KPMG attempts to disrupt UK SME accounting market

Profile picture for user gonzodaddy By Den Howlett October 22, 2014
Summary:
KPMG is investing £40 million in the SME cloud accounting market. Why now? We think the answers are self evident - and disruptive.

I bet not many small accounting practitioners saw this one. KPMG investing substantially into the SME accounting market with a heavy emphasis on cloud.

KPMG in the UK today announces the launch of KPMG Enterprise, a new strategic investment totalling £40m which will see the firm expand its service offerings to the growing network of 4.9 million privately-owned businesses across the UK.

Included within KPMG Enterprise is KPMG’s new Small Business Accounting service, which combines cutting-edge digital technology with KPMG’s wealth of expertise to provide select online accounting and tax services - including accounts preparation, bookkeeping, payroll, VAT and corporate tax returns - to small and start up enterprises via the cloud. The service will also offer access to one-to-one advice from KPMG experts, with fees starting from as little as £150 per month.

When I was given an early briefing, KPMG told me they are assembling a portfolio of cloud services that seek to automate accounts production. They are basing their solution on Xero. This is a massively disruptive move at multiple levels.

10 takeaways

  1. Disrupting your own business is one thing - disrupting an entire profession is something else altogether. This is a super smart move.
  2. By any analysis, KPMGs core audit market is at a standstill or in slow decline. Successive legislative changes have eroded the audit market and will continue to do so over time. If it is to grow, then KPMG has to find new markets. Cloud technologies are the enablers for this move.
  3. Based upon the numbers above, KPMG only has to win something like 22,000 businesses in the current year to break even on the deal. Given that government estimates suggest there are 40,000 new business created each month and a total market of some 4.9 million SMEs in the UK, it is not hard to see how their national presence can scoop up a good chunk of the market. Even then, they will only command 0.4% of the available SME market. That is eminently achievable while leaving plenty for the other 25,000 firms of practitioners to pick up. But - if they can use their market presence and muscle to develop momentum behind their offering then they could easily double or treble those numbers.
  4. Xero now sets itself apart as the clear beneficiary in the software vendor market. Everyone else has to find a way to play catch up. Price competition will not be enough given that KPMG is promising a portfolio of services well beyond compliance services.
  5. Cloud accounting provides the basis for a factory model of compliance. KPMG has recognised this and will start out with this in mind.
  6. Potential clients will gain access to a much larger portfolio of valuable services from which KPMG can profit.
  7. KPMG is validating the cloud model because these are the only technologies underpinning the offering.
  8. It represents a body blow to Sage because now, practitioners will have to smarten up their game in order to compete with a national brand. They will switch to Xero because Sage solutions in their current form are just not good enough to compete.
  9. KPMG will cherry pick the most promising businesses that it hopes to grow into its more lucrative advisory services.
  10. Smaller firms that have been in the cloud accounting game for a while will need to step up their game, ring fencing their clients wherever possible with sweeter deals than they offer today. So for example, the business paying say £1,500 for accounting services may well consider the additional £300 well worth the halo effect from having KPMG as their accountants of record. What will the smaller firms do? I have some ideas in that regard.

Endnote: KPMG must ensure that their offering is attractive and presented well to prospective clients across all channels, whether that is TV advertising, the web, webinars or cold calls. That is not a done deal because large firms traditionally struggle to maintain brand consistency in fresh markets.