Does the Business Advice of an External Accountant Improve the Performance of Small and Medium Sized Enterprises

Accountants in public practice are the main advisors to small and medium-sized enterprises (SMEs). SMEs use external accountants primarily to help fulfil regulatory requirements or satisfy contractual constraints (e.g., taxation, compilation and audit), but there is evidence that SMEs also rely on the business advice of their external accountant for support in managing the firm. This study provides empirical evidence as to the value of business advice by analysing whether SMEs buying advice from their external accountant demonstrate superior performance. This area of research is important because the accounting profession continues to promote the expertise of external accountants as business advisors in the absence of empirical support for this strategy. Data collected using a questionnaire survey of Australian SMEs confirms the predicted positive relation between the purchase of business advice and SME performance, where performance is measured using SME survey respondents' rating of their own performance relative to competitors on a range of financial and non-financial success factors. SME performance is found to be further enhanced when business advice and auditing are jointly purchased, which suggests knowledge ‘spillovers' from auditing to business advice. Additional analysis reveals that these relations are concentrated in the small businesses subgroup (5-49 employees), consistent with smaller firms having a narrower resource base and thus a greater need to source business advice from their external accountant