If I live until I am 100 years old then I have around 20,700 days to live. I am 43 now. I have been advising accounting firms around the world since I was 24. I will not be around nor commentating on the profession forever.
If this is the last piece I ever write I wanted to make it significant. I want to make sure that it is direct, succinct, realistic and factual.
After 19 years advising Accounting firms (around 85,000 accountants), and 11 years directly benchmarking them this is the first year I have seen profit per partner decline. Last year when we benchmarked the profession the average profit per partner was $305,191. This year it is $293,058.
It’s only a 4% decline – however it is a decline. And that is significant.
The firms we coach did 30% better at $380,655 average profit per partner.
The highest performer was $2.5 million profit per partner versus our top performing firm of $3.57 million profit per partner. Only 2.5% of the profession earn over $1M profit per partner. We’re proud to say that most of them have coached by us. We think you’re worth $1M+ but you have to believe it first. We provide the systems, tools and coaching to get you to >$1M profit per partner – if that’s what you want.
Compared with how smart accountants are and the risk that being a business owner involves, it really is a little ‘ho-hum’ how little partners of accounting firms earn. Around $300k average profit per partner is not a lot. And that’s before interest, working capital and taxation.
I think the decline of profit is a sign of the current economic conditions and the start of a changing market.
For years the profession has survived on being the governments ‘handmaiden’. The government changes the rules, you write to your clients and say ‘we must now do this’ and send them a bill. I am in business and I like to be in complete control of my destiny. What about you?
The profession has survived (for decades) and been very comfortable delivering historical ‘checking and lodging services’ – which most call compliance. For the vast majority of your revenue you are an intermediary between your clients and the government agencies.
The reason the profession exists (from a compliance standpoint) is because the government does not have the systems to reliably accept data & money directly from your clients and because at your clients end there are humans involved who are not accountants who are ‘doing the books’.
Enter your public accounting firm.
Sometime after the end of the financial year data arrives from your clients, you check it, manipulate it, process it and then lodge it with the government agency.
You send your client a ‘bound’ copy of the lodged document (often not explaining what it all means) with an invoice. And voila – another year complete. Move onto the next client.
I am generalising but seriously, where is the value in that product for your client? The data is late and if not explained it just looks like an expensive report that goes in the drawer never to be seen again.
It didn’t really help your client to do anything other than tell them ‘how I went’ last year. Big deal. What can I do 12-18 months after the fact?
For the past 19 years I have been talking about the same thing – be proactive and add value to your clients.
Will the industry (as a whole) ever really be proactive and add value? So far I think the message has sunk in – everyone agrees that they must do that – however the actions definitely have not.
I think the reason accountants are not proactive and they add little value is because it is very comfortable doing what you currently do. And that is to wait and be reactive.
Over the years the income levels have been ‘OK’ and a lifestyle has been created around the income. Over the years an accountant did not have to try that hard to create a reasonable life.
You have not needed to be innovative, nor market and sell yourself every day. Clients appeared by referral. They are very loyal because of the financial intimacy you have with them. The labour to deliver the service is relatively inexpensive. But the best part of it all – you are a mission critical business. I currently must have an accountant!
The government currently tells me that I need an accountant to ‘check & lodge’ my annual taxation information.
The challenge with this relatively easy business model is that is has made the industry reactive and lazy. As a result the self-esteem of accountants has been eroding away.
What if that was not the case?
What if the convergence of technology at your clients end was so good that the checking was done by computers? With the prevalent usage of bar coding and smart phones the computers were managing the stock control, payroll, warehousing, capacity management, accounting, money transactions and customer data.
This is not creative dreaming. It can be done right now with a range of internet based technology.
If the ‘human element’ is taken out of the processing at the clients end then there is less checking needed at the accountants end.
Previously the accounting data sent to you for checking was (and still is for the time being) very ‘heavy’. I needed to send you a USB stick with 1+GB of data on it for you to check & process. Too big to email. It was a laborious task of you loading the data into your version of my software, you’d check it, manipulate it and then lodge it – some months later!
With internet data it is all very ‘light’ – all you need are my login details. So if the data is light (all the data – not just accounting) then the data is more transportable. If the data is more transportable then I can get anyone to do it.
A few months ago I was coaching a group of Accountants and one of them told me a colleague (from Melbourne, Australia) had just received an ‘ethical letter’ from an accounting firm in India to do the accounting work for their client who is in Melbourne. I now know of 3 Indian Accounting firms targeting Australian clients.
Expect much more of this as the function of compliance becomes commoditised.
What about when the government agencies improve their ‘incoming data process’ so that it seamlessly interacts with the technology at your (current) clients site?
Answer: Your lodging service is no longer needed.
That will take a while because we are talking about a giant tortoise!
But it will happen eventually. Governments all over the world are not interested in accountants. They simply use you as an intermediary so that there is some reliability in the cash they receive.
With new technology all converging together so it ‘talks to each other’ it means that a repetitive task such as compliance can be systemised, automated and then commoditised.
And of course, everyone knows that commoditised products & services lead to price pressure and intense competition.
I am not saying that compliance will go away completely. I am saying that anything that is a ‘processing’ or ‘repetitive’ task will be commoditised and marginalised by the internet.
In the past 15 years there have been many industries literally ‘wiped out’ by disruptive technology on the internet. The use of internet technology will continue to marginalise traditional processing, publishing and content based industries.
In my view the accounting profession is in the direct firing line of this change. It’s a tsunami of change on the way.
You can choose to do nothing and a big chunk of your revenue will be wiped out or you can get on the wave and learn to surf!
You can’t stop it – it’s going to happen whether you like it or not.
This new world order (in the profession) is being driven by technology, search engine and publishing companies. These companies (most of them publicly traded and very large corporations) have reinvented themselves to remain relevant and to stay in business.
They are writing their software on the internet (previously served by via a hard drive on a server or PC) and delivering their content through the internet. They are making their previously cumbersome products very easy to deploy and use at your clients site. They are making your clients data very light and transportable.
The massive search engines allow your clients to get access to your previously closely guarded knowledge. A few clicks, a bit of searching and I have a lot of answers that previously I would call you about – for free! I can get the knowledge by web text, video or audio. I can get the information when I want on any device I want. All I need is an internet connection.
For you to remain relevant as an industry you need to know what is coming (it’s already started with circa 5% of the business community on some form of ‘cloud’ accounting system) and you need to make some immediate changes to the way you operate.
To survive what every accountant of every level (from graduate to partner) must do is to ‘add value’ to what they are currently doing.
If you do not add value then quite simply you will be out of a job.
Adding value is all about…
Finding new opportunities in the current project
- Explaining what all the data means
- Finding out what the clients goals are and then guiding them until achieved
- Offering additional services to clients outside of compliance
- Inventing new services for clients to use
- Constantly and proactively communicating with clients
- Offering free communication – phone calls / emails / meetings
- Inviting clients to regular events and seminars
- Connecting your clients to each other – physically or through social channels
- Thinking about the clients situation – all the time
- Research new ideas from around the world
- Understanding the clients current situation – at any time
- Connecting your clients to experts
- Not giving your clients any surprises
- Negotiating with the government agencies – without being asked
- Offering to help all the time
Adding value is constantly thinking about ‘what else can we do’ to make a difference to the clients situation.
Adding value is all about helping your clients achieve their goals. Adding value is all about you remaining relevant to your clients.
We do this simple exercise with our coaching clients. It’s called finding opportunities. We ask accountants to bring a random client file to the meeting. The owner of the file must explain the clients ‘story’ to 3 other accountants from other firms. They are given 20 minutes to come up with ideas that could be taken to the client. So far 100% of the time others come up with some ideas which could be used as a conversation starter.
This really annoys me. You know what needs to be done. You know there are opportunities in every single client file – yet you do not tell your clients about it. Why don’t you tell us? We don’t know what to do – we’re not accountants.
If you do not have the communication skills to take these ideas to clients then we can help. If you do not have the actual services that your clients need we can help with that as well.
If you are motivated to change then there are 3 areas to focus on in your business. Your partners, your team and your clients. All 3 areas involve ‘up-skilling’ and introducing new systems, policies, processes and procedures. It’ll involve marketing, sales, productisation, soft skills, technology, new services and most definitely it’ll involve breaking old habits.
The objective is make enough changes so that the partners are confident enough to service the clients properly, the team are fully supportive and helping with finding opportunities and the client base is buying additional services that they need.
When you have all 3 areas ‘firing’ you will be in the ‘sweet spot’ in the middle and making suitable profits (our best clients have >60% profit before partner salaries without working that hard) for your intellect and value contribution.
If you do not have all 3 areas working in harmony you will not maximise the performance of your firm. We have the coaching (online or physical), content (proven methods) and the technology to help your firm perform and most importantly the tools and technology (digital dashboard monitoring) that you need to take new value added services to your clients.
It’s time the profession ‘stepped up’ and took its rightful place as ‘trusted advisor’. Accountants still have the title of trusted adviser I just don’t think they act like it. With some new skills and a different mindset you can. In the not so distant future large financial institutions will try and claim the title. Do not let them erode your trust away.
It’s time to act more like a proactive business than a reactive practice. It’s time to stop practicing. You’ve been at it long enough – you should be good at by now. Why do you even use the ‘practice’ word? It should be banned. You’ve got a business to run and a client base to lead.
If you want to improve the performance of your firm there are 4 A’s to remember. You must have Ambition, the right A-team in place, take the right Action and be Accountable so you implement.
It’s all about building a business by design not a business by default. Most accounting firms are where they are by default. It doesn’t need to be that way. You can have the firm of your dreams that is earning what you are worth and at the same time living a lifestyle that you deserve.
In my view success is doing what you want, when you want, with whom you want in a manner you want. If you are not then it’s time to make some changes. We’re here to help.
All the best with your success,
CEO & Founder
Proactive Accountants Network