Since 2013, contractor accounting firm JSA has completed eight acquisitions of smaller firms as part of its growth strategy. In 2016, the acquisition of the Nyman Linden practice and client book presented more of a challenge than most.
Many of this practice's clients had been accustomed to more traditional ways of working and were unfamiliar with bookkeeping in the cloud or the Government's Making Tax Digital (MTD) initiative. Chris James, Head of Accounting Operations at JSA and chairman of the Freelancer and Contractor Service Association (FCSA), knew that transitioning these clients to a new way of working required a sustained and considered approach, but could lay the groundwork for even greater growth in the future.
The MTD opportunity
"Although it wasn’t the primary reason behind our acquisition of Nyman Linden, MTD was nevertheless a big consideration for us. As it was a traditional contractor-focused practice with established clients who were used to working through older technology like online spreadsheets, the transition to digital tax wouldn’t have been easy. Without a significant investment of time, money and the right software to ensure that the clients were able to comply with the legislation, it would have been tough to take the step into the post-MTD landscape. But as we already had that digital setup in place at JSA, we saw this as a great opportunity to grow our own business."
The challenges of transitioning clients
"The challenge with any acquisition is to retain as many clients as possible while introducing them to our way of working - and in most cases that’s usually easy, as you’re simply transitioning clients from one software system onto another one.
"With Nyman Linden, however, we had an established client base working with a less digitally-evolved system and who expected a particular level of personal service from the accountants they worked with. We therefore had to not only introduce them more gradually to FreeAgent, but also to manage their expectations and reassure them that there would not be any significant changes to the wider service they received."
Investing the time to do things right
"This ended up being a longer, more complicated process than other acquisitions that we have completed, but the extra work was absolutely worth it. The slower migration meant that we were able to talk to these clients about the (then) forthcoming MTD legislation, explain how it would affect their businesses and then demonstrate how FreeAgent would help negate the impact upon them.
"By investing this time at the outset, we were able to allay any fears and make sure that our new clients felt comfortable and confident about our service, rather than thinking they were being overwhelmed or forgotten about."
Maintaining the highest standards
"A further challenge was that, unlike us, Nyman Linden was not an accredited member of the FCSA - so we needed to be careful during this acquisition to ensure that our own standards and credentials remained unhindered. That meant spending time reviewing all of their systems and processes and working out how we could bring these in line with the rest of JSA’s operations, not only maintaining our high level of service, but also meeting the robust criteria that the FCSA demands for its accredited members.
"In the end, we successfully transitioned the vast majority of Nyman Linden’s client base onto FreeAgent, which I think surprised a lot of people who maybe thought that these more ‘traditional’ clients wouldn’t be easily encouraged to use cloud software."
The role of FreeAgent
"Of course, the accessibility and intuitiveness of FreeAgent was a big help in this process. Although a lot of these contractor clients had been using fairly basic spreadsheets for their accounts, they were generally proficient with technology, so all we really needed to do was demonstrate the software and show them what it could do.
"Once they got their hands on it and started inputting data into FreeAgent, using the mobile app to log expenses and seeing how they could use the software to work in real time with their accountant, they loved it - which made our job a lot easier!"
MTD and market consolidation
"Looking at the wider contractor accountancy industry, there’s no doubt that MTD is certainly having a big effect, and these kinds of acquisitions are becoming more common. Not only are we seeing some of the more traditionally-minded practices viewing the legislation as a burden they don’t want to deal with, but there’s also a number of larger, technologically-proficient firms now actively looking to acquire these practices.
"This market consolidation is likely to continue as MTD for VAT comes into wider effect and as the legislation expands across other business taxes. It’s just inevitable that some practice owners will choose to sell up rather than spending time and effort trying to comply with MTD - especially if they do not have younger, tech-savvy partners that they can pass their practice onto. And that represents a big opportunity for ambitious digital practices looking to grow their influence."
Want to help your clients understand their numbers at a glance? FreeAgent could be the solution for you.
Find out more about JSA here.