In the third article of the FBR Special Issue on Family Enterprise Advising, “Do We Need to Use an Accountant?” the conventional wisdom of using accountants is discussed from a sales growth and survival benefit approach. Researchers Francesco Barbera and Tim Hasso test this out with a longitudinal study of 400 Australian family enterprises, and FBR assistant editor Karen Vinton draws out the implications for practitioners.
Do We Need to Use an Accountant? The Sales Growth and Survival Benefits to Family SMEs
Francesco Barbera and Tim Hasso
Summary by Karen Vinton, Assistant Editor Family Business Review
Continuing in our series featuring articles from the September 2013 Special Issue of the Family Business Review — the first issue ever devoted to the practice and understanding of family enterprise advising rather than the characteristics and details of the family enterprise itself –today’s Practitioner focuses on an article by Franceso Barbera and Tim Hasso.
If you are an accountant reading this, you probably think the answer to the question posed by the article’s title is a resounding YES! And…you would be mostly right, but only under certain circumstances.
Here’s the short version:
- Using external accountants helps the family firm’s sales growth.
- Using external accountants helps with survival rates in family firms.
But…the results are moderated (improved) by the accountant’s embeddedness (familiarity) in the family and in the family’s business. This should come as no surprise to those advisors and consultants who have long advocated a multi-disciplinary approach to family enterprise advising.
Here are some details:
- Embeddedness in the family, i.e., familiarity with the family’s goals, and embeddedness in the business, i.e., familiarity with the business’ strategic planning process, enhances the accountant’s ability to make recommendations that improve growth and survival.
- Equally important, however, is that this embeddedness enhances the family’s and the business’ likelihood of accepting the advice given. In fact, family firms with highly embedded accountants and with strategic planning processes, led to increased sales growth in the firms.
- In this study, firms that coupled embedded external accountants with high levels of strategic planning processes had an 8.1% increase in sales growth. But even firms with lower levels of strategic planning processes benefited from the use of an external accountant. These firms demonstrated a 29% decrease in the probability of failure – a NOT insignificant result for family firms!
At least this was found for the longitudinal panel of 2004 Australian small and medium sized (fewer than 200 employees) family enterprises that were the subject of this research project.
But…down under or elsewhere in the world, here are some things for advisors and consultants to consider when working with outside accountants – not to mention some suggestions for the accountants themselves!
- First, consultants and advisors that work with companies that don’t have internal accountants should encourage their clients to engage the services of an external accountant, to work to develop an embedded relationship with the accountant, and to develop strategic planning processes if none are currently in place.
- Second, this study provides a powerful message for accountants to share with their clients. In an era when computer software allows companies to simply share their accounting data with accountants via the internet, this study shows how spending additional time with one’s external accountant can provide definite benefits for a family firm.
- Third, accountants should also encourage their clients to implement strategic planning processes, such as developing business plans, strategic plans, budgets, regular financial reports and performance comparisons with other businesses because those processes will help increase the effectiveness accountants will have with their clients. In turn, it will help their clients be more successful.
- Finally, all advisors and consultants (not just accountants!) are encouraged to read the Discussion and Conclusion portion of this paper, which provides an excellent summary of the findings.
This study clearly demonstrates the benefits of retaining the services of an external accountant and should encourage researchers to replicate this kind of study for other types of advisors and consultants working with family firms as well as replicating this study in other parts of the globe.
To read the entire article, go here.
About the Contributor
Karen L. Vinton, Ph.D. is a Barbara Hollander Award winner and professor emeritus of business at the College of Business at Montana State University, where she founded the University’s Family Business Program. An FFI Fellow and former FFI board member, Karen served on the editorial board of Family Business Review, and is the current assistant editor. She can be reached at firstname.lastname@example.org.
Stay tuned next week for another issue of The Practitioner.
Yours in Practice,