Days numbered for many small accountancy firms
Accountancy firms are consolidating
Small accountancy firms are declining in number as the sector’s growth peaked and has been followed by a period of consolidation.
The industry reached the end of a long-running growth phase prior to the COVID-19 pandemic, according to new research.
Increased consolidation among smaller firms and disproportionate growth at the top end of the market have conspired to reduce the overall number.
A report by Edinburgh-based Float, the cash flow company, found there was a net loss of 500 accounting firms between 2017-2019, a stark contrast to an average growth of 1,212 new firms per year between 2011 and 2017.
The research also demonstrates that bookkeeping businesses remain in an accelerated growth phase, growing by 395 firms since 2017.
Key findings include:
- Between 2011 and 2017, the number of accounting and auditing firms in the UK grew by 7,270 (an average net growth of 1,212 extra firms per year)*
- However, between 2017-19, the UK had a net loss of nearly 500 firms (490)
- The number of bookkeepers in the UK continues to grow, rising by 395 during the same time period (2017-19) – there are now 6,640 bookkeeping enterprises in the UK
- Firms with a turnover of less than £100,000 decreased by 5.4% between 2017 and 2019, from 21,020 to 19,890. However, the number of accounting firms with a turnover of more than £100,000 increased by 4.3%, from 14,985 to 15,630
- The partnership model has fallen out of favour in the last decade. In 2010, there were 3,125 accounting firms classified as a ‘partnership’, but this number has nearly halved (1,745 in 2019)
- The number of sole traders recognised by the ONS also reduced by nearly 3,000 (from 7,980 in 2010 to 5,150 today)
- By region, London has lost the most accounting and audit enterprises since 2017 (a total net loss of 325). Northern Ireland (+15), Yorkshire (+20) and South East England (+20) were the only regions with net growth.
Colin Hewitt, Float CEO and co-founder, said: “Accounting firms have demonstrated their immense value during the COVID-19 pandemic, helping struggling businesses stay afloat and informing them of their financial options. Which is why many will be concerned to see the number of UK accounting firms in decline.
“However, it’s important to note that a lack of growth does not necessarily mean the industry is in poor health.
“The UK accounting industry now has a smaller number of more profitable accounting firms, following years of growth at the lower end of the market.
“We witnessed a great accounting boom in the UK this decade, with it being easier than ever to set up and run a new firm. This appears to have tailed off more recently, as we also saw increased market consolidation over the last two years which has contributed to a net reduction in firms.”
He added: “While accounting firms have seen a net decrease, bookkeepers remain in an accelerated growth phase. I’m not surprised since solid, regular bookkeeping is the cornerstone of any business’ financial data.
“We’re also in the middle of a technological revolution that represents an incredible opportunity for bookkeepers. Cloud accounting services, smartphones and the introduction of Open Banking mean bookkeepers can scale up like never before.
“Bookkeepers today can provide better, more efficient and more accurate services to more customers, thereby helping clients make better business decisions. Bookkeepers, just like their accountant peers, have never been better or more important.”