Rankings report: France

Local firms will find uptick for advisory

France spent its way out of the pandemic and the energy crisis but now it is time to pay its bills comments Che Golden.

France has weathered the storms of the pandemic and the energy crisis well, largely as a result of the government’s decision to spend, spend, spend. Accounting firms have managed to ease fee pressure and stay ahead of inflation, even while battling a skills shortage. New legislation, such as the EU Corporate Sustainability Reporting Directive (CSRD), pension reform and the compulsory move to electronic invoicing is creating demand for new services and opening up new revenue streams.

But the party is over and France now has to pay off its huge national debt. Insolvencies are rocketing and mergers and acquisitions are on the rise as firms fight for market share and skills.

The CSRD, which will come into force on 1 January 2024, will only affect listed companies and companies with a turnover of more than EUR 40 million. Given that the vast majority of the French economy is made up of small businesses, this directive will not directly bring additional business to many small and medium-sized accounting and auditing firms and will primarily concern the larger firms whose clients include companies directly affected by CSRD. But there is a trickle-down effect that is expected to affect smaller companies.

“Awareness of the growing importance of non-financial indicators is gradually pushing companies to take an interest in these issues,” said Chloé Marques, partner at FCN, an MGI Worldwide member firm. “Also, most of the companies that are expected to comply with CSRD will ask their suppliers and sub-contractors (often much smaller businesses) to meet certain ESG requirements. This will give to the entire accounting profession an opportunity to develop new services regarding ESG.”

Betty Quinchon, head of the international department at AFIGEC, a PrimeGlobal member firm, is seeing structured firms preparing, training, and starting to support their clients in ESG. The firm is starting to respond to requests from its clients and has prepared its first carbon footprint statements for clients this year.

Chloé Marques, partner at FCN, an MGI Worldwide member firm

Two major legal developments have had an impact on France this year. The first is the pension reform, which raises the legal retirement age in France from 62 to 64 and introduces a number of changes to the way our pension schemes operate. The second is the postponement of the compulsory use of electronic invoicing by businesses, initially scheduled for July 2024 and now delayed until July 2026, to give French businesses and the tax authorities more time to prepare.

This means that local firms are finding a big uptick in demand for advice. “Over the last 12 months in particular, the introduction of pension reform has prompted many business owners to consider the impact of this reform on their retirement date and entitlements,” said Marques. “This has led to a relative increase in demand from firms for advice on retirement and business transfers.”

Firms are using the delay in the introduction to electronic invoicing to change their organisation and their client relations to implement electronic invoicing in a way that improves client support and the production of data and advice, according to Quinchon.

“Software, which until now have focused on optimising production, will now be geared towards client relations,” she said. “Electronic invoicing will make it easier to process data and provide indicators and dashboards, helping entrepreneurs to manage their businesses more effectively.”

Accounting professionals have a key role to play with companies in the transition to electronic invoicing. They can carry out an audit of the organisation and to identify the priority actions to be carried out with a detailed timetable. Independent firms can also work closely with accounting departments in order to categorise their clients, configure the software, implement new tools, or even choose the service providers.

As the economy slows down, French firms are going to have to be creative to remain competitive. As in many countries, the French accounting industry is experiencing recruitment difficulties, a sharp rise in wages and strong pressure on fees.

So far, accounting firms have weathered the global economic storm well - most have been able to significantly increase their fee rates for two years, to take into account the impact of inflation.

“The target of most accounting firms is to try to propose more value-added services, through different opportunities, like digitalisation” said Jean-Thierry Tavernier, accounting and tax partner at Walter France, an Allinial Global member firm. “The objective is also to differentiate more in the future from the competitors.”

Betty Quinchon, head of the international department at AFIGEC, a PrimeGlobal member firm

Like many other countries, French firms are struggling to attract new talent, particularly those with expertise in areas like data analytics, consolidation, financial evaluation and technology integration.  The size of the HR department and related budget has significantly increased since some years. Firms are having to embrace new ways of working to attract staff, like remote work, more flexible organisations, more digitalisations, up to date and modern spaces.

“The aim now is to be able to do the same work with less people, as the younger generation is not ready to work as much as they were expected to in the past,” said Christophe Velut, audit and consulting partner at Walter France. “We need to integrate the balance between work and private life and give interesting jobs with good salaries to keep them.  The difficulty we have to face is the ‘war on wages increase’ launched by some firms.”

Demand is increasing in new areas in the last two years. Walter France has seen a rise in demand for accounting services that leverage technology, automation, and data analytics. With the growing threat of cyberattacks and data breaches, clients are asking accounting firms to provide services related to cybersecurity and risk management, while changes in tax regulations can create demand for specialised tax services.

“HR consultancy is increasing significantly as well as advice on digitialisation,” said Quinchon. “Above all, clients want to rediscover a sense of proximity that has been lost, particularly with being post Covid and the new technologies that have made it possible to do everything remotely.”

Despite clients wanting better personal relationships with their accounting firms, one French accounting start up is banking its financial success on many clients not even being able to retain the services of an accounting firm at all.

After eight years of self-funding, French accounting startup Dougs has raised its first outside financing. The company took in USD 27 million in its first funding round in July and plans to use the capital to double the size of its team by 2025 and expand to the UK and Germany.

Founded in 2015, Dougs is a chartered online accountant for small and mid-sized businesses (SMBs). It handles financial statements and tax filings, and works with other accountants, HR professionals and legal experts.

The funding is happening at a moment when SMEs are turning to digital tools like the ones Dougs provide as they struggle to meet more obligations with less working capital. Automation can also help SMEs that cannot find accountants at all due to the labour shortage. While digitisation and automated accounting solutions for accounts payable/receivable will not close the employment gap, SMEs are increasingly relying on them for the day-to-day business of their companies, such as invoicing.  

Jean-Marc Fleury, managing partner, Groupe Conseil Union, a Kreston member firm

What puts further pressure on SMEs looking for accountancy services is that mergers and acquisitions are increasing within the industry and accounting firms are only getting bigger, according to Quinchon. Tavernier has noted that the trend of some firms is to diversify and to add new expertise by recruiting skilled partners or by acquiring specialised entities, in activities like ESG or AI. For the moment, France does not face the situation of other countries like US, with the share capital of accounting companies being opened to the private equity.

Even with the uptick in new business, 2024 will likely be a more turbulent year for French firms.  Antoine de Riedmatten, CEO of In Extenso, ETL GLOBAL Member firm, is predicting much greater demand for cybersecurity, cash management and CSR consulting and thinks that market growth should slightly exceed inflation. “2024 should be a transition year with a specific focus on client solvability,” he said.

Jean-Marc Fleury, managing partner of Groupe Conseil Union, a Kreston member firm predicts financial difficulties in certain industries due to economic crisis (real estate, construction, etc), long-term difficulties (retail, etc) or difficulties in reimbursing Covid 19 governmental loans.

The number of insolvency cases in France is beginning to rocket. In 2022, 42,500 French businesses shut up shop, representing a 49.9% insolvency increase compared to 2021, according to a report by data analytics consultancy Altares. This is a record figure that results from poor economic recovery since the start of the pandemic.

Insolvency numbers fell sharply between March 2020 and November 2021 as businesses heavily relied on government support programmes. As the cash tap runs dry and businesses have to start repaying state-backed loans, the number of insolvencies is going up again.

Repaying state-guaranteed loans and social security contributions is becoming increasingly difficult for many French companies, particularly small ones, with the risk of mass insolvency reaching an all-time high, the country’s trade unions have warned. The number of insolvencies will keep increasing in 2023, as the report forecasts 55,000 bankruptcies.

To add to its economic woes, France now finds itself having to pay the bill for spending its way out of the pandemic. Over the past three years, the French got used to massive spending announcements, but the spending party is over and the government has pledged to tighten the belt by cutting public spending by EUR 16 billion in next year’s budget. It is desperate to avoid raising taxes in keeping with the liberal, pro-business approach that has been Macron’s government trademark. Instead, it is looking to phase out measures that supported French businesses and citizens amid the energy crisis.

While it will be tricky for the government to walk the tightrope it has created, French firms are confident that business will still be good in 2024. 

Main Image: Arc de Triomphe, Paris. Credit: IM_photo via Shutterstock.