Figures published by the Office of National Statistics tell a sorry tale of death and destruction in the UK’s accountancy industry. In 2008, as the global economic downturn first began to rear its ugly face in the UK, 3,580 accountancy sector businesses failed. The following year there were 3,985 accountancy sector ‘business deaths’, 3,520 the year after and 3,360 in 2011 (figures for 2012 are not yet available). Most casualties have been small high-street accountancy firms and there are many reasons why.

The first is high failure rates among their clients, of course, while aggressive competition from larger rivals hasn’t helped. Inability to reduce overheads any further has also signaled the end for many small high-street accountancy firms. And while many cash-strapped small businesses have opted to look after more of their accountancy needs in-house, another factor has been the emergence of the more keenly priced online accountancy firm.

Major shift

Elaine Clark is one of the new breed of online accountancy business owners. She started CheapAccounting.co.uk in 2007 and the network now has 20 franchisees in England and Scotland. New franchises have recently been launched in Preston and London and more are planned in 2013.

Clark has observed a major shift in recent years. “Small-businesses have been demanding lower prices and better value in all areas – including accountancy. Many small firms need to minimise their costs just to survive, let alone grow. They’re now looking at their accountancy costs and asking themselves whether they could get better value. And that’s not going to change, with predictions that current economic difficulties could last for another five years or more.”

Too many traditional accountants remain complacent about fees, argues Clark. “Despite losing clients in recent years, many accountants expect to carry on pretty much as before. But I believe that it’s a case of change or die for many of them, because their cost-plus-based pricing models just aren’t sustainable – increasingly the market won’t allow it. Clients expect cheaper fees and better value,” she says.

Efficiency drive

Clark says many simple accounting tasks can be made much more efficient by clients using software, with data stored online using cloud-based solutions, available as and when the accountant requires. “It makes the whole process much more efficient and time-savings can be passed on to clients in the form of reduced fees, which are more affordable. Time saved can also be used by the accountant to provide advice to the client based on current data.”

According to Clark, many small businesses don’t actually require regular tax-planning advice, certainly not every month. “However, because traditional accountants normally build in such advice in to their fees, customers end up paying for something they don’t actually need or receive. That’s clearly unacceptable to businesses that are having to eliminate waste and inefficiency in all areas.”

Based on feedback she hears from new customers, she says too many micro and small businesses simply aren’t getting the advice they need to become more tax-efficient. “Frequently, for example, I come across sole traders who’ve been paying an accountant monthly or annual fees, yet they haven’t even been told they could reduce their tax bill simply by incorporating. Much depends on specific circumstances, of course, but in many instances, it’s true. The fact that such basic advice isn’t being given, well, it really is scandalous.”

Need for change

Clark says thinking on accountancy fees needs to change. “The traditional method of basing fees on the client’s turnover or profits – not necessarily on the complexity of their accounting needs nor how much value they gain – is unsustainable. And as their turnover and profits increase, fees normally rise, of course, without the accountant necessarily having to do more work. That’s clearly not right either – there needs to be greater transparency.

“All too often clients are paying more to subsidise their accountant’s plush city-centre offices, complete with fancy décor, furniture and coffee machine. Obviously, this is another reason why online accountants can offer cheaper fees, because premises costs don’t come into it.”

Chartered accountant Clark knows her industry well. Her experience spans three decades, much of it working for bluechips. “In the 1990s I was involved in business process redesign, which concerned examining end-to-end processes to make efficiency gains. I went back to college and did a masters degree in computing.

“That made me realise that, apart from the legal profession, accountancy seemed to be the only profession that hadn’t made inroads into working with technology to improve efficiency and reduce cost. With HMRC going heavily down the online route, accountants really do need to wake up and smell the coffee. Online is the way to go and accountants need to embrace technology,” she argues.

Quality assurance

Clark says accountants within her network are fully qualified members of the ACA, ACCA, CIMA, AAT, ICAS or ICAI professional bodies. They also hold a practising certificate to show they have the necessary experience, as well as having professional indemnity insurance. “Our franchisees must also comply with our strict operational guidelines and they are regularly checked against our quality assurance standards,” she stresses.

Elaine admits that reaction to CheapAccounting.co.uk from some traditional accountants hasn’t been too favourable. “Yeah, not happy,” she smiles. “They’re not going to be happy about a competitor who can provide cheaper prices and better value for money in many cases.

“Some have criticised the name because they think it reflects badly on the ‘accounting profession’. But it’s simply a direct way of telling potential clients what they can expect, which from a marketing point of view makes perfect sense. What’s the point of having a load of partner surnames that mean nothing? People who don’t understand why I called my business CheapAccounting.co.uk don’t understand the world we now live in.

“We accountants need to get off the pedestal a bit and not get so hung up on being a ‘profession’, when what we really do is provide a service – a service that can be accessed from a number of sources these days.”

So, does Clark believe that the traditional high street accountant is living on borrowed time? “Absolutely – it’s a case of change or die – their cost models simply aren’t sustainable any more. Look at what has happened to other businesses on the high street, many really big names, too. Times are really tough and clients expect cheaper prices and better value. They’re no longer prepared to pay for their accountant’s expensive premises – we simply don’t live in that type of world any more,” she concludes.

Case study

Lancashire-based chartered accountant Jackie Stopyra was faced with the stark reality of decreasing client numbers and fees, which were severely affecting her traditional accountancy practice.

She says she knew that she needed to do something, but admits to being unsure about what to do for the best. Stopyra found out about CheapAccounting.co.uk and since launching the franchise’s Preston office in September 2012, her fortunes have improved significantly.

“Through the support and training I’ve received I’ve very quickly got up to speed on how to make best use of technology to improve efficiency. Being able to offer cheaper prices is very attractive to the micro and small-business market. Getting help with online marketing has also enabled me to attract an encouraging number of clients in the few months I’ve been operating.”

Interestingly, Stopyra continues to run her traditional accounting practice, Davis & Crane Chartered Accountants, alongside her CheapAccounting online franchise. “The two practices complement each other nicely and now I’m able to attract business from a range of available channels, I’m not just relying on one or two. Things are looking much brighter than they were a year ago,” she smiles.