found that “poor economic conditions" was the key reason clients pulled back spending with firms in 2012-13. Redundancies also featured heavily, with at least one in three firms in the top 100 admitting to making staff cuts. The middle tier faced big revenue drops as fierce consolidation characterised the accountancy landscape, with partners jumping from firm to firm and the mid-tier gobbling up smaller firms to keep growth coming. The fight to retain talent means almost all – 94 per cent – of top 100 firms say they expect to increase staff salaries in 2013-14.
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After a tough year when all big four firms saw revenue dip as transactions and merger and acquisition activity dived, domestically, the outlook is slightly healthier. The C-suite at the top four firms are seeing signs of business confidence returning, largely, they say, thanks to a new government that has promised to cut red tape.
“You’re already seeing signs of increased activity, in both marketplaces and the consulting and advisory world,"
Still, the global picture remains volatile and clients are demanding more competitive rates on fees.
“Most firms will do it tough and it’s unlikely that the green shoots some are seeing in the economy will benefit the majority," says Beaton Research and Consulting executive chairman George Beaton.
Swiegers says volatility, coupled with digital change, will continue to challenge firms. “The volatile economy is probably going to be around for another few years. We’ve prepared our organisation to expect that."
Just as it was last year, consulting was the key to growth in 2013. Tax advisory and business advisory remained the fastest-growing areas for top 100 firms in 2013, and tax compliance and business advisory were the biggest fee contributors.
As firms become less traditional and move away from straight auditing, it may not be long before they are forced to split their audit and consulting arms.
“My money is on the likelihood that, within the next decade, we will see a split," Beaton says.
“The lobbying power of the big four is such that they will hold this off for a while. But firms have been racing to acquire assets [for] diversification and that’s preparing firms for an eventual split of their audit and consulting functions."
For now, top 100 firms will continue to aggressively move into new service areas outside the realm of straight audit and tax advice. These include wealth management (particularly self-managed super fund advice), real estate advisory, digital consulting and data analytics, just to name a few.
In fact, 76 per cent of firms say information technology system upgrades will be their main capital expenditure in the next 12 months. Most of these are expected to be on cloud-based accounting systems.
Whether it’s digital investments or otherwise, diversification of services will continue. “The big four can’t grow by taking market share in audit or tax without getting into price wars," Beaton says. “We will see the big four diversify in areas such as engineering, marketing communications and digital."
The “next eight" second tier firms will produce a series of winners and losers, he says. “A few firms will really rise to the top, and challenge the big four. I won’t name names, but some will shrivel and fade."
There will also be newcomers into the top 30. “It could be consulting firms or multi-disciplinary firms – and by that I mean accounting-law, accounting-engineering or accounting-wealth management combinations," Beaton says. “We may well see accounting-law combinations acting as incubators for start-up businesses."
The remaining smaller firms will also diversify.
“We will see a rise of more and more specialist boutiques, focused on areas such as the commercialisation of intellectual property," Beaton says. “We will also see a rise in virtual firms – those that have outsourced all their back office [functions] to get professional work done by offshoring."
As well as moving into new areas, firms will be under pressure to cut costs. Most firms still operate under old billing models: almost 72 per cent of firms surveyed by BRW say they charge clients by the hour.
Beaton says there will be continuing pressure on fees, and in the future we will see a lot more firms moving to the fixed-fee model.
“Clients have an appetite for discounts," he says. “The average price point in the accounting profession has fallen for the past six years – it’s quite a dramatic shift."
But the firm’s heaviest investments are in digital areas and data analytics. “Firms that thrive will be those that build a culture of constant renewal, enabling them to stay ahead of market disruptions and client needs," he says.
“We need a global mindset and the ability to work seamlessly across borders. Asia is on our doorstep and presents huge opportunities, but many businesses still underestimate what it takes to form successful relationships in the region." By mid-2016, the firm will increase the number of partners of Asian background to 5 per cent.
The newly-rebranded
KPMG, at third place, saw revenue drop 0.6 per cent to $1.113 billion for the year ending June 30. Wingrove says this was due to “muted demand from corporate clients and reduced transaction volumes – particularly larger transactions". The firm has traditionally been working against rivals in the realm of entrepreneurship and innovation. Wingrove wants to go harder. “There’s more we can do to be seen as innovative and cutting edge," he says.
Deloitte is still in fourth place, but is catching up to the others. It also saw revenue decline, by 0.7 per cent to $1.092 billion for the year ending May 31. Swiegers says the drop was “disappointing, but it’s not the end of the world" given Deloitte had almost 18 per cent growth the year before. “The market tested all of us [big four firms]," he says. “The biggest difference for [Deloitte] was protecting the clients we had gained [a year earlier]."
In the past year, Deloitte acquired Brisbane-based property specialists Capland Real Estate Advisors and Queensland web content management consultancy, Digicon. It’s also formed interesting alliances, including teaming up with Silicon Valley start-up Kaggle in a bid to expand its $2 billion global data analytics business. Then there are alliances with strategy consulting firm 10EQS and design-thinking firm, Second Road. Perhaps the biggest partnership of all came this month, when Deloitte joined with engineering group WorleyParsons to work together on major projects in the oil and gas, mining and infrastructure sectors.
More technology-related acquisitions will happen in the next two months, Swiegers says, although the future will depend on strategic alliances. “It’s easier to create alliances where we don’t have the expense every month. But when we really need it, we can get hold of somebody who’s absolutely world-class," he says.
The nation’s fastest-growing firm was
Naylor says the firm specialises in property and wealth management advice, with in-house licensed financial planners. When clients, who have traditionally come for tax-related advice, demand SMSF or general financial planning advice, the firm can keep their business. It’s the accountant’s equivalent of “would you like fries with that," Naylor says.
He says over the past year a number of smaller practice accountants joined the group. In terms of consolidation, Naylor predicts a future where “larger firms get larger", forced by a lack of succession planning. The BRW survey found that 25 per cent of top 100 firms still do not have a succession plan.
“We’ve still got small cottage firms behaving like cottages," Beaton says. “My prescription would be that firms start grouping together, using structures where they share their premises, their back office and infrastructure to reduce costs for the firm, and where members are specialised and get referrals from others. It allows better quality of life for partners and staff."
Naylor says that’s already starting to happen. He says they’ve been approaching small firms to do a joint venture with them and benefit from Chan & Naylor’s centralised marketing and IT solutions. “You don’t have to sell out completely," he says. “A lot of the smaller guys are professionals who want to keep their finger in the pie. This is the first stage of succession planning; they can still receive passive income from the firm, as long as the practice is run like a business."
As firms look to attract and retain the best talent and establish their brands, there are winners and losers. The mid-tier firm that’s taken the biggest hit is
Unless PKF fills this void, it may only generate fees of about $15 million annually from its four offices in Tasmania, Canberra, the Gold Coast and Perth. “Filling current gaps in the PKF Australia network" is the firm’s top priority for the year ahead, says PKF Australia chairman
Number six firm BDO, which benefited from the PKF injection of partners, saw a 4.7 per cent increase in revenue to $243.4 million.
“We’ve seen significant growth in business services and global outsourcing," she says.
“We’re finding a lot of our clients are expanding into Asia." On the other side, “there have been a lot of companies coming into Australia as well. A lot of foreign companies are setting up subsidiaries in Australia. That’s a growth area for us."
Argiris adds: “It’s going to be a hard two years for most Australian firms. We’re certainly not going to have the growth rates we used to. But clients are starting to do transactions and seek more advice."
BRW
