Firm focus - Blossoming Menzies

Menzies has grown from small beginnings to become a mid-tier firm with ambitions to sew up the owner-managed business sector, senior partner Mike Sands tells Lesley Bolton.

It was all this magazine's fault, laughs Mike Sands, that he became an accountant and not a journalist. The senior partner of mid-tier firm Menzies claims that his destiny - to follow in his father's footsteps at the London Evening Standard - changed when he picked up a copy of Accountancy in his school library back in the late 1960s.

And that was that. He joined Menzies straight from school and has remained with the South East-based firm ever since. However, the firm is a different animal from the one he began working for in the early 70s. Then it had two offices - in Kingston-upon-Thames and Woking in Surrey.

It is now a dedicated business adviser to owner-managed businesses (OMBs).

And it's been having some success. Its most recent results reveal a total fee income of over £30m - up 15.5% from last year. And in Accountancy's most recent Top 60 survey (July 2006, p29) the firm was up two places from the previous year, to 21st on the table.

Sands, who became senior partner 10 years ago, and who is based at the firm's Woking office, explains that last year's growth is mostly organic, with just a bit of it the tail end of an acquisition the previous year.

Blossoming

Menzies remained a fairly small firm until the late 1990s, when a change in strategy put it on course for dramatic growth. As Sands modestly puts it: 'It's blossomed quite nicely in recent years, mainly caused by the marketplace and our adaptation to it.'

Now into its third five-year plan, Menzies has eight offices and 41 partners.

'If you go back 10 years, we had a focus to be the largest firm in each of the towns we were in. In 1999 we decided, OK, let's become the largest independent firm in the South of England, and we had to reshape our business to do that. We are now refocusing yet again to become hopefully the largest business adviser to OMBs in the UK. So we are looking at a substantial programme again of enhancement.'

Sands says the change of direction is down to the need to respond to changing client needs. 'The average OMB we deal with today has a much greater requirement for service and advice than it's ever had before, and we've had to remodel the firm to adapt to that as we've gone along. Adaptability and the ability to change your structure and your facilities to meet the client's needs are absolutely key.'

Partnership structure

Menzies remains one of the few genuine partnerships in the top 25 firms, and currently has no plans to change. It does not find that the partnership model restricts its ability to manage effectively. However, the firm is run on a corporate style: there is a management board of four managing on a day-to-day basis, with two partners' meetings held a year. 'I believe it would be a restricting factor if you had a traditional partnership model. You couldn't possibly ask 30 people about everything - you'd never do anything.'

Change to LLP or limited company status is not ruled out though. 'I think we will be going along that route at some time, but we're not under any pressure to do so; when it suits us I believe we'll make the change.'

As Sands gave Accountancy this interview, the firm was finalising its acquisition of Leatherhead-based Callingham Crane. It is part of the firm's strategy to increase the size of its existing offices and increase the size of specialisms and abilities within the individual core practice to enable it to deal with the bigger OMB.

In the case of Callingham Crane, the acquisition will further the firm's plans to develop a centre of excellence for private client and wealth management work, including trust and tax-planning services in the South East.

Sands says: 'If you take outsourcing; payroll, VAT; corporate finance; corporate recovery - these are the areas that we've got to bolt on for the average SME these days.'

That expansion is unlikely to be outside the South East at present. Aiming to be the leading advisers for OMBs in the country won't necessitate a move further west or north. To meet the goal, believes Sands, 'what we have to do to achieve that is to do £100m turnover. I think we can do that without going too far outside the South East'.

Going international

As a pointer to how OMBs' requirements for services have changed over recent years, Sands highlights the international aspect of these businesses nowadays. 'A lot of our clients have an international requirement now that just wasn't there five or six years ago. 'We've had to adapt ourselves to meet that. Their requirements are anything from a payroll of three in the Czech Republic, to buying a business in Dubai. This used to be big company stuff - it's not anymore. It's everyday business.'

Menzies is a member of Praxity, the newly-named MRI, as of the first of this month. As the 10th largest alliance of independent accountancy firms, it gives Menzies 'fantastic' access to worldwide firms of a similar type. 'And we use it every day,' says Sands.

However, the name change is to emphasise the fact that the alliance is not an international network, which would bring it under the tentacles of the new European Statutory Audit Directive and all the associated compliance costs (see this issue, p108).

International Financial Reporting Standards are another new area for the firm. 'Never touched it a few years ago,' remarks Sands. 'We even send our staff to Prague on training courses, which we never used to do.

It's a requirement now, and it's another example of the staggering difference between OMBs now from a few years ago.'

Audit competition

Risk, Sands says, is the overriding deterrent for a mid-tier firm such as Menzies taking on the traditional audit clients of the Big Four. While some commentators seem to think it's about lack of capital for mid-sized firms, he says: 'That's got nothing to do with it. It's all about risk. Do we need to take that risk or not? We are very strong on risk assessment. We judge every client, we decide what we want to do; if we don't want to do it, we don't do it.'

The question of auditors' liability is the main 'prevention', he says.

But again, nothing is set in stone: 'Once we get the Companies Act next year, and see where we are with liability caps, for example, we may take a different view.'

Meanwhile, Menzies is concentrating on its third five-year plan, to become the largest adviser to OMBs in the UK and to get its turnover up substantially.

'We have a great vision and focus on what we want to achieve,' says Sands. 'We're enthusiastic. It's a great challenge.'

VITAL STATISTICS

Turnover: £30.2m

Number of partners: 41

Number of offices: 8

Staff: 329

Number of trainees: 73

Status: Partnership

RESULTS AT A GLANCE

Year to 28 February 2007

Audit and accounts £10.3m
Corporate restructuring £6.2m
Consultancy £5.2m
Taxation £4.8m
Outsourcing - payroll £2.2m
Corporate finance £1.5m
Total £30.2m
% rise on 2005 15.5%
FIRM HISTORY

1912: Formed

1999: Changed status to become largest independent firm in the South of England

1999: Merged with Moores Rowland Kingston office and Sheen Stickland in Hampshire

2002-04: Opened in Portsmouth by acquiring Evans Pearce and Wilfred Green

2005: Acquired Bolton Colby at Heathrow

2007 (March): Acquired Callingham Crane

2007: Aims to be the largest adviser to owner-managed businesses in the UK.

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