Published in Australian Financial Review, page 29 – 30, 4 March 2010
Brisbane entrepreneur Rob Nixon changed accountants three years ago. Now he is paying 18 times more than previously.
Fees to his accountant have increased from $4000 to $73,000 a year. For a relatively small enterprise employing 15 people, that is a huge jump.
Nixon, however, couldn’t be happier. “It’s become the catalyst for the most productive three years I’ve had in business,” he says. “With my previous accountant I was paying for compliance-only services.”
He’s paid more than $200,000 to his new accountancy firm FWO Chartered Accountants in the past three years, but the majority of the sum was for strategic planning and advice.
The chief reason financial advisers lose clients is because they’re not approachable and don’t take the initiative, FWO Chartered Accountants partner Matt Schlyder says. “Often, accountants think they have to make a dollar from every interaction with clients. They have a very time-based focus on the relationship and there is a perception among clients that they’re indifferent to the relationship.”
Being reactive is the death knell of accountants these days, the senior partner at boutique business advisory firm Knight Partners, Peter Knight, says.
Recently approached by a potential client with $4 million-a-year turnover and offices in Sydney, Brisbane and Melbourne, Knight ran through a standard checklist to see what services the current accountant was providing.
“I got to the end of the checklist and every box was ticked,” Knight says. “Their accountant was filing everything on time – tax returns, Australian Securities and Investments Commission filings, fringe benefits, business activity statements – and they were responsive. It wasn’t obvious to me what the problem was.”
Finally, he just asked. “The client was frustrated that she always had to initiate contact. Yes, the accountant returned her calls but she always had to come up with the ideas about tax planning or whatever and run them past him.”
A common failing among accountants is to look at a company’s accounts in isolation from the business owners or manager’s personal life and aspirations, Schlyder says. This context is essential for a proper needs analysis of where clients are now, what’s important to them and where they want to get to – before working backwards to the steps of how to get there.
“Particularly for small and medium enterprises, personal lifestyle and professional goals and performance are intrinsically interwoven,” Schlyder says. “If something happens to them, is their family taken care of? Are they extracting the appropriate amount of cash out of the business to invest for retirement without starving the operation of capital for growth?
“They’re the main income earner in the family, relentlessly driving the business, but is their partner [husband or wife] meeting their goals, so they feel good about what they’re doing?”
Most executives don’t expect to discuss these issues with their accountants. However, Schlyder believes it’s central to a good client-supplier relationship. “Most client decisions are not made on a purely financial basis. They’re made on feelings,” he says.
This is not always true. In the past 12 months, mid-tier accounting firm BDO has been fighting off raids on its audit clients by the big four firms – PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte.
The cheaper rates were too great a temptation for one large audit client. It moved knowing the prices being quoted by the big four were unsustainable – they were half the going rate for an audit of this size. The company director rationalised the call, saying he would be almost negligent if he didn’t accept.
Several listed companies tempted to switch audit firms in last year’s price wars are back out to tender, BDO chairman Tony Schiffman says. “One complaint we hear all the time is that clients end up training junior staff.”
He says financial controllers need to ensure that an accounting firm is putting the right people on their job, with the right skills and experience. This is paramount, especially in consulting engagements, such as due diligence in takeover bids and assessments of new technology systems, Navitas chief financial officer Bryce Houghton says.
The listed private education provider is sizing up a new computer system at the moment. “In that instance you want credible people who have worked with those software houses before on jobs of similar size and substance,” he says.
Houghton has a bias towards the big four accounting firms. “Buy the best if you can afford it,” he says. Navitas earned $470 million of revenue in 2008-09, so it can.
The company likes to spread tax, audit and consulting (that is, due diligence) work around. “It’s good to have linkages with all the big four because if an issue comes up you have a broader pool of experts to draw on,” Houghton says.
Navitas seeks different attributes for different types of work. For audit, Houghton wants the job done quickly, thoroughly and at the cheapest rate possible. “We moved from a mid-tier firm because we were worried we were more up to speed with changes and regulation than they were,” he says.
For tax advice, he wants creative thinkers who can take the initiative, but warns it’s crucial the executive team come to an agreement with tax advisers about how they approach risk.
Aspen Medical, which has been with Ernst & Young since 2007, has different reasons for seeking a big four auditor. “Having Ernst & Young audit our accounts lends us credence in competitive bids,” general manager Paul Ekin-Smyth says. “We leverage their reputation.”
Key points to a successful accounting partnership
- Understand the needs of the business (that is technical expertise, brand recognition, access to partners) and match them to the strategic priorities of the accountant
- Make sure the accountant has the technical skills for the job, and that the consultants on the job aren’t learning
- Check how well the adviser listens
- The accountant should understand the industry sector in which the business operates.