Update of Market for New Zealand CA's in Practice

It's halfway through 2022 therefore it’s a perfect time to look at what is happening in the New Zealand chartered accounting market as we see it. As many of you will know Covisory has a connection to a large number of accounting practices. Not just in Auckland but right throughout New Zealand. We have known a lot of you, and we have known you for a long time. As such we tend to get a feel for what is going on in the accounting market at a practice level. So, I thought I would give you an update on our view on life at the moment.

Firstly, with the borders opening up and the hassles that you have all endured with being in public practice over the last few years many CAs are taking a chance to re-evaluate their priorities and to work out what they want to do in the future. We are all getting older, I have just clocked up 31 years as a CA in practice and no doubt many of you are clocking up reasonable numbers as well. Is this something you want to keep doing and how long do you want to keep doing it before you retire. What does retirement look like for you? Is it part-time, is it nothing or do you just want to work full-time? Does your wife or partner not want you at home and do you not have any other hobbies apart from work.

A lot of people have taken the opportunity to get out of the market and retire and we are seeing a big trend of that at the moment. Now the borders are opening up and it looks like hopefully, this wave of COVID has passed us. Many people have taken their plans that they put on the back burner dusted them off and started thinking about getting out of their practice and going overseas. At present we are actively working on 5 practice sales ranging from turnovers of somewhere around about half a million dollars right through to $3m plus practices where partners and practitioners are wanting to either reduce their fee size or get out altogether.

So, the market is strong for sales, but it is even stronger on the purchaser side. A lot of people are looking to bulk up their practices and we have had the strongest demand ever when we have gone out to market for practice or fee block sales. Prices are up to $1 or even in excess of that for exceptional practices both at fee block and practice level.

Now don’t think that just because the house down the road sold for a record price yours is worth the same. You need to make sure your practice is tidy and one of the biggest issues that we run into when we go to sell practices are leases, i.e., don’t try to sell it with a long lease and secondly the lock-up in your practice, i.e., work in progress and debtors. We might be accountants and we might be good at advising our clients, but we are generally shit at running our own businesses. We need to tidy up our debtors and our work in progress and make our practices more saleable. Why, because someone buying your practice is going to end up with the same level of lockup and it is going to make it relatively less attractive to them if they have got to sink money into debtors and work in progress.

Overall staffing is difficult. We are all struggling to find staff as are our clients. We are not immune to the same pressures. I think we are going to see a lot of our younger CAs head overseas to get their big OE and I think that has already started from what we are hearing and seeing. More importantly, if you cannot get staff what do you do, do you downsize not likely, that is just not logical, and it is not how we are bred. So, you are either going to have to work your existing staff harder or you are going to have to look at outsourcing. Even if you don’t love outsourcing there is bound to be a piece of your client base that will suit it and it is something that you should actively consider. It is also good for averaging down your average wage and contractor costs to prepare accounts and advice. I am seeing practices struggling to get under the 40% wage to fee mark and outsourcing certainly helps doing that.

The other thing just to note as an aside is that 2022 is going to be a difficult year. We are continuing to see practices migrating particularly to Xero and the cost and the time imposition of that is not to be understated. However, the real problem in 2022 is going to be the IR6 tax return and the enhanced and one-off trust disclosures that are going to have to be made. These are going to be significant, and they are going to take a lot of time. Add to that the fact that you had until 31 May 2022 to file the 2021 tax returns you have now only got 10 months in effect to file the 2022s plus all of the enhanced trust disclosures that have to be met. As a consequence, my advice to you is that you need to put your clients on notice that you will need this information, start gathering it earlier but above all else tell them it is going to cost them extra, particularly if they cannot supply the information in the format that you need it in a timely fashion. There is going to be significant pressure after Christmas 2022 as everyone tries to meet their filing percentages for March 2023. So don’t be complacent, get your heads down and start getting that trust information. In the meanwhile, hiring staff will be hard and you are better to hire ahead of the curve.

For those of you looking to sell or purchase it is a great time to be in the market and if you are interested in selling or buying, please get in touch with me Covisory have a list of people wanting to buy at the moment.

Nigel Smith