Global and Regional Trends Impacting SMPs
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Presentation by Christopher Arnold, Technical Manager, SME & SMP Affairs at the IFAC-SAFA SMP Forum, in New Delhi, India, October 10, 2014
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Global and Regional Trends Impacting SMPs
- 1. Global and Regional Trends Impacting SMPs Christopher Arnold Technical Manager, SME & SMP Affairs IFAC-SAFA SMP Forum New Delhi, India October 10, 2014 Page 1 | Confidential and Proprietary Information
- 2. Page 2 | Confidential and Proprietary Information Agenda • IFAC SMP Quick Poll • Insights from IFAC Research – The Role of SMPs in Providing Business Support to SMEs • Other Research – ACCA/IMA Digital Darwinism: Thriving in the Face of Technology Change – Edinburgh Group research, Growing the Global Economy through SMEs • Resources
- 3. Insights from IFAC SMP Quick Poll I • Latest poll Nov-Dec 2013 attracted over 3,700 Page 3 | Confidential and Proprietary Information respondents • Report at www.ifac.org/publications-resources/ifac-smp-quick- poll-2013-year-end-round • Poll was conducted in 17 languages • Responses are heavily skewed in favor of practitioners from Europe and Asia working in smallest categories of practice
- 4. • What is the biggest challenge faced by your SME clients? Page 4 | Confidential and Proprietary Information Insights from IFAC SMP Quick Poll II 18% 15% 15% 5% 3% 14% 9% 8% 13% Economic uncertainty Difficulties accessing finance Pressure to lower prices of their products and services Rising costs Lack of demand for their products and services Compliance with regulation Competition Attracting and retaining staff Other
- 5. Insights from IFAC SMP Quick Poll III • What is the biggest challenge your practice is facing right Page 5 | Confidential and Proprietary Information now? 24% 21% 2% 15% 5% 6% 7% 7% 5% 7% 2% Attracting and retaining clients Pressure to lower fees Keeping up with new regulations and standards Attracting and retaining staff Competition Work-life balance Rising costs Other Ability to adapt to changing client needs Keeping up with new technology Succession planning
- 6. Insights from IFAC SMP Quick Poll IV • What is the fastest growing source of revenue for your Page 6 | Confidential and Proprietary Information practice? 33% 23% 17% 21% 6% Accounting, Compilation, and Other Non-assurance/ Related Services Audit and Assurance Advisory/Consulting Services Tax Other
- 7. • What is the main driver of your practice’s profitability? Page 7 | Confidential and Proprietary Information Insights from IFAC SMP Quick Poll V 34% 2% 2% 33% 9% 11% 9% Acquisition of new clients Better retention of existing clients Increased productivity Reduced overheads Increased average fee size Other Better utilization of working capital and other assets
- 8. Insights from IFAC SMP Quick Poll VI • How does your practice expect business to be in 2014 Page 8 | Confidential and Proprietary Information compared to 2013? 47% 22% 31% About the same Better than this year Worse than this year • Next IFAC SMP Global Survey - 3 November 2014
- 9. Page 9 | Confidential and Proprietary Information Insights from IFAC Research I • IFAC Research on the role of SMPs in providing business support to SMEs • Extensive literature review • Interviews with accountants across the world
- 10. Page 10 | Confidential and Proprietary Information Insights from IFAC Research II • SME demand for business advice – Owner-managers can be reluctant to readily seek advice – SMEs lack of in-house expertise – Change in enterprise or external environment – Regulatory demands extending outside financial compliance – Growing information needs of SMEs • Accountants as external advisers – Most studies worldwide indicate accountants are preferred and first source of advice for SMEs
- 11. Insights from IFAC Research III • Reasons for choosing an accounting firm, especially SMP – Recognition—SMPs face similar compliance burden as Page 11 | Confidential and Proprietary Information SMEs – Technical competency – Trust – Proximity and responsiveness – SMEs wanting a one-stop shop
- 12. Insights from IFAC Research IV • Changing environment and challenges to traditional provision of services – Consolidation within the accountancy profession – Shift in regulatory environment: fewer audits – Shift in the nature of the SME population – Reluctance of some SMPs to provide services other Page 12 | Confidential and Proprietary Information than core compliance • SMPs will have to diversify to survive as key advisers for SMEs
- 13. Page 13 | Confidential and Proprietary Information Other Research I – ACCA/IMA • ACCA/IMA Report on Top 10 technologies that have the potential to considerably reshape the accountancy profession and business landscape: – Mobile - Cloud – Big data - Virtual and augmented reality – Payment Systems - Artificial intelligence and robotics – Cyber security - Educational – Social - Digital service delivery
- 14. Page 14 | Confidential and Proprietary Information Other Research II – ACCA/IMA • Research – developments in technology: – 81% expect change “to some extent” or “to a great extent” over next decade – 18% expect “a total transformation” – 2,100 ACCA/IMA Members • The profession must anticipate the changing needs of business • Accountants and finance professional must be open to the changes created by the cloud, mobile and social platforms and face up to demands of cybercrime
- 15. Page 15 | Confidential and Proprietary Information Other Research III – Edinburgh Group • Edinburgh Group research, Growing the Global Economy through SMEs • SMEs increasingly international but need more support • SMPs can help with: • Identifying markets • Navigating red tape • Facilitating finance • Dealing with FOREX
- 16. Page 16 | Confidential and Proprietary Information References—General • IFAC SMP Committee: www.ifac.org/SMP • Follow us on Twitter: IFAC_SMP • Join us on LinkedIn: IFAC SMP Community • Global Knowledge Gateway: www.ifac.org/Gateway • Resources and tools (all): www.ifac.org/about-ifac/small-and-medium- practices-committee/smp-resources-and-tools • IFAC Translations and Permissions: www.ifac.org/about-ifac/ translations-permissions
- 17. www.ifac.org/SMP
Editor's Notes
- One of the activities the SMP Committee has undertaken since early 2011 is the IFAC SMP Quick Poll. The intent of the quick poll is to take a snapshot of key issues facing the SMP sector around the world which provides insight into key trends and developments facing both SMPS and their small business clients. The results are critical to IFAC because they provide a deeper understanding of the challenges and opportunities faced by SMPs globally. Responses heavily skewed in favor of practitioners from Europe (45%) and Asia (27%) working in the two smallest categories of practice (sole practitioner and 2-5 professional staff – 61%). SAFA Region – low level of respondents: Afghanistan – 2 Bangladesh – 1 Bhutan – 1 India – 6 Maldives – 0 Nepal – 1 Pakistan – 2 Sri Lanka - 17
- Globally Economic uncertainty (18%) topped the list of challenges faced by SMPs’ small business clients. However, by a smaller margin than in previous editions of the poll.
- Globally, the foremost challenges for SMPs were attracting and retaining clients (24%), followed by pressure to lower fees (21%).
- Globally, Accounting, compilation, and other non-assurance/ related services was reported to be the fastest growing source of revenue by 33% of respondents, some way ahead of audit and assurance (23%). Tax (17%) was least likely to be the fastest growing revenue source.
- The top two drivers of practice profitability was business from new clients (34%) and better retention of existing clients (33%).
- Globally nearly half the respondents expect that business in 2014 will be the same as it was in 2013. Next Global SMP Survey launches on 3 Nov 2014. It would be great if countries in the SAFA region could increase the number of its respondents.
- Information Paper – provides an analysis of the literature and evidence on the role of SMPs in the provision of business support to SMEs. Extensive literature review and original evidence from interviews with accountants across the world. Published in April 2010, the paper captured research that was commissioned by the IFAC SMP Committee, on the role of accounting practices, and in particular SMPs in providing business support to SMEs. It suggests that the accountancy profession has, and continues to, undergo changes in terms of the marketplace and in the regulatory environment of respective jurisdictions. It is also implied that SMPs will have to change significantly in order to meet the needs of their clients. More specifically, the competency base, methods of working and referral models will HAVE TO CHANGE.
- The demand for business advice by SMEs Literature points to the reluctant, or at best circumspect, behaviour of owner-manager in readily seeking advice. Reasons – multifaceted. Often want to “go it alone” rather than expose their problems to outsiders – depicting this “fortress enterprise” mentality. Strong case that SMEs require external support and advice because of the absence of in-house expertise. Advice when there is a change within the enterprise e.g. growth, succession, a takeover or an external environmental change. Major stimulant for SME external advice has been growth in the amount of governmental regulation and demands by SME clients for monitoring and quality control. The range and quality of advice has been as a result of a growing demand derived from the information needs of SMEs in order to fulfil their regulatory obligations and strategic challenges. Note these regulatory demands extend outside financial compliance and extends to such advice on HR, health and safety and environmental regulations. While accountants often found to be most respected and preferred source of business advice, ahead of lawyers and bankers, many SMEs do not realize they offer it! So how can you turn this into an opportunity for you and your firm?
- The Motivation / Reasons Recognition by SMEs that SMPs are subject to the same compliance and other requirements of the business e.g. HR - maternity leave / employment contracts Technical Competency – main reason for use of external accountants as source of advice is for their technical competencies and expertise for statutory audit and taxation services – most SMEs draw upon external accountants for their financial management skills …accountants have demonstrated their competences in compliance work before other services are requested. Trust: the evidence base suggests the “trust” is one of the main reasons why SMEs draw on accountants for business advice – provides a platform for the potential take-up of advice. Also institutional trust being a member of a professional organization with ethical codes of conduct etc. / trust derived from an on going relationship Proximity and responsiveness: geographical proximity of accountants to SMEs. Evidence suggests that owner-managers prefer face-to-face meetings. Local SMPs are in a better position locally to service SMEs rather that regional offices of the bigger accounting practices. Numerous surveys have shown that speed of delivery of advice is crucial to many SMEs. SMEs wanting a one stop shop
- The marketplace for the supply of advice to SMEs has been evolving for some time. The underpinning factors include: Consolidation within the accountancy industry, with a growth in concentration through M&A and the decline in sole practitioners. Rise in the provision of services by larger and second tier practices to SMEs Shift in the regulatory environment in which SMEs operate, with some relaxation in the need for statutory financial audits but a rise in compliance linked to environment, health & safety and employment legislation. Shift in the nature of the SME population including away from manufacturing toward services, a maturation of the SME sector and their owners; and Reluctance of some SMPs to provide advice to SMEs because of their heterogeneity of need and inability to pay fees. If SMPs are not able to develop their service provision then their position as key providers of advice and support to SMEs will be eroded. You and your firm must develop a way to meet these needs!
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- EG coalition of 14 accountancy bodies from across the world. The report reveals a significant amount of international activity amoung the SME population. Almost three-quarters of SMPs surveyed have clients with an international element of some sort – most likely to be simply buying goods or services from abroad. SMPs appear to be missing the potential offered by international business, with only one in five providing services their clients may need to become international and take advantage of growing markets. SMEs will want to take part in international growth once recovery is fully under way. They will need advice on finance, risk, regulation and other competitive issues associated with doing busines in foreign terrotories. SMPs need to challenge themselves to look more critically at the services they provide to SMEs seeking to internationalise. E.g: Identifying the most attractive, fast-growing international markets. Guide SMEs through the red-tape challenges of international actitivity. Build relationships with banks and other key financers of international investment and trade – facitilate introductions FOREX – seek opportunties to provide value-adding advice in areas such as managing foreign exchange risks and forecasting currency needs. Consider additional networking opportunities