Since I put up this post on Monday I have had some negative and positive remarks. For most it has been a wake up call to the real value of an Accounting firm. This morning I was asked a question by a journalist:
“Isn’t the whole notion of professional services that the value is the people? The power is the partnership…why on earth would you seek to extract it from the overall value of the firm”?

Good question. Here is my response.

Yes the power of the firm is in the people – without a doubt. Im not saying we remove the partners completely. I am suggesting that we get better utilisation of partner time and we get more leverage of people per partner.

The key thing here is how much of an asset is the firm if the owners have bought themselves a job? Typically in small firms or firms that are larger with low leverage (people per partner) they will have a very low sustainability index. What partners need to do is get super effective with their time and only do 3 things:

1)      High end delivery work for a low percentage of time – so if they are doing client work they are getting paid well for it – say less than 30% of time and more than $500 per hour type work.

2)      Nurturing existing clients – service, sales, finding opportunities – say 40% of time

3)      Leadership – new ideas, driving performance, working ON etc. – say 30% of time

Most partners are doing low level work and too much of it (low leverage) or with their non-chargeable time they are doing administration work.

When this is the case everyone misses out. They clients are not serviced properly, the partners are not doing work they should be doing and profits are not where they should be.

It’s all about balance. An accounting business (like any business) needs leaders but the leaders can get leverage if they hire the right people and ‘get off the tools’

There are 5 business models in the profession – 4 good, 1 bad

1)   Solo person (no employees) – adviser & outsource the rest – good cash business with low overheads

2)   Small boutique firm that specialises in niche markets or niche services – still reliant on partners but very profitable

3)   Trying to be everything to everybody – low leverage, large client base, often with low leverage of people per partner (generally less than 7:1 ratio)

4)   Growing vibrant firm with great leverage of people per partner – more than 12:1 people per partner

5)   Part of a consolidated group – where the partners are now employees

All 5 are valid however no. 3 is what I call ‘between a rock and a hard place’. If 1 or 2 people go on leave (or leave) then it is the partner(s) that are back on the tools doing the work.

It is no. 3 where most of the profession sits and it is no. 3 that will have a very low (sometimes negative) sustainability index.

Based on our analysis of the 540 firms included in this year’s benchmark report (to be released this week), it has become apparent that there is a new key performance indicator that all firms should start measuring.

We call that KPI the Sustainability Index.

On 1st January 2011, the first baby boomers turned 65. Millions of them are now approaching retirement, which flags succession planning as a significant issue for the Accounting profession. The Sustainability Index identifies the reliance of a firm on the partners – if you took the partners out of the equation, how much profit would be generated? In many cases, it is minimal.

In our report of 540 firms we have made an assumption that partner recovery rates average out at $275. Based on that assumption, for the 540 firms in this year’s survey, the Sustainability Index comes in around $13.

This means that if you remove partner contribution from firm profit and divide the result by the total hours paid for the entire team (including administration); the result is just $13 per labour hour contributed. Not an attractive value proposition for a potential purchaser of a firm – and a result that should have partners in some firms wondering why they bother with a team and infrastructure.

To get a more scientific result for your firm, you should consider both partner delivery and partner sales to arrive at your firm’s partner contribution.

The sustainability index is the end result of everything you do in your firm – including:

ü  Team to partner ratio – leverage

ü  Team productivity

ü  How much you charge clients per project

ü  How many projects each client buys from you

ü  Write ons or write offs

ü  Work in progress management

ü  Your efficiencies or wastage

ü  Salaries paid to team

ü  Administration structure

ü  Overhead structure

At the end of the day why are you in business? As a business owner the objective is create a sustainable accounting business that provides cash, profit, lifestyle, happiness and wealth creation.

How sustainable is yours?

Sustainability Index

Yesterday I was a participant at an Accountants technology conference in Melbourne. There were 31 technology companies who sell their products to Accountants or the clients of Accountants. The constant word – CLOUD.

It seems every technology provider either has or will be providing an internet based system. Moving from the legacy of server, CD or PC based systems to have the product / content / method hosted on massive servers in/on the internet.

I know in my business (21 people) we are currently shifting everything to the internet. Accounting, CRM, Email, Word processing, Document Storage etc. It is not an inexpensive exercise however the access, speed and versatility are the reasons why I am doing it. Having the ability to access every piece of data from any internet enabled device  will make my business more efficient and responsive.

Moving your clients to cloud accounting systems will help you and your clients enormously. Your clients will have more efficient accounting systems and access to better data and you can get access to that data very quickly. If you know what is happening in your client business you can be more responsive with real time advice.

The estimates are that it will take 30-40% less time to prepare compliance accounts (at the Accountants end) because of these new cloud based accounting systems.  This is great news for creating capacity. But what are you going to do with the time? I think you should be using the data and offering value added services. I think you should use the time to be more proactive with your clients. It’s what they want.

My prediction is that Cloud accounting systems will wipe out some of the more reactive accounting firms. The ones that do not embrace this new change will be left behind. The firms that embrace the change will capitalise on a wonderful opportunity to serve clients in a new and exciting way.

To cloud or not to cloud – that is the question. What is it for you?