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Small and Midsized Practices Anticipate Modest Growth in 2016

Mar 2nd 2016
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Even though a majority of accountants working at small and medium-sized practices (SMPs) around the globe are expecting revenues to stay steady or increase across all service lines in 2016, that optimism isn’t at the same level as a year ago, according to a new survey from the International Federation of Accountants (IFAC).

Of the 6,725 practitioners surveyed, representing 169 countries and more than 800,000 small- and medium-sized entity (SME) clients around the world, 33 percent to 44 percent predict revenue increases across four key practice areas in 2016: audit and assurance, advisory and consulting services, tax, and accounting, compilation, and other nonassurance/related services, according to the results of the 2015 IFAC Global SMP Survey.

However, these projections are more conservative than 2015, in which 39 percent to 50 percent of SMPs predicted increases across service areas.

Practitioners representing the largest SMPs (21 or more partners and staff) had the brightest outlook for 2016, with 44 percent to 55 percent predicting revenue increases. Sole practitioners had the bleakest outlook, compared to other practice sizes, with 30 percent to 39 percent predicting increases this year.

While the top four challenges practitioners faced in 2015 were the same as 2014, survey results indicate that the severity of each challenge decreased last year. The following 12 challenges were ranked based on their high or very high ratings:

1. Attracting new clients (47 percent high or very high)

2. Keeping up with new regulations and standards (44 percent)

3. Differentiating from the competition (43 percent)

4. Pressure to lower fees (41 percent)

5. Serving clients operating internationally (38 percent)

6. (tie) Keeping up with new technology (37 percent)

6. (tie) Rising costs (37 percent)

8. Attracting new and retaining existing staff (33 percent)

9. Managing cash flow and late payments (31 percent)

10. Enabling employee work-life balance (27 percent)

11. Retaining existing clients (24 percent)

12. Succession planning (23 percent)

Based on those ratings, many of the 12 challenges were viewed differently by practice size. For example:

  • Respondents from practices with 11 to 20 (44 percent) and 21 or more (46 percent) partners and staff viewed pressure to lower fees as a greater challenge.
  • Managing cash flow and late payments was less of a challenge for larger practices (26 percent for those with 11 or more partners and staff).
  • Attracting new and retaining existing staff was viewed as a greater challenge by practices with 11 or more partners and staff. Specifically, 40 percent of respondents from practices with 11 to 20 partners and staff, and 48 percent with 21 or more partners and staff viewed the challenge as high or very high.
  • As practice size increased, differentiating from the competition was viewed as more problematic. Fifty percent of practices with 21 or more partners and staff viewed the challenge as high or very high.
  • Keeping up with new standards and regulations was viewed as less of a challenge as practice size increased. Thirty-seven percent of respondents from practices with 11 or more partners and staff rated this as a high or very high challenge.
  • Servicing clients operating internationally was viewed as less of a challenge by sole practitioners (35 percent).

Other key findings from the survey included:

  • A majority of respondents provide some form of advisory services, with tax planning (52 percent), corporate advisory (45 percent), and management accounting (41 percent) being the most common.
  • The top challenges facing SME clients were economic uncertainty (61 percent high or very high challenge) and rising costs (58 percent).
  • The regulatory environment (52 percent high or very high impact) and competition (46 percent) topped the list of environmental factors most likely to impact SMPs over the next five years, followed by technology developments (43 percent).

“For the second consecutive year, SMPs have predicted that technology and regulatory developments will have the biggest impact on them in the future; they will need to be nimble and adapt in order to remain competitive,” IFAC SMP Committee Chair Giancarlo Attolini said in a written statement. “While changes in technology are inevitable, we need to continue contributing to the development of international standards that are stable, relevant, and can be applied in a manner proportionate to the size of the entity or practice. And, as a profession, we need to help SMPs and SMEs adapt and prepare for changes by continuing to listen, develop guidance, and encourage knowledge sharing so they are well-positioned to thrive in the future.”

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