Importance of SMEs

Executive summary

The importance of small firms to economic development in advanced economies is well documented. Notwithstanding their importance, there exists concern about their high rate of failure, whether they are achieving their full potential, and their often less than satisfactory levels of productivity.

In this context, the role of external business support has assumed some importance, effective small-firm performance being related to the availability of appropriate business advice.

Of the sources of advice made available, the most used by companies tend to be accountants, banks and legal professionals.

Among the areas where small firms would appear to need support is that of human resources (HR) and employment. For example, finding and retaining skilled employees has been identified as one of the main challenges faced by small firms. Regarding compliance, small firms face an increasing burden of employment legislation. They are more likely than larger companies to experience employee claims against them and to lose cases at employment tribunals.

Small firms increasingly turn to external support in the HR and employment areas and among the sources of external support, their accountant appears to play an important role, perhaps surprisingly given that accountants are usually associated with providing financially related advice.

The changing role of the accountant

There has been a growing interest in accountants’ ability to play a wider support role for clients, moving beyond traditional compliance work. This interest has been related to the increase in the number of small firms enjoying audit exemption, the changing nature of competition and the effects of technological developments.

The increasing research in this area has focused on the reasons why small firms may turn to accountants for advice and how accountants can generate income from this development of their role.

Objectives of the research

• The specific objectives of the research were to address the following questions.
• What type of advice and support in the HR and employment areas do accountants provide to SMEs?
• How does this role sit alongside the core competences and business activities of practices?
• What resources (people and materials) in the practice are used to provide HR and employment support?
• What external alliances are used to support the provision of HR and employment advice?
• Are there any ways in which accountants’ performance in this area could be improved?

Methods

Given the exploratory nature of the research, a qualitative methodology was adopted. In-depth interviews were carried out with 20 small and medium-sized accountancy practices (SMPs), selected strategically to reflect size, geographical and professional body criteria.

Findings

All practices provided advice to small-firm clients in the HR and employment areas, with a particular emphasis on employment procedures and their legal context. Clients’ trust in their accountant, his or her knowledge of their business, and the empathy derived from the fact that SMPs are small business themselves were key factors explaining why small firms approached the SMPs for support in these areas.

In the case of the smaller practices, support was given because it was believed to be necessary to keep clients. In the case of larger practices it was part of a more strategic ´one-stop´ approach and it was being promoted and developed as a separate income stream.

The types of firm seeking support

Larger small firms (20 or more employees) tended to be the clients most likely to seek support from accountants. They had more staff than micro-firms but could not justify the appointment of a qualified HR person. Micro-firms, particularly in blue-collar sectors such as construction, tended not to seek outside help (in itself a worrying finding).

Different models of support

Three different models of support for small-firm clients were identified. The larger practices employed qualified HR specialists to advise small-firm clients. A group of smaller practices had developed an HR support role provided by experienced staff as an adjunct to managing client payrolls.

Managing payroll inevitably gave rise to questions about staffing, and non-accountancy staff associated with the payroll function sought to answer them. The smallest practices tended to provide more limited commonsense advice based on their knowledge and experience of procedures, before referring clients on to more specialist resources.

Resources used in the provision of support

The smaller practices tended to rely on their previous experience of working with small firms and as employers of staff themselves. They also turned to external sources of support such as online guides, help lines, specialist consultants and reciprocal relationships with solicitors.

The bigger practices, where qualified staff were employed, tended to be more self-sufficient, turning to external support only occasionally, for example to specialist lawyers to represent clients at employment tribunals.

External alliances

In the case of those smaller practices that did not employ qualified HR staff, the practice role in relation to external specialists was largely that of a relatively passive broker. Even so, in a minority of cases some interesting examples of collaboration were identified that did give the potential for developing an income stream. These included subscribing to HR helpline services, which were, in turn, marketed to small-firm clients.

Recommendations

Given the inevitability that accountants will be a first recourse for many small firms in the HR and employment areas, a priority must be to enhance the effectiveness of their role.

Professional accountancy bodies should enhance the provision of products and services to members in respect of HR and employment issues.

Professional accountancy bodies should clarify, from an ethical perspective, the extent to which practitioners can offer an HR and employment advice service to clients.

Smaller practices should consider developing a robust broker model to offer HR and employment advice more effectively and, thereby, generate income.

Government and its agencies should recognise the accountants’ role in providing advice on HR and employment to SMEs, and ensure that accountants are a recognised stakeholder when seeking consultation advice and developing initiatives to support SMEs.

From an SME perspective, there is a need to examine in more depth the impact of employment regulation on SME activities and their need for support and advice.