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!
Attention Accountants: Feel free to use this article in your publications to help promote cloud Accounting. Please give credit to me as the author using the footer at the end.
Accounting can be sexy
The old system of accounting is really boring.
If you are like most small business owners each month you ‘transact’ (making it, buying it & selling it) through a manual system, a spreadsheet, a timesheet, a cash register and/or a receipt or quote book. Then progressively through the month (or at the end of the month) the data would be entered into a ‘hard drive’ accounting system – either by you or an external book keeper.
Sometime into the new month you may get an income or profit & loss statement which typically was wrong. You would monitor cash balances via internet banking or the check book. At the end of the year you would package up all of your receipts and a copy of the year end file from the accounting system and send it in to the external Accounting firm for processing & filing.
The external Accountant would get started on your file then stop, ask you questions, get started again, ask more questions and then sometime into the future (often months go by) they would finish your job and present you with a ‘set of financial statements.’
They have a meeting with you, do not explain things very well, get you to sign the documents, they then lodge/file the work with the government authorities and you’re done. The financial statements they present have old redundant data that reflect last year’s performance not yesterdays. How can you run a business on old redundant data?
Along the way with this most typical process I am sure your most important questions / issues were not explained very well – if at all. I find there are 4 key questions every small business owner wants and needs answered:
- How much tax do I have to pay and why?
- Where did the cash go?
- Am I am making money and if so how much?
- How much free cash do I have this month?
You will never get an accurate ‘real time’ answer to those 4 questions while you have an archaic ‘desktop’ or ‘hard drive’ based accounting system that involves manual data entry.
These systems were developed last century and they are well past their use by date.
Accounting can be sexy if you change your systems to ‘cloud’ (fancy word for internet based) technology.
Your accounting system ‘talked’ to your client management system which talked to your inventory system which talked to your distribution or point of sale system. All the technology was hosted on the internet and it synchronized with each other every day – or every minute if you wanted. They may be different providers for each component but they are linked together via the internet.
What you end up with is rich data, accurate data, less manual input and awesome reports to help you run your business in real time. Everything is super safe and easy to use.
In my business I get amazing dashboard reports automatically sent to my email every single day. I get client numbers, client frequency, most recent sales, forecast pipeline, cash balance and revenue & profit – yesterday, month and year to date. These reports give me a snapshot of the most important things going in my business every day. They enable me to run a better business because I have accurate information at my finger tips to make better management decisions.
I know how much money I am making. I know where the problematic areas are. I know how much cash I have to play with. I used to pay external advisers around $2,000 per month for ‘management reports’ that were late and not as accurate as what my systems generate for a fraction of the cost.
You cannot get this sort of data on multiple ‘hard drive’ or manual based systems. You just can’t. You can only get what I am talking about with cloud based technology.
It starts with the accounting system. When the data is in the cloud it can be seriously sexy!
© Rob Nixon
Rob Nixon is the global leader in helping Accounting & CPA firms become Real Time. He has been advising Accountants around the world since 1994. He is the founder & CEO of PANALITIX (www.panalitix.com) and the author of ‘Accounting Practices Don’t Add Up’ and his most recent book ‘Remaining Relevant’. You can follow him on twitter – @therobnixon – or via his blog – www.robnixon.com.
Today is the day that my latest book goes on sale. You can pre-order as of today – shipped on march 27. It’s been 21 years in the making. I have piled all of my best ideas into a 198 page ‘manual’ that has rich content, loads of process visuals and practical help. Although for Accountants any business will get value from it. One Accountant already ordered 100 copies for his team. If you’re an Accountant buy it. If you’re not then why not buy a copy for your Accountant. I want to massively influence lives and create a wave of change with this book. You can pre-order here.