There’s been a noticeable shift in the accountancy world lately as outside investors are circling, deals are being discussed and many firms, particularly mid-sized practices, are weighing whether to take on external capital.
For some firms, this external capital can be beneficial, but it is not the right fit for every firm and the impact it might have on businesses needs to be considered.
As an independent firm, we want to break down how the sector is changing and what that could mean for your business.
Why is there an increase in private equity in accounting?
You will know from running your business that managing operational costs can be a challenge.
Technology platforms, cyber security, specialist tax and advisory teams all come at a cost and it can be tempting for many to seek an additional cash injection.
However, when private equity gets involved, the ethos of the firm is likely to change.
A firm owned by partners with a long-term view will naturally prioritise reputation and client relationships, while a firm with external investors may be pushed to hit specific growth or margin targets.
These targets may not always align with client's requirements and that difference is often felt by businesses.
Advisory opportunities can start to look like revenue lines to be pushed, rather than genuine advice in a client’s best interests and a sense of human connection can be lost in the process.
As nearly nine in ten accounting firms in the UK have been approached by private equity firms, it is important to know exactly who you are dealing with.
What could the increase in private equity mean for your business?
Think about the last time you trusted someone with a sensitive problem.
You want them to be honest, thorough and sometimes uncomfortable if that’s what the situation demands.
You don’t want them to soften their message because it jeopardises a cross-sell or upsets a backer.
If the firm auditing or advising you is increasingly judged by short-term financial metrics, there’s a risk that the advice may become more transactional and less tailored to what you actually need.
This is due to the drive for fee growth that leads to more product-selling and less long-term planning.
Long-term institutional knowledge and community connection can be lost when ownership changes bring churn at the partner level.
None of this is inevitable, as plenty of investor-backed firms maintain high standards and invest in client service.
However, it is easier to focus on the community when a firm is independent and free to make its own decisions without fear of upsetting anyone higher up.
That is why we are committed to remaining independent so that we can continue to provide the high-quality financial support that you expect.
With the Autumn Budget coming soon, you need dependable information from a community-focused source you can trust.
