Why digital is changing the value of all practices
In the first of a series of articles with Foulger Underwood we explore the digital reality of MTD and the opportunities it offers for restructuring.
With MTD for VAT (MTDfV) now becoming a reality, Foulger Underwood is working with ACCA to support its practitioners who:
need some advice prior to digitalising
those who are half-way housing towards an exit in a few years’ time
may wish to scale back or stop in which case the window for selling a non-digitalised practice is closing very quickly
are actively looking to expand or start a practice.
The introduction of MTDfV is causing concern among some smaller practitioners, who view the introduction of new IT systems as costly and time consuming. In turn it can detract from undertaking day-to-day servicing work and could lead to potentially difficult conversations about the future of client servicing.
Conversely, many larger practices have IT personnel, marketing, social media and communications teams. Collectively, they have been preparing clients for digitisation and seeking their acceptance of new fees and new engagement procedures.
Some forward-thinking smaller practices are already digitally-enabled and may wish to acquire new clients through investing in non-digitalised practices. More traditional practices may be concerned that they lack the necessary digital skills and resources to move forward and be looking for a route out, help to digitalise or to tie up with a digitally-enabled practice.
However, the introduction of MTDfV is causing concern among some smaller practitioners who view the introduction of new IT systems as costly and time consuming. In turn it can detract from undertaking day-to-day servicing work and could lead to potentially difficult conversations about the future of client servicing.
If you work in in a small practice which has yet to start preparing for MTDfV, consider the best way to address these issues with your clients:
data input and the adoption of new software to replace spreadsheets and paper bags
the costs involved in moving data to a consistent format on the preferred system which your practice has selected
a fee increase due to additional work and – in the case of quarterly reporting where VAT has not been produced previously by the practice – the additional costs involved and how this will impact on year-end accounts preparation and advisory work.
At the same time, you will need to consider your employee skillsets and their flexibility to change and adapt to new working practices and processes.
For now, MTDfV is the primary driver, but digitalisation is only likely to accelerate over the next 3-5 years. Experience shows it can take firms two or three years to make the necessary changes and for these to bed in. It is inevitable that the scope of digitalisation will sweep up larger and specialised businesses at some point. In this environment, a sole practitioner or two-partner firm may want to consider a sale.
Preparing an exit strategy
If your practice is considering selling – or a retirement is likely within the next three years – it makes sense to consider an exit strategy now. Our experience shows there is always a market for fees; the price they can attract is linked to their quality.
The sale of a practice – or a block of fees – must be taken to market with a very clear strategy and objective. It is possible to achieve this within a 4-6 month period.
An alternative is to adopt some digitalisation and operational procedures which will make life easier, service clients and prolong the practice viability whilst protecting its saleability for perhaps another one or two years. This could allow an experienced partner to continue working, draw down profit share and work around the digitalisation changes but not fully adopting change and improving profitability.
There are some bureau-type operations which can provide support with MTDfV and digitalisation. They can minimise disruption and help a practice continue to trade for two to three years. Anything beyond three years should be a candidate for a full rationalisation of services, adoption of MTDfV and then a decision to market the business, scale the operations and generate additional profitability in year three onwards.
Keith Underwood – managing director, Foulger Underwood
ACCA is running a free webinar on Making Tax Digital for VAT at 12.30 on 6 February – register now to hear Dean Wootten talk about what is involved and how to make it work.
If you cannot join the webinar live then you can listen to it on demand at your convenience.
Our free MTD Tracker tool could also help you prepare for the introduction of MTDfV and we'll provide further updates in next month's In Practice.