Modern Australia has a vibrant knowledge economy. Highly skilled lawyers, accountants, engineers, architects, consultants and business managers contribute not only to our own economy but to the global one as well.
Professional services accounts for 8.6% of total employment in Australia and in the year to September 2017, the professional, scientific and technical services industry increased by 13%. It’s the fastest growing sector in the economy. It’s also perhaps the sector that will be most changed by the COVID pandemic – will the office ever be the same again?
Top trends in Professional Services
Issues impacting businesses in Professional Services
Allocation of profits within professional services firms
We now have the release of the final ATO Practical Compliance Guidance PCG 2021/4 for the allocation of profits by professional firms, nine months after the release of draft guidelines. Published on 16 December 2021, the final PCG is substantially the same as the draft, with some minor changes. We take a look at the latest developments, and cover what professional firms and their Individual Professional Practitioners should consider now and well before the 1 July 2022 start date.
Does the partnership model work?
If COVID has taught us one thing, it is that we are far more adaptable that we thought we were and just because we’ve 'always done it this way' doesn’t mean it’s the way we will do it in the future. Take the partnership model as an example. A historical stalwart of the professional services sector, the partnership model encouraged partners to take their profits and 'drain the swamp' each year rather than retaining and reinvesting in the business. And as we’ve seen in 2020, a war chest of retained capital was critical to support businesses to weather the first wave of the pandemic. It’s essential then that your business structure supports growth and stability in the face of an unpredictable market.
Working capital optimisation
Organisations usually don’t optimise their working capital until cash becomes tight, however in this scenario it’s often too little, too late. Professional services firms in particular may have overlooked opportunities to preserve cash because so much of what they do is intangible – we see it all the time. Cash freed up can be used to reduce debt, increase return to owners and invest in future growth ambitions. Changing client and firm habits takes time. If firms don’t care enough about freeing up cash to make changes, no one else will do it for them.
Our experience with professional services in general is that the application of GST is neither consistent nor considered, particularly when providing services to clients with overseas bases. However, it does apply – and we anticipate GST to come under greater scrutiny in the not too distant future. When you consider the relationship between JobKeeper, turnover and GST, with the ATO ramping up their JobKeeper audit teams to ensure the legitimacy of payments made, it’s not a great leap for those systems and resources to be applied more broadly to check the application of GST in all businesses.
Closed borders puts the brakes on global mobility
People move to Australia for our great standard of living, healthy economy and job opportunities. However, longer than expected border closures have made Australia a far less attractive destination for expats concerned about how easy it is to get in and out of the country. The race is on – and with other jurisdictions opening before we have, they are getting a head start on attracting the skills we need to propel ourselves out of the COVID doldrums.
Trends in remuneration points to alternatives to the stock standard salary
A favourite instrument for start-ups and companies about to list – Employee Share Schemes are used far more widely than most people think. It’s a way to remunerate your employees outside of the usual cash salary – and in an environment where competition for talent is hot, it can be a clever way to attract, engage and keep your people. From the outside looking in, they are complex to set up but get the mix right and it can be a tax effective way to incentivise your teams and propel your business forward.
Cyber security on the Board agenda
Any company can be a cyber crime target, and with professional services keeping confidential and highly sensitive information, plans, IP and patents, they are a particular target for corporate espionage as well as at great risk from something as simple as human error.
We cut through the complexity of compliance
Australia has a complex regulatory environment, borne of decades of good times resulting in red tape and compliance requirements that can be tricky to navigate. Whether it’s tax, audit or risk, we cut through the compliance and complexity.
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How well do you know your business?
There is a greater expectation of transparency from stakeholders, investors, regulators and employees than ever before. This covers more than just the financial health of your business, but also your environmental footprint and social impact, your commitment to anti-money laundering, fraud and modern slavery. If you’re not required to report on these measures now, you will be soon. Getting on the front foot will make the transition to future reporting easier, but also supports better conversations with your stakeholders and better decision making in the long run.Read more about reporting and thinking in an integrated way
Listen to Ben Matthews, National Head of Professional Services, talk about trends and issues facing the sector right now.
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