Small firms must rise to the challenges of the millennium

The professional challenge which we as chartered accountants face over the next decade is to turn ourselves from beancounters into businessmen.

The report recently published by the English ICA – Added Value professionals, Chartered Accountants in 2005 – sets out the challenges which face all parts of our profession. As a general practitioner and chairman of the General Practitioner Board, I am keenly interested in the way that these changes will affect the smaller practising firm.

This is of particular relevance as statistics show that despite the fact that large companies have always employed the lion’s share of the population, the new millennium is likely to see small firms come to the fore as the major employers. Hence, their position within the economy will become increasingly important.

The profession in which we will be working in the early decades of the next millennium will be substantially different from the ones we entered as students in the 1990s, 1980s and before. The institute working party has identified four key ‘drivers of change’: internationalisation of economic activity; social pressures for greater accountability; information technology; and work patterns. Although individually they are not new, taken together these factors will have a significant impact.

A changing profession

The working party feels these trends will become more defined, the pace of change accelerated and competition from inside and outside the accounting profession will intensify. In short, technology, competition, deregulation and the maturity of the audit market could leave too many accountants chasing too few jobs.

While the number of small businesses will increase, their demands in terms of professional advice will change. Small audit firms will come under pressure from the loss of audit work as audit exemption thresholds are possibly raised towards the EU limits. Increasingly, accounts preparation and tax returns will become a product performed by computers or relatively unskilled workers.

General practitioners will need to learn new skills. Members over 45, who by 2005 will form a larger percentage of the institute than ever before, will be particularly vulnerable.

None of this should be seen as depressing. We should see the changing environment as a challenge. Although smaller firms will be subject to more intense competition, they can also be quicker on their feet. Instead of offering compliance work, they will have to concentrate on added value services. Indeed, the key opportunities for smaller firms lie in offering these services ‘upmarket’.

Transfers of wealth, the widening gap in the welfare net, increased job mobility and insecurity on pension planning makes this an attractive area for small practitioners – we must become ‘knowledge workers’.

It is becoming increasingly common for global business to move their transaction work to wherever it can be performed the most cost-effectively and efficiently. If this trend becomes more widespread, then the next question has to be where are the financial director and his much reduced staff to be located – and where indeed is the auditor? The hub may still be in the UK but with the organisation’s spokes extending all over the world this inevitably means fewer jobs for UK accountants.

Many of the questions and challenges raised by the report dovetail into the consultative document recently published by the institute’s Education and Training Directorate. The document looks at the broader range of skills which chartered accountants will require, it also emphasises the need for smaller practices to carry on training chartered accountants. This is vital if smaller firms are to take advantage of the opportunities laid out in Added Value Professionals. Serving the small and medium-sized enterprises does require a particular skill set and those who train with the Big Six firm cannot expect to walk into general practice and be successful, without retraining.

This, of course, leads on to the question of what the role will be for the institute in the next millennium? My personal view is that the institute’s role is primarily one of member support, with appropriate input into the regulatory framework in order to maintain the reputation of the profession.

Serious challenges

But make no mistake; no part of the profession is exempt. Over the next ten years or so, we are going to experience a changed environment which will force us to radically alter the way we work and the way we view our clients and the services we provide to them. No-one should underestimate the seriousness of some of the challenges we face.

I know some people will be unable, or indeed refuse, to see what is coming and for them there is only one possible outcome – professional and commercial extinction. While it is that serious for those who refuse to adapt to changed circumstances, those who do can look forward to a happy and prosperous professional life.

The most fascinating part of the process is yet to happen – how will members react to the picture we have painted?

Mark Spofforth is a general practitioner and chairman of the institute’s General Practitioner Board. The report is available from the institute or on its website http://www.icaew.co.uk.