The Evolving Role of SMPs as trusted advisers of SMEs

It is well established that Small and Medium Size Accountancy Practices (SMPs) are the trusted advisers of Small and Medium Size Enterprises (SMEs). This relationship between SMPs and SMEs has resulted in SMPs being the first choice and the most frequently used external sources of business advisory services for SMEs. This can be attributable to SME owners and managers’ perception that their accountants, who have become their trustworthy friends, built on their previous experience of SMP’s accountancy services, have empathy towards their business requirements and ability to advise them in terms of sustainability and growth. Therefore, from an SME point of view, SMPs can help their firms not only to comply with regulatory systems in accounting, auditing and tax, but also provide business advice and assistance beyond SMPs traditional core areas of expertise. The evidence from researchi is that these services provided by SMPs include advice on human resources, employment law and international business.

From an SMP perspective the perception is that the provision of services beyond their core leads to a competitive advantage which is critical for their sustainable development. The worry about the sustainability of SMPs primarily relates to the progress of digitalisation which we are told will have dramatic effect on how data is gathered and disseminated in processing traditional accounting services and the nature of the practices themselves. It is argued by many that digitalization of the accounting industry is likely to change the market from being a supplier driven to becoming demand driven and new actors with less accounting knowledge could get an opening for entering the market. Recognising this changing environment the widening of the SMPs offering is strongly being promoted by accounting organisations such the International Federation of Accountants (IFAC) as illustrated typically in their Global Knowledge Gateway publication: ‘Tomorrow’s firm- think big, think advisory’. It signals that SMPs should pursue service expansion beyond their core as a long term strategy. But there are a number of questions on the propensity and ability for all SMPs to offer such advice beyond their core activity.

Research indicates that accountants have higher levels of personal contact with SMEs than other service providers, for example more frequent visits to their SME customers than for example their bankers or solicitors. This is because the advisory service transaction requires the SMP accountants and their clients to exchange information and knowledge and commitment. Arguably, it’s the nature and extent of the knowledge that sets SMPs that offer business advisory services apart from those who do not.

Unlike traditional accounting services, which normally take the form of producing standardised financial statements, the output of advisory services tends not to be in any standard format and is often specific, contextual and complex in nature. For example, advice to a client SME on engaging in business with in another country will importantly require knowledge of the financial regulatory structure in that country including the taxation system. Therefore knowledge is required about the subject and it therefore begs questions as to its source. Traditional accountancy service knowledge can be acquired by individuals through accounting education through which professional qualification is gained. In the case of advisory services the necessary knowledge is acquired through personal experience rather than through training in a standardised type of knowledge. There seems to be a consensus that experience based knowledge, strongly embedded and contextual, plays an important role for SMPs to extend their offering. For example, in the case of a SMP giving advice to a client SME concerning an employment law issue about one of their employees it may be that the SMP has obtained the knowledge of the issue itself from their own experience dealing with similar issues or the experience gained from advising other clients.

Another important SMP source of knowledge is through networks. Networks are either based on formal or informal relationships between SMPs/businesses to further each other’s business interests. Indeed, networks offer SMPs an alternative to build on their own competences by utilising partners for knowledge and skills which they do not have. Therefore networks can help SMPs eliminate deficiencies in their own resources and knowledge. Evidence indicates that SMPs can expand their expertise, retain existing clients gain access to new domestic and foreign clients and enhance their credibility in the eyes of their clients by collaboration. From an interview with an SMP about sources of knowledge for giving advice on international matters to clients the partner of the small practice said ‘When someone from the UK wants to do business abroad, say in Singapore, we would refer them to our network counterpart in Singapore’. This example also illustrates the importance for the SMP being able to satisfy the demand from his client. If that was not the case the client might go elsewhere for not only this advice but for all the other service, including traditional accounting services. Furthermore, involvement in networks may lead to reciprocity and mutually supportive behaviour by working jointly they create enhanced returns for network partners. As a partner of an SMP commented: ‘Our Singapore contact, if they have anybody who wants to set up in the UK they will refer that client to us, and vice versa we will refer our client who wants to set up business in Singapore to them’.

However, there is evidence supporting the view that a significant proportion of SMPs perceive that they are too small to have sufficient knowledge and expertise to provide advice outside their core business. These SMPs felt uncomfortable to do so as it did not comply with good ethical practices and professionalism, as a SMP in one of the studies stated: ‘We do not have the resource, technical expertise, and we feel, based on that, the risks far outweigh the rewards. Ethically and professionally we do not feel that we can provide a proper service’. It could be argued that such SMPs will struggle in the long term due to the changes in the nature of the traditional accounting offering and finding the resulting competition in its provision of accounting services not sustainable for the practice. What is also very interesting is that the increase in the provision of business advisory services tends to be demand lead from the SME clients. The inability to provide these services may see the SME client move elsewhere for business advice and provision of accounting services.

For those SMPs who perceive that they are not in the position to offer any services outside their traditional accounting offerings because they do not have the knowledge and the necessary in-house resources they are able to act as a hub for referrals for their clients. Primarily this requires networking with other SMPs domestically and internationally to eliminate deficiencies in their offerings.

The close knit relationship between SMPs and SMEs enables accountants to offer appropriate and relevant advice to their clients which are rooted in an in-depth understanding of their clients’ business activities. Governments and European Commission should take this into consideration when developing strategies to promote and enhance the economic activities of SMPs which in turn will support their SME clients particularly in encouraging networking. It seems these agencies do not fully appreciate the importance and contribution of SMPs to the success of SMEs and to the economy as a whole. From the accounting profession’s perspective, and particularly IFAC, it is particularly important that they recognise the constraints on SMP to move forward on this agenda and consider the promotion of networking to increase the opportunities and sustainability of SMPs in their contribution to an effective economy centred on the SME community.

In this article brief reference will be made to examples from the findings of two published pieces of research:

Jarvis,R., & Rigby,M. (2012) . The provision of human resources and employment advice to small and medium size enterprises: The role of the small and medium size practices of accountants. International Small Business Journal. 30(8), 944-946.

Jarvis,R., Stoian, C and Mirkovic,R. International Advisory services provided by small and medium sized accountancy practices to SMES. Proceedings of the World Congress of Accountants, Rome 2014.

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