Accountants for entrepreneurs

Entrepreneurship can be a very lonely and harrowing journey – the best entrepreneurs know when to reach out for help and there are few who can help more towards your success than your accountant. Not only do they help you understand the financial side of your business and comply with the regulatory environment, but since entrepreneurs are typically advised by the smaller accounting firms, you accountant is an entrepreneur too and is far more likely to be able to give general business advice than pure accounting-related work.

In this article we take a look at the role of the Accountant in your success and how this industry is organised.

Some background: A Chartered Accountant, or CA (in the USA they are know as Certified Public Accountants) is a highly-qualified individual who has typically studied accounting for 4 years, then written the board exam and done 2 years of practical apprenticeship before being recognised by the association. The CA (SA) qualification is awarded by SAICA, who oversee the quality of the profession at large.

I interviewed Bridgitte Kriel CA(SA) who heads up SAICA’s Small and Medium Practise (SMP) division whose aim is to promote the interests of SMPs and Small and Medium Enterprises within the SAICA strategy. It’s the SMP accountants who deal mostly with entrepreneurs.

What is SAICA? What role does it play and where do you fit in? 

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 35 000 members who are Chartered Accountants [CAs(SA)] and hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors, business advisors and leaders in their spheres of business operation. Most of these members operate in commerce and industry, and play a significant role in the nation’s highly dynamic business sector and economic development.

What size of accounting firm services entrepreneurs?

This can vary greatly from the one man firm to the big corporate practise, however majority of entrepreneurs or small businesses are serviced by the SMP, which includes sole practitioners to a 2 – 5 partner firms. They normally offer a wide range of services and strive to be a “one stop shop” for the small business.

So these Accountants are really entrepreneurs too?

Many SMPs have started their own practise, or gone into practise through similar motivations to those that are experienced by the small business owner/entrepreneur. This also often gives them the edge when servicing entrepreneurs and small business as they not only advise from their wealth of knowledge but can draw on their experience as well, as we all know that the life of an entrepreneur is not an easy one, and thus having an advisor who understands, and has been through the experience and has triumphed, can add a lot of value to any business.

As many entrepreneurs are born through identifying a need, so are SMPs. Many CAs(SA) start their own practises after identifying a need or a specific market segment that requires the use of their specific and specialist skill set.

What are the main issues facing the SMP accountants?

The main challenge facing the SMPs is the pace of regulatory change and this is not uncommon as it is cited as the number one challenge facing accountants worldwide. More recently, the change required to the SMP’s business model due to the new Companies Act requirements regarding audits has posed one of the bigger challenges and opportunities facing the firms. As a result of these changes, many SMPs are refocusing their marketing and sales strategy to service their clientele better.

What impact have the changes to the Companies Act had on the SMP accountants?

The Companies Act brought about change in the requirement of companies to have an audit. Smaller companies now often have a choice as to whether they wish to have an audit, an independent review or only a compilation. This has resulted in a broadening of services provided by the SMP to the SME. However we have found that the majority of SMEs have stuck to the audit, and this is often due to it carrying more weight than independent reviews or compilations.

Are the SMP accountants coping with the transition towards becoming business advisors?

SMPs have always played the role of business advisors but have in the past rolled this into one product as part and parcel of the audit or bookkeeping. As such, this is not a new area of expertise but rather that the challenge has been for the SMPs to re-package their product and to expand the offering of the business advisor services to be able to stand alone as an attractive value offering which businesses are willing to invest in.

What data can you provide that shows the importance of a CA to the entrepreneur?

We have conducted research amongst five big banks and three SME specialist lenders. Some of the stats and comments from the research:

  • Funders agree that financials endorsed by CAs(SA) are more trustworthy for funders than financials produced by companies themselves or by other independent accountants (8.4/10 for total sample, 10/10 for specialist SME lenders)
  • Funders agree that one of the greatest challenges facing small businesses is governance. They agree that the SMP could fill a governance and “non-executive” director’s role for their clients. They indicate that business owners who do this are more fundable
  • Funders agree that SMP CAs(SA) could position themselves as a channel to funders for businesses wishing to fund acquisition, gearing, growth or even exit strategies. Funders all believe that these applications need audits as opposed to reviews or management accounts to support them.
  • Funders agree that even if SMEs opt for reviews, there is good reason for clients to stay with CA(SA) SMP practices. Reviews can be more easily and cheaply upgraded to audits if the provider of the review is a CA(SA). The audit will inevitably be needed when gearing or exit is to be contemplated

Who else operates in this space? (Advising entrepreneurs) 

There are a number of accounting bodies within South Africa, however Entrepreneurs should ensure that their service provider belongs to a body that requires Continuous Professional Education from their members and has a code of conduct which members need to adhere to, as many small businesses have been caught by unscrupulous persons claiming to be accountants, who have cost business in the long run.

How much do accountants typically charge clients for bookkeeping, audit, other work? 

This is a difficult question, as each fee is determined based on size of the company, the state of the companies own record keeping and the work and output required. This is something that needs to be negotiated on a case by case basis. It would also stand to reason that bookkeeping services would be a lower hourly rate than an audit or certain advisory fees due to the level of expertise involved.

How do you suggest an entrepreneur best finds the right accountant for them? Is this word of mouth, or are there directories, reviews etc?

Referrals are one of the best ways to find an accountant which best services the needs of the business, however there is a directory for SMEs and entrepreneurs to use to find a CA(SA) who operates in their area

What impact is the rise of cloud accounting (Quicken, Freshbooks, Xero and locally Sage/Pastel) having on the SMP accountants?

The role of the software, has provided accountants with choice. The software and tools at the accountants’ disposal assist them to service clients better by producing accurate and quality information in the shortest possible time. Some businesses may look to providing this function themselves rather than using their accountant for this, but then should look to their accountant for assisting with interpretation of the data and advising them on the opportunities, challenges and risks being highlighted by the said data.

SAICA are doing some innovative stuff with SEFA and SEDA. Can you explain how these projects work, how they’re priced, and what plans are for their future?

SAICA, in partnership with the Economic Development Department, Guarantee Trust, and SEFA, has formed an enterprise development and SME support hub called Enterprisation. This hub seeks to service two main objectives, namely, up skilling unemployed graduates and providing back office support to black entrepreneurs and small businesses. Enterprisation can assist a small business in formalising their back office function in their start-up phase.

This initiative hopes to achieve a domino effect whereby the black entrepreneurs and small businesses are able to provide further employment of individuals within the many differing markets that they operate.  This can only be possible if the SME market in South Africa receives the back-office support that it requires in order for these small businesses to be educated in the day-to-day accounting and reporting requirements that they need in order to become sustainable operations themselves. As these small businesses grow and become sustainable, we hope that they will migrate into the SMP market once they are operationally mature enough to do so.

Are the issues the smaller accountants are facing in South Africa the same as elsewhere in the world? 

Yes, Quarterly there is a survey done by the International Federation of Accountants (IFAC), and consistently the results of the top 5 challenges worldwide reflect those of the South African environment, only the order of priority may vary within the top 5.

What excites you about accounting? and about working with the SMP accountants in general?

Its more than just accounting! It is being able to advise the “Youth” of the business world in their infancy and growing phase, ensuring that they have strong foundations on which to build a sturdy and successful business.

Many times the world of an entrepreneur or business owner can be a lonely place, there is satisfaction in being there to offer a helping hand and see the success of your advice and efforts.