Perth accountant Geoff Kidd believes the business model employ-ed by most accounting firms has passed its use-by date, and he has put his money where his mouth is.
Perth accountant Geoff Kidd believes the business model employ-ed by most accounting firms has passed its use-by date, and he has put his money where his mouth is.
Currently the managing partner of Grant Thornton’s Perth office, Mr Kidd and his fellow partners have agreed to sell their practice into a listed company, Melbourne-based WHK Group Ltd.
His firm will join the Horwath network, leaving Grant Thornton without representation in Western Australia.
Mr Kidd believes he and his partners have tackled an issue that all accounting firms will have to confront.
“The old partnership federation style of practice is not the way of the future,” Mr Kidd said.
Like many people in the profession, Mr Kidd has become increasingly conscious that young accountants are less willing to invest their money to enter a partnership.
This creates a succession planning issue for the older partners in accounting firms, who traditionally would have sold their equity (including goodwill) to a keen, young accountant.
Mr Kidd said it could also put a cap on the ability of firms to pursue growth, if they have insufficient working capital.
In contrast, he believes WHK will be able to provide capital so the group can pursue growth in WA, in financial planning and through the acquisition of accounting firms.
“They provide the capital and the incentive to do that,” Mr Kidd told WA Business News.
The rest of the Grant Thornton network across Australia has been grappling with similar issues.
The firm’s national chairman, Robert Quant, said it would move from a state-based federation structure to a single national structure.
“Whilst the federation structure allows for individual office autonomy, we believe our clients, both local and international, will benefit more strongly from the increased agility we will gain in being one organisation,” Mr Quant said.
This will bring Grant Thornton into line with RSM Bird Cameron, which runs a nationally integrated practice from its Perth head office.
RSM national chairman Kim Hutchinson believes the group’s business model is one of its strengths.
“Having an integrated partnership model has significant advantages over the state-based federations,” Mr Hutchinson said.
BDO Kendalls managing partner Rob Casamento – who has recently managed the merger of BDO and Horwath in Perth – said his group was discussing the issue of integration.
He noted that ‘federations’ cover a wide spectrum, with some accounting firms operating highly autonomous state offices while others have a centralised governance structure and centralised resources that state-based member firms can draw upon.
“We’re certainly moving closer to a stronger corporate governance model,” Mr Casamento said, adding that some countries in the BDO network had already moved to integration.
RSM Bird Cameron and BDO Kendalls believe they have already dealt with the issue of goodwill.
Mr Hutchinson said new partners at RSM only contributed working capital. They can make their contribution by reinvesting their share of profits, rather than having to put cash into the business, and they withdraw the money when they retire from the partnership.
That compares with the traditional model, in which new partners have had to buy their share of the accumulated goodwill in the business.
Mr Casamento said his group did away with goodwill about seven years ago because it was seen as a barrier to young talent progressing through the firm.
He said many other firms had not confronted the issue, which would make it harder for partners trying to deal with succession planning.
“A lot of practices have historic goodwill and haven’t dealt with that,” Mr Casamento said.
The recent merger of BDO and Horwath – which was part of a national merger – has elevated BDO Kendalls to number six ranking in WA Business News Book of Lists (see page 18).
The firm has 16 partners and 135 accountants, putting it well ahead of the other mid-tier accounting firms such as Bentlys MRI, PKF, Stanton Partners, Pitcher Partners and HLB Mann Judd.
Ernst & Young remains Western Australia’s biggest accounting firm by a wide margin, with 367 accountants, followed by KPMG, PricewaterhouseCoopers, Deloitte and RSM Bird Cameron, which has an extensive rural network.
Nationally, WHK Group ranks itself as the fifth largest accounting group in Australia, with accounting revenue expected to exceed $200 million in the current financial year
Grant Thornton’s Perth office, which will adopt the WHK Horwath name from July, will add six partners and $9.5 million in annual revenue.