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Are the days of the sole practitioner numbered?
In my work with public accounting firms, I often meet experienced practitioners who still operate alone. Sure, many have staff, some quite a sizeable team, but essentially they’re sole practitioners – no other partners involved.
Many such practitioners are now re-evaluating their business model in these changing times.
It is difficult enough, one might think, to grow a practice, manage a team of technicians and support staff, deliver a quality product to clients within budget and on time, and offer a happy, progressive and challenging workplace to employees.
Add to that the continuous flow of new requirements from the relative professional bodies, such as peer reviews, Quality Assurance, Practice Inspections, IFRS, and so the list grows, it’s little wonder that many sole practitioners are taking stock and wondering if there might be a better way of doing things.
Well, there is.
But it’s not for everyone. Many Accountants end up as sole practitioners because they realize that they’re not good at being a partner. Some just like the freedom it affords them. For others, it’s the prospect of keeping 100% of the bottom line they create – no sharing!
Whatever the reason, there is a growing movement among sole practitioners, and, indeed, smaller two partner firms, that is asking ‘maybe there’s a better way’.
And, for some, there is.
I see more two-to-five partner firms looking to offer sanctuary to sole practitioners by bringing them into their firm, and merging the two practices together.
There are some immediate synergies that accrue to the newly created larger firm:
- Economies of scale – the new firm only needs one receptionist, one office, one photocopier etc, etc
- Camaraderie of like-minded practitioners – it’s good to have peers to talk to
- Wider range of services available – clients of the sole practitioner might be delighted to learn of new services available to them in the newly ‘merged’ firm
- Better optics for finding, and keeping clients – some bigger potential clients can be reluctant to take the plunge and switch their account to a sole practitioner, often asking “what would happen if you were hit by a bus?”
- Better resources – the bigger firm often invests more in I.T., systems, scanning, paperless etc, etc and now the former sole practitioner can benefit from these investments too.
- Better career options for staff – a larger firm could offer more opportunity to learn new skills and climb the ladder faster
- A piece of a bigger pie – from a profit sharing perspective, often a sole practitioner can end up having a bigger income allocation – the ‘small piece of a bigger pie’ effect.
- Better infrastructure – for example, being up to date on the audit requirements of the professional body ensures that the sole practitioner’s predicament disappears – audit clients can continue to be welcomed and properly serviced.
Although not extensive, the above list of benefits is typical.
I believe that there will always be a place in the market for the sole practitioner. Many small business owners want the personal service that a sole practitioner provides, not that bigger firms cannot do that, of course they can, but the sole practitioner is perceived by the marketplace at being better at it, rightly or wrongly.
However, I do believe that fewer and fewer small firms will remain in the audit & assurance marketplace. I see many smaller firms turning down opportunities to get new audit engagements, preferring to downgrade their audit clients to reviews where possible, and their reviews to notice to reader engagements.
This will leave a number of opportunities for the mid sized firms to move in on the bigger clients of the smaller firms.
Indeed, I am already seeing a number of mid sized firms looking for sole practitioners and smaller firms to join them with the goal of benefiting from some of the above benefits, for both parties.
I am also seeing a number of sole practitioners who have no desire to join a larger firm, create a ‘NTR and Tax’ practice for themselves, and still do ‘very nicely thank you’ financially as a result.
The problem I see ahead, is that the small firms are going to get smaller and the larger firms will continue to get larger, creating a potential vacuum in the middle.
But, as ever, with the Darwinism of the marketplace, I am sure that something else will step into the gap thus created.
© 2004-2011, Steve McIntyre-Smith. |
