To grow and develop an Accounting firm it needs 4 areas of focus – workflow, people, clients & revenue. The challenge is that if you just focus on workflow then revenue growth will not happen. If you just focus on revenue only typically the ‘wheels fall off’ workflow and people development.
The key is to focus on all 4 at all times. You need people who are leading the key areas to focus on the key areas. The outcome is more cashflow, profit, happiness, growth and improves lifestyle. All the good things in life!!
This one is a touchy subject for some. So before you get angry and send me hate mail open your mind to the possibilities…..
In 2014 there were approximately 50,000 Australian office jobs sent to the Philippines alone. According to experts this number is set to double this year and continue growing each year. It can be a touchy subject with some people but it’s not going to go away. Clothing has been manufactured overseas for years and now it’s office jobs. When the labor costs are 1/5th to a 10th of what we pay in Western countries it is a compelling opportunity for businesses to consider. There is also an abundance of people who are educated and very keen to work.
Although many Asian countries are offering outsourcing resources, I am most familiar with the Philippines market. There are approximately 1.2M people currently hired (in the offshoring/outsourcing space) and it is growing at 20% pa. They cannot build the office facilities fast enough to house them all. To become a qualified CPA it takes 5 years after university and you can hire them for around $4 – $7 per hour. This is considered a good salary.
When I first visited on an outsourcing study tour the following line got me: “any job that is done over the phone or behind a computer we can do for a 1/5th to a 10th of the cost.” So basically any non-customer facing role can be done cheaper and often better.
The use of cloud technology is critical to making this happen in accounting firms. Instead of sending large data files backwards and forwards, the offshore Accountants are working on the same file you are. If Accountants locally are not adding value to the work they are doing then their days are numbered.
The Accounting firm of the future will have local team members who are customer facing and adding value. Everything else will be done somewhere else. This is happening right now.
Many Accountants I have spoken with reject this reality because they still want to hire ‘locally.’ Hiring local people is a very noble thing to do. I do it but I do it for customer facing roles mainly. Many Accountants are worried what will happen to the profession if they don’t hire local graduates and train them. This is a good concern to have. It’s also a real one. If you are going to shift your processing team offshore then how are you going to train local talent to ‘come through the ranks’? The entire training model might need to be turned on its head as well.
The challenge you have got is other firms are doing this and they are using the significant cost savings as an advantage and they are reducing their prices. With a (up to) 80% cost reduction on labor costs the ones that are using offshore teams can hire more people and give a better service. They can do more marketing, create more products and give a better experience to their clients.
The biggest challenge you will have with this strategy is ‘selling it’ to your existing team members. They will feel their jobs are threatened. If you take the view it is a business growth strategy and not a redundancy strategy then that will help a lot.
You don’t have to go in ‘boots ‘n all’ and create your own full-time team from day one. You could start by hiring contractors on the various contractor websites to do one-off special projects.
In the not too distant future here’s what your offshore team could look like:
- Your internal finance team
- Marketing team – all functions
- Sales coordinators
- Client Services assistants
- Technology creation and support
- Accounting processing team
- Product & systems developers
If you are interested in this space then I strongly suggest you hop on a plane and go on a study tour (email me and I’ll send you details of reputable tour operators) so you can see it for yourself. As the tour operator (Mike) said to me:
‘Many people come over here with their current business or product in mind. Then they see the machine in action. When they leave they have invented new businesses and new product ideas’.
The machine is full of gas and is waiting to be started.
Most Accounting firms are operating their business by default – not operating their business by design.
Most Accounting firms just seem to exist. They get through the years with a limited plan, they seem to ‘acquire’ a bunch of clients who are ‘hotch potch’ of make, model & size. They do not typically run the firm like a business, and worst of all the Partners typically operate the firm based on leanings from the Partners of the firms where they used to be employees.
This beast that you own is a business – not a practice. You own it. You take all the risk. Your name is on legal documents. Your name is on the insurance policies, the credit cards, the loans, the leases. Your entire team will all leave one day (they eventually always do) and you’ll still be there. Your clients are in the deal for their annual fee and their work done. Your team members are in it for their salary and career progression. You are in this thing for millions!
This thing that you own is not a community service or a charity. However, many firms operate just like that. They operate like a not-for-profit, community-serving establishment taking on clients they don’t like, doing work they don’t like and dealing with people they don’t particularly like either.
Remember, it’s your business and no one else’s. You should be the benefactor of the spoils and the one enjoying it the most. One of the key purposes of a business is to create wealth for the owners. How’s that going for you?
Although most accounting firms are operated by sole practitioners (one owner), by my educated guess there are approximately 3 partners for every accounting firm in the world. And from my basic research there over 1,000,000 firms in the world. So somewhere in order of 3,000,000 partners. Worldwide it is estimated to be over a one trillion dollar industry. That’s nearly the GDP of Australia!
That is a lot of accounting firms and a lot of owners of accounting firms. Far too many of both in my opinion!
So how do the partners become partners? Here are some typical (and perplexing) scenarios. As an Accountant goes through the ranks and learns their craft at some point in time they ‘make partner’ – as if it is their given right. Sometimes a team member puts pressure on the partners and threatens leaving if they do not become a partner – and the partners cave in. Sometimes current partners think they must elevate a team member to partner status just to keep them – so they do. I even know of partners who have become partners and they do not even know the financial situation of the firm they are buying into. Who would want to be in business with someone who did not understand the financial situation of the business they are buying into.
There are too many partners who are there for retention reasons – not good business reasons.
What about the partner who starts his/her own firm? These are the real Entrepreneurs in this industry. It’s interesting how they come to be. The individual in question starts life as a junior accountant or graduate, learns how to do that part of the job, stays in the current firm for a few years, gets more experience and then shifts firms. They stay at the next firm for a few years and then maybe shift firms again. All the way observing how each of the partners conduct business.
One day (maybe sometime in the persons 30’s) they wake up and say to themselves “I am sick of being an employee of an accounting firm. I’m a good accountant. I want to go out on my own. I want to start my own firm”. They have just had an entrepreneurial seizure!
Off they (you?) go believing that just because they are a good Accountant that they know how to run a successful accounting business that provides great accounting services. Nothing could be further from the truth. Being a technician (knowing how to do the work) and being a business owner (knowing how to run a business that works) are two vastly different scenarios.
Here’s the issue. How did this new entrepreneur learn how to run the business they have just started?
From the partners that they worked for. They learned by osmosis. And where did those partners learn their great (tongue firmly planted in cheek) business skills from? The partners before them. – and so on and so forth.
If you want to run a better business you must first become a better business person.
If you stick to the traditional model described in chapter 1 the only real way to create wealth in this business is to have less partners in your firm and a higher leverage of people per partner.
There are plenty of sole practitioners around the world who hire 20+ people and as such they are making $1M plus profit per annum. The issue of low profitability starts when you have too many partners and the leverage (people per partner) is low. It’s very easy to prop up profits in an Accounting firm – just have the partners charge more time. They have the highest (apparently) charge rates so all time charged by partners of theoretically all profit.
Recently I asked a simple question at one of my coachingclub meetings. “If you could wave a magic wand then the ideal business partner is someone who……?” And then got them to answer the question. This is what the group came up with. The ‘ideal’ partner in an accounting firm is someone who…
- Brings something to the table – complements existing partners
- Is a good cultural fit in the firm
- Is a good communicator at the partner level
- Is a good communicator with team members
- Is a good communicator with clients
- Is stable – emotionally and financially
- Is profit and growth motivated
- Has a good work ethic
- Is reasonably fit and healthy
- Is at the same stage in life mentally
- Shares similar values and ethics
- Has an ability to respect other partners
- Knows what they want – goal orientated
- Is supportive of new ideas
- Is flexible in their thoughts and actions
- Is a good business builder
- Is fun to be with
- Shares the vision
- Walks the talk not just talks the talk
- Acts in the best interests of clients and the firm at all times
- Can bring in new business.
How many of these 21 can your current partners answer favorably? Maybe some partners that you have are not a fit. Do you need less, more or different partners?
Maybe some change needs to happen in your firm at the partner level.
This article was originally published in my first book ‘Accounting Practices Don’t Add up’. My latest book ‘Remaining Relevant – the future of the Accounting profession’ is now available. Click here to buy.
Today marks the end of a 5 year and 2 month era. But it’s also the start of a new one. One of our star performers, Sharon McClafferty is leaving to look for new opportunities. She started as a sales coordinator and was quickly promoted into the role of sales where she quickly started outselling seasoned professionals. Within 12 months she was the sales manager where she grew and lead a team of 7 people. She had never sold anything before joining our company yet in 5 years she has sold in excess of $5M of new revenue. An absolute superstar. When Sharon sells she doesn’t sell. That’s the difference. She is an amazing relationship builder who makes a difference to those that she engages. She tells me she has done over 750 consultations to Accountants which is awesome.
On or close to the day she started I had the ‘leaving speech’ with her. It went something like this:
“Sharon, welcome to the team. We’re thrilled you’re here. I am sure you’re the right person for the job and I know there is a lot going on this week. I just wanted to talk to you for a few minutes about the day you leave. You will leave one day, everyone does. I know this is your first day and I know you’ll leave sometime in the future so I figured we should talk about it now. I have a number of hopes and desires for that inevitable day. Firstly, I hope we part on good company. I don’t want someone to fire you because you didn’t work out or make you redundant because of a business downturn. Secondly, I hope that you learn a lot, contribute a lot and have a lot of fun. Thirdly, I hope that you live by our values, service and culture standards and the standards we set become part of your life. And lastly when you look back at this block of time, no matter how long it is, you look back on it fondly as an amazing part of your career. Welcome to the team. That’s all I wanted to say.”
I do this with every new team member close to the day they start. Sharon has ticked all those boxes and she has grown into an extraordinary professional. The photo is with Colin Dunn, my business partner and I at Sharon’s wedding in December 2013. I was 10 kgs’ heavier then!