The rise of the professional services super firm

31 May

Paul Barrett

There are over 37,400 accounting businesses in Australia, according to IBIS World. The majority are small to medium enterprises (SMEs).

Yet, despite building a sector that brings in $27 billion in revenue per annum, accountants don’t get enough credit for their entrepreneurialism and business acumen.

The accounting profession boasts some of the most visionary, creative and impactful business leaders.

Consider the rise of the mid-tier in accounting. From humble beginnings in suburbia, many of these firms are now recognisable, respected brands. Through hard work, bravery and by listening and responding to their clients’ needs, they have ballooned into multi-million dollar operations with significant capability, capacity and scale.

The core turnover is between $30 million and $100 million per annum. At the top, it’s closer to $300 million.

For some time, I’ve been talking about the rise of the professional services super firm and why we’re about to see a proliferation of mega firms.

In short, five key themes are driving the medium to long term growth of accounting and advisory firms, and these themes also serve as tailwinds for entrepreneurs seeking to create super firms through the amalgamation of SMEs.

These themes are:

The institutional exit from personal financial advice: That vacuum is ready to be filled by new innovators.
Advice margins are finally attracting the valuations they deserve and capital is coming into the sector.
Demand for professional advice is high but the current skills shortage has created a demand / supply imbalance that is set to stick around for the medium term.
Higher barriers to entry and the modernisation of advisory businesses.
Regulatory tailwinds coinciding with the demise of the product-focused, vertically integrated model.

At a macro level, the scene is set but the onus remains on business leaders to find the right opportunities and partners to build something significant, scalable and sustainable.

AZ NGA’s latest paper, Ready or not: A guide to building a super firm, delves into this topic in greater detail. It outlines the blueprint for success, based on our observation of top businesses both inside and outside the professional services landscape. The paper also leverages our learnings and insights from assisting businesses in the AZ NGA network to develop and execute a super firm strategy.

As a starting point, super firms have five foundational elements: a compelling value proposition for employees, clients and shareholders, a defined enterprise architecture and a healthy corporate culture.

These ingredients enable growth.

Ultimately, growth should be the aim of every business leader, after all, it is the biggest indicator of health. Accountants know this better than anyone else.

As professionals who spend their days gathering and interpreting financial data, they know the clients that are struggling and those that are thriving, and they know why.

In business, there are three main types of growth: organic, M&A and margin expansion. Fast growing businesses have a strategy for each of these areas. When strategies are successfully executed, growth rates in the high teens to mid-20s are achievable, over time.

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The rise of the professional services super firm

Paul Barrett

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Is this the year to buy, sell or merge?

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