Break Out – Oct/Nov 2013
In two offices in suburban Hawthorn and in the midst of Melbourne’s CBD legal district, accounting firm William Buck is executing an overhaul of its Victorian business that quietly encapsulates the upheaval occurring in the global accounting industry. This 115-year-old, mid-tier firm is reflecting the changes in both what it chooses to do and, importantly, what it chooses not to do.
Wafer-thin margins in traditional auditing and accounting work, along with the much-documented rise of cloud-based offerings, have encouraged many large accounting firms to diversify into broader advisory services. And Asia’s burgeoning, well-educated, technologically advanced middle classes offer a cheaper talent pool for young auditing and accounting staff, allowing the big firms to send some of this work offshore.
All that adds further price pressures to an industry that was highly competitive even before the global financial crisis hit in 2008 and which has tightened even further since then.
The competitive pressures have already led to a wave of consolidations in the industry.
And there are also reports that the big accounting firms plan to encroach more on the traditional mid-tier territory of the SME market as they expand their private client services.
The managing director of William Buck’s Victorian business, Lindsay Holloway, sees basic compliance services as a product that many clients buy grudgingly and regard as having limited value. These traditional services – which currently make up about half the firm’s business – are the areas under the most margin pressure, he says. “All areas of compliance are under pressure – certainly audit is under a lot of pressure,” says Holloway. “Audit is always a difficult industry to be in; it’s a mature service in a crowded marketplace and people can shop around.”
But Holloway also sees clients with limited budgets who are still willing to spend on non-traditional, value-added services – as long as they “add more value beyond the cost”. Indeed, he says, many SMEs now expect an accountant to act more like a chief financial officer, capable of being a sounding board on matters of strategy, rather than just a compliance expert.
Industry numbers confirm his view: according to a recent Business Review Weekly survey, consulting is the second-fastest growth area for the accounting industry, after tax advisory. So in recent years, Holloway and his fellow partners in William Buck’s Melbourne office have overseen a redesign of the business, with significant expansion of consulting and advisory services.
Three years ago, they decided on a strategy of acquisition and diversification and went about identifying candidates and reallocating existing staff. In July 2013, William Buck’s Melbourne office merged with smaller mid-tier firm Bell Partners, lifting its total staff to 125, including 15 directors. (The national William Buck group – an alliance of several state-based and New Zealand-based businesses – was listed 19 in BRW’s top 100 accounting firms in 2012 and has operated in Australia and New Zealand for 125 years.) “It’s inevitable consolidation will continue [in the industry],” says Holloway. “If you get caught in the 40 to 80 staff range, you’re in no-man’s land.”
The Bell merger strengthened the firm’s specialised consulting and advisory arms and increased the depth of services offered to clients, notes Holloway. William Buck now offers services in business, corporate and wealth advisory, audit and assurance, tax services and superannuation. Corporate advisory and taxation (thanks, in part, to the hiring of a specialist tax partner in 2005) have been the business’s fastest growing services in recent years, says Holloway.
“And William Buck’s positioning and marketing as a mid-market expert are what have allowed us to grow.”
Filling the SME gap
Another growth area being targeted in the reshaping of William Buck is providing advice to SMEs that are facing financial difficulties. Holloway argues such firms are not particularly well serviced in the market place and that the larger firms are unlikely to see value in taking them on. “Where do you go when your business is in distress? Essentially, we are able to provide advice on mergers and acquisitions. It’s a real niche in the market that is not being serviced. It falls between liquidators and management consultants, if you like.”
The firm started off the 2013 financial year with two people in this niche and it now has six. After the merger with Bell Partners, Holloway expects further growth in this service. “It’s been one of the success stories,” he says.
Holloway says the firm has also accelerated its development of specialising in valuations, with growing demand from lawyers involved in matrimonial disputes for independent expert reports on business values. He has unveiled plans to extend the firm’s strategic planning service by “developing more cut-down strategic planning models”. That, he says, will let William Buck cater more easily to mid-market clients – those turning over between $10 million and $100 million a year.
William Buck has developed these new skills over several years by reallocating staff internally, by bringing in new specialists from other firms and through mergers, including the recent Bell merger. “It’s always good to bring new people in and get new ideas, but it is also important to grow our own people,” says Holloway, adding that the new skills come roughly equally from hiring new staff and moving existing staff around.
While compliance still accounts for a significant portion of William Buck’s Victorian income today, Holloway says he expects advisory to overtake it within a couple of years. “I suspect that we have another year of consolidation with the merger and settling our systems down,” he says, “and I would think that within two years, our consulting income should exceed our baseline compliance [income] marginally.
“Ten years ago, we ran as a group of general practitioners sharing a brand and resources. Now, we have specialised service offerings whereby a client could deal with a number of our professionals from different divisions in the normal course of a year, if their needs required it.”
Holloway estimates that more than half of the firm’s medium-sized clients already take consulting or advisory services, as well as the basic accounting services, while fewer than half of its “micro-clients” do.
The offshore factor
While William Buck clearly sees diversification as a winning approach, one strategy it will not be following is the growing trend towards offshoring by accounting firms (and many other large corporations).
Tough conditions have prompted a decline in accounting graduate intakes by up to a quarter at some firms. Instead, some businesses have been setting up branches around Asia, where they can hire well-qualified graduates at cheaper rates. But Holloway believes that his clients see value and take comfort in the firm retaining staff locally, and this can become a positive point of difference for William Buck.
“We have looked at it a few times in the past,” he says. “We are comfortable that our brand remains Australian and are confident our processes can efficiently produce price-competitive work under our management here. The advent of online accounting systems is reducing base process time with bank feeds and ease of access. We think this could further bridge some of the potential savings of cheaper labor offshore.”
The Australian Financial Review recently claimed that “the majority of mid-marketing accounting firms have increased revenue despite heavy discounting over the last 12 months, but profits and partner earnings have suffered”.The newspaper went on to report: “There is a growing sense that intense price competition will become a function of the profession and won’t fade as business confidence improves. Several firms claim they have been unable to increase rates since 2007. All firms have enforced efficiency programs and accelerated technology adoption as a result.”
While politely declining to reveal his firm’s results, Holloway shrugged off these reports of falling profits. “We have not necessarily found it that way. Things are going well and going fairly strongly.”
Against a backdrop of relentless technological change and competitive pressure, William Buck’s advice to itself is delivering results.