As accounting technology continues to develop at apace, we’ve considered how outsourcing and automation play an important part in the practice merger market.
I previously talked about the intention of the professional services consolidator, or more to the point, the investor sat behind them. But technology also plays an important role in their strategy.
Tech drives consolidation efficiency
There are a number of consolidators in the market who are leaning heavily on tech to drive the model. They are using centralised outsourcing to create financial and operational efficiency – and recent IT development mean they can do this as a much lower cost proposition without sacrificing client KPIs.
They typically lean on a huge transfer of data – typically accounts prep and payroll – into the central hub, then practices being acquired can lose a big chunk of their staff – sometimes between 30% to 50%. Efforts are then focused on getting closer to clients, and a diversion of more funds towards business development.
For smaller, compliance-driven, practices this model is suitable – particularly if fees-per-client is low. Often these practices are run by retirees-to-be, who are happy to exit and assist with the handover. A senior manager or aspiring partner in that practice is then given a role to manage the office and report into the consolidator.
What happens to the quality of work?
While it’s important to consider and try to understand how the outsourcing model works, it’s also critical to understand how the processing is managed. Is the quality of work being produced sufficient for clients? What impact will it have on the running of the practice post-consolidation? It’s worth noting that for some clients, consolidation will undoubtedly improve the customer experience where processes and workflow are standardised and consistent.
For those staying in the practice, they will have important questions to ask about how the integration process will work; will parallel systems run for a while? Will clients need to change how they communicate with the practice? How much training will remaining staff need?
The client question is not one to gloss over. Generally, they are not interested in the processes unless it involves them changing or altering their contribution and workflow. The trick is to keep this process as seamless as possible, while the consolidator will be trying to understand and glean more value from them over time through advisory-led services.
Improving information flow between client and practice by efficiency and cost, and then providing higher margin work, is they key to consolidators’ model.
Kevin Reed is a freelance journalist and consultant at practice advisers Foulger Underwood.