What does your practice expect of its accountants? Do they advise on your business structure? Do they show you how you could extract better data on financial performance, and use it in decision making? Are they helping you look ahead and plan for the shape of your business in five, 10 or 20 years’ time?
It is to encourage practices to engage with the accountancy profession in this way that the Law Society of Scotland has created the status of accountancy partner within its member benefits division. The first two firms were recently appointed to the Approved Partner panel, and spoke to the Journal about the services available and their experience of working with the profession.
Both, as it happens, have been serving the legal profession for about 30 years. Gerber Landa & Gee (GLG) in Glasgow now has seven directors in a corporate structure, following a management buyout from the previous owners in 2018. Also evolving in recent years, Anderson Anderson & Brown (AAB) has reached beyond its Aberdeen base to open in Edinburgh and London.
Both, too, spend at least as much time providing business advisory services to their client firms (or individual partners) as they do in more traditional accountancy and audit work – and regard such services as an integral part of their practice.
Naturally, advisory work varies with the client, and can range from one-off projects such as the transition for a partner joining or leaving, to a full blown business review followed by ongoing strategic planning. So, for solicitors not used to dealing with their accountants at that level, what should legal practices expect them to be able to help with?
“Often we are asked to advise on a partnership change, someone joining the partnership or company, or looking to leave and set up on their own, what structure to set that up in,” explains Darren Smith, a director at GLG. That would, he continues, include tax planning in terms of the most appropriate structure, and how to take remuneration (salary or dividends). Similar considerations apply if a partnership is ceasing but certain staff are carrying on the practice. “We have experience because of our 2018 experience of taking on our own firm: it’s given us our own first hand experience of management buyouts.”
“Also there are people who maybe started out as a sole trader, because that was most appropriate for them at the time, and have reached a stage where they are wondering whether they should be thinking about a limited company,” his colleague Michael Hughes adds. “We can offer advice whether that actually works for them.”
Derek Mitchell, partner at AAB, paints a similar picture. Compliance, M&A work, corporate strategy and succession planning are all on hand if required. He emphasises the benefits of a proactive approach in supporting clients in achieving their business goals: “The thing that drives clients in our direction more is the business decisions, which are always around succession and development planning or upcoming major investment decisions, or even how to either gather or utilise financial information they have in their business to run it better. Having a relationship that allows you to advise on producing top quality management information gives the right information to the right people at the right time, to help them make more decisions with confidence.”
Business structures, and the often related question of succession planning, are a recurring theme as we talk. Smith cites GLG’s own experience to illustrate how they can go together: “We transferred to a limited company four years ago before we took over the practice, and I think the transfer of the business was much easier as a limited company than it would have been trying to manage it as a partnership.” Mitchell observes that succession planning is “quite often the catalyst for some of these other changes”; and partners retiring, or new partners coming in, can bring an increased requirement for capital. “Tax is obviously a massive part of that, and the business model that you adopt may change as the business develops, depending on its scale or complexity.”
Fundamental to the success of any business, however, is for management to have the right information at the right time about how the business is performing, and to make use of it. You should also have what Smith terms a business and growth plan. “It doesn’t matter what stage you are at in the life cycle of the business. Every business should have one, whether it’s a formal documented process or just part of management meetings, and where there is more than one partner we always recommend that there are meetings and records of those meetings kept. It’s good control over the firm that there are action points etc; that follows on from management accounts and the whole annual KPI [key performance indicator] review.”
“Where do you want the business to go in the next year, five years; what’s the succession plan?”, Hughes asks. “Everyone’s got a different life cycle in terms of their business, and their own ultimate plan, from the sole trader to the bigger partnerships or limited companies. Obviously the bigger you get, the more likely you already have formal or informal plans in place, but that’s not always the case and sometimes you can be quite surprised at the size of firm that doesn’t. They’re too busy doing the day job.”
Mitchell describes how, doing a full review with one client of how certain expense items were treated, and partner profit and capital rules, led to AAB making several recommendations about how to simplify and make certain processes not just more efficient but more effective, “and that firm has actually changed their whole business structure to what was needed to allow it to go to the next stage of growth. And that was a full top down review of everything from accounting policy to expense policies, partner remuneration, how partners were brought into the business, how they dealt with exits when they came, how property was owned, how infrastructure was financed. It led to a five year plan where a succession of changes were implemented in the business over time, making incremental changes that added up to what the strategic goal was”.
He believes that: “If you’ve got the right relationship with the right accountant and tax adviser, then you should feel like you’ve got somebody who is a proper business partner who actually regards themselves as being an extension of your overall management team or board.”
Raise your game
Is there anything, from their experience of dealing with legal practices, that the accountants think solicitors should be more focused on in terms of management? Both firms recognise that their client practices vary considerably, but Smith flags up the risks around cyber security and being induced to transfer money to the wrong place, “because that could basically finish off certain businesses”. That and going over the client account to make sure there is always a level of surplus. “If not, are there any trading issues that they should address, by speaking either to ourselves or to the Society, as soon as possible. Because otherwise they are going down the path of getting involved with the Compliance team.”
Mitchell detects a theme around being able to produce the correct financial information and present it in an easy-to-consume way, “a way that can be interrogated, to allow the business to be run much more effectively. It might be down to the partnership model itself, but there are aspects of how firms are sometimes run.
I do think they could be more on the front foot in terms of what could they be doing with the information that’s at their fingertips, if they could only gather it in in a certain way and actually use it as a tool”.
Although you might not automatically think of accountants in this connection, Smith points out that their own obligations of GDPR and AML compliance help them to identify any weaknesses in a client firm’s setup if they are doing an overall audit or systems review. Another regular, and more conventional, source of instruction for GLG is as expert witnesses, whether by providing forensic services in criminal cases, or valuations in civil business disputes or for management buyouts.
Mitchell’s surprise offering from AAB is as software consultants – an expertise that comes, he says, with keeping abreast of the systems capable of producing the desired management information so that solicitors can “monitor the things that really make the difference in delivering the service to the client base that you want to deliver”.
It’s a scary thought, but he suggests that the rate of change is now faster than the rate that we can adapt to change. Still, there is “a lot to be excited about, and it’s about asking what does the firm of the future look like; what do we need to change. A lot of that is just about doing the basics really well, and you can do that if you’ve got access to good quality financial data and advice, but if you don’t you won’t be able to remain competitive”.
He concludes: “It’s definitely a much more challenging environment, because the technology lends itself to consolidation, and we’ve seen a lot of that in the market.”
[Pictured above (l-r): Michael Hughes, Gerber Landa & Gee; Darren Smith, Gerber Landa & Gee; Derek Mitchell, Anderson Anderson & Brown]