Last week I was in Bahrain at a leadership conference for Entrepreneurs Organisation (EO) for 4 days – well the conference was 1.5 days. I am proud to be a board member of the Brisbane Chapter of EO. The Brisbane chapter is one of the fastest growing chapters in the world. In Bahrain we had 350 EO leaders from around the world gather to learn and share experiences. I had never been to Bahrain before so I was looking forward to it.
I flew over on Etihad business class which was ontime, pleasant, flat bed seat but nothing real remarkable. By the time we got to the Hotel – 21 hours after leaving Brisbane – it was 10am local time. So off to a massage at 10:30 and then hit the golf course for a 1:30pm tee off at the Royal Golf Club Bahrain. It was very weird playing golf with oil pipes running past the fairways and oil pumps actually pumping oil when you are playing. The course also had the worlds biggest bunkers! I shot 82 off the stick which included 3 birdies so I was happy with that. I won the day and the money!
We pushed through the jetlag as acclimatized to local time. That night I met up with some other EOers and had dinner and few drinks.
My mate Matt and I were able to book a charter boat and “dive guide” to go pearl diving with scuba gear on. By the time we had gotten to our destination (30 minutes off shore) we had seen dolphins, sting ray, a US Aircraft carrier and countless oil tankers. It was an awesome experience hunting for pearls. They grow in wild oysters so we were literally hunting on the ocean bed for them. We caught about 100 oysters, shucked them and got absolutely zero pearls. I have a feeling we went to the wrong spot – particularly when our guide told us afterwards that this was the first time she had been pearl diving!
We got to see a bit of the architecture which is just amazing. I suppose when money is no object you can build what you want.
We got back to base just in time for the conference to start at around 3pm. The conference was at the Bahrain International Circuit – home of F1 in Bahrain. After the opening sessions we had a cocktail party / dinner then “after hours” – which means a drink (or 5) at the bar.
Started the day with a photo on the start / finish line of the grand prix circuit. You don’t get to do that every day. Then it was into conference all day and then finishing with a gala dinner in the National Museum of Bahrain. We were the 3rd ever group to have a function there – very cool. Conference over. More “after hours” and little sleep.
Because of the riots a few months back the police station themselves (just before dusk) at every intersection and roundabout with massive SWAT type 4WD vehicles. That didn’t stop a fire bomb going off in front of some friends of mine in a taxi as they came back from the night club.
Decided to play another round of golf in the searing heat and howling wind. We were in the middle of a sand storm that had blown in from Saudi Arabia. Not at all pleasant – we gave up after 9 holes. That afternoon a bunch of us went go kart racing at the F1 track. As you’d expect I won the day and the money – bit of a pattern going on here! I am not sure that my very tall German friends appreciated been beaten by an Aussie!
We were about to head back to the hotel when we were able to talk our way into the neighbouring drag racing track. The security guard with the big gun was not that helpful but when one of our shuttle busses turned up we had some leverage to get in. This thing was amazing. It did 0-100km in 1.6 seconds. 1050 BHP and covered the 1/4 mile in 8 seconds reaching 250km at the end. It felt like your eyes were put in the back of your head as it accelerated. It was a 3 seater special with the driver at the front and then 2 passengers. They are planning a proper F1 car with 2 seats so you can experience real F1. Might have to go back for that one.
After 2 hours sleep it was wake up, limo to the airport and then fly Bahrain, Abu Dhabi, Singapore, Brisbane – another 20 hours or so to get home. Awesome trip. Full on but very enjoyable – and the conference was worthwhile as well. Enjoy the photo’s.
Accountants are notorious for it. Discounting before sending the bill out. Commonly called a “write down”. Why oh why does this happen? Are you not proud of your product? Do you not have the guts to face the client and tell them the price? Do you not believe your team did a good job?
Some firms are great at doing this particular activity. I was in a firm once and they had $2.7M in write downs. To make a point I found a picture of a house worth $2.7M and then said that if they burnt it to the ground it would be more fun. Get a slab of beer, sit around and watch it burn baby. That’s effectively what this firm was doing.
What are you burning each year? A house? An apartment? A luxury car? Or even a motor bike? That’s gotta hurt!
If you follow any of my material you will know that my preferred model is to give the client a price before you start the work. The have an hours budget on each job and drive the time down. In that case you get a ‘write up’ in most occasions.
If you are not pricing up front then you better not be ‘writing down’ the work at the time of billing. It’s just waste, loss of income and it says that you do not value what you do. STOP IT.
The other day I was in a retailer and they gave me a discount without even asking for it. I wonder if their Accountant advised them to do that because that is what they do!!!
This morning I delivered a short speech (25 minutes) to 150+ Accountants. At the start of the speech I asked the question “On a scale of 1 to 10 how relevant is the Accounting profession today”. The resounding response was 7 out of 10.
When I finished my speech 25 minutes later I asked the same question in a different way. My question the 2nd time was “If the profession does not change in the next 7 years how relevant will it be”?
I started at 10 and my first taker was at 6 as I went down one each time. The overwhelming response was about a 1 in terms of relevance. I was blown away – a 1 out of 10 in terms of relevance if no change occurs in the way the profession operates.
So obviously in 25 minutes I caused a stir. What was I talking about? I made 3 key points:
1. The commoditisation of compliance. With the ‘cloud accounting’ revolution well upon the profession this will drive efficiencies, margin squeeze and the rise of “the internet accountant”. The photo below depicts what it may look like. Not a good look!
2. The way accountants explain compliance (the history) to their clients. Just sending out the year end accounts with the inane ‘sign here’ stickers and not explaining what it all means is just not good enough. Clients do not understand and therefore the value of the history paper is useless. It’s also out of date – by at least 12 months! But the history paper does have value – if it is properly explained. Using technology and a process (we call the process PANalytics) to demonstrate the history makes more sense. Our new internet product (Proactive Success System) explains in laymen’s terms where the money went and what it all means. An example screen shot is below.
3. Adding value. To remain relevant an Accountant must add value to the history document and then help their clients make history. The making of history bit involves real time numbers (available in the pocket or brief case at all times) and the offering constructive suggestions on improving the numbers. Our new “Client Alerts” product tells the Accountant real time what is happening in their client business every day. Being proactive takes on a whole new level with this product & process. When something that you pick up in your client business is not going so well then make the call and explain what you have picked up and what the client needs to do about it. What great client service and what a great tool to sell additional services. See below.
I think the sweat shop above will exist in the future. But that is not the answer. To remain relevant the profession must add more value – plain and simple. It’s time for change. My audience this morning knows it. They are up for it. Are you?
Yesterday I celebrated my 20 year wedding anniversary. It’s been a great relationship – complete with extreme lows and massive highs. The highs outweigh the lows by an order of magnitude – that’s why we are still together. We are still in love and looking forward to the next 50 years together.
As you can see by the photo I was very young. Guess my age in the comments.
Anyway, I got to thinking about how Accountants select their business partners. Being in a partnership is like a marriage. It’s an interesting process that you go through. You have employees who come through the ranks and then they are “made partner”. This is business by default. Often not much thought goes into the individual, what they will be doing and how they will be doing it. As a result of this very weak selection process we have a glut of partners who are overpaid Accountants!
And don’t get me started on mergers. It seems like a good idea at the time. However, in most cases you just end up with more of the same. Here is a 21 point checklist of the ideal business partners. See how many you can tick off for your current partners!
- 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.
If your partners do not stack up then maybe you need a divorce. I don’t!
Most Accounting firms exist by default not by design. Over the years they have just happened and here they are today. They have been poorly planned and they are often producing poor returns for the owners. You can change it. There are 4 key areas (and 26 sub points) an Accounting firm must focus on at all times to run a great firm.
All 4 must have attention every day. If you focus on just one the other three will falter. Do not start on any one of them first – do them all together at the same time – otherwise you’ll miss out on opportunities.
It’s your business – re-engineer it the way you want to run it. What I am writing about here is best practice based on 19 years advising Accounting firms around the world.
- Client service. It seems the term ‘service’ has been forgotten by many Accounting firms. What’s it like in your firm? Do you…offer refreshments, promptly return communication, explain all of your work, run events, educate your clients, have pleasant people, smile, provide technology, offer additional services and so on. Ask your team what are some examples of great customer service. Emulate the great companies. Do something different. It’s a sea of sameness out there in the Accounting profession.
- Niche markets. If you are attempting to be a generalist Accountant who works with any type of client type then you are being nothing to no body. Get focused on who you want to serve. When you pick your niche(s) make sure you like working with them, they are good people and they have the ability to pay.
- ‘A’ class strategy. Because most firms exist by default not by design they have a mix of A,B,C & D class clients. What are you doing for the A class clients? They know people who might be an A class client as well. Make sure you have a defined strategy for the A’s.
- Classification / Selection. There is an abundance of clients you can select from. Why do you take on anyone who walks through the door. You are not a community service or a charity – you are a business. Know who you want and be ruthless about it. If you have the attitude that you are selecting and not convincing then your entire persona will change. And so will your client profile.
- Value Added Services. Here’s what annoys me most about Accountants. If I give you an income statement showing 3 years of progress & a balance sheet and ask you to brainstorm ideas of improvement for the client then you will come up with a host of ideas. Then why are you not doing that every single day with every client you meet!!! Your clients may be buying tax & compliance service but what they really need is: Profit improvement, Cash-flow management, Revenue improvement, KPI analysis, Planning, Monitoring, Health Checks, Cloud technology, Benchmarking, Strategy, Coaching & Wealth Creation services.
- Branding / Leads. The function of marketing is to generate high quality leads – either from new or existing clients. Branding is very important as well. However when you get involved with marketing and hire marketing people make sure the money you are spending gets a return. Your brand probably needs a makeover and you also need to do activities that actually generate enquiry. Your marketing activity should make you money not cost you money.
- Services productised. Every day you generate IP in your firm. What happens to it? it more than likely gets locked in a client file somewhere never to be seen again and then started again from scratch the next time that type of work needs to be done. I am being facetious! I know you have templates and processes for compliance and tax work. What about everything else? The more you productise your services the more efficient you can be, the better service you will deliver and the more money you will make.
- Sales process / skills. Accountants are lousy at marketing but good at sales. Once we teach you. Think of sales as servicing. Making sure each client has what they need from you to achieve their goals and objectives. You do need skills in interviewing, language & questioning techniques. You also need a predictable sales process. Think of sales like workflow management – step by step process.
- Value Pricing. To price a job upfront is not value pricing. Value pricing is setting a price based on your contribution to the clients outcome. If you can save the client $250K in tax paid (and you know that in advance) then what’s wrong with charging $25k to do that? A 10:1 return is a great return in anyone’s language. Charging by the day or the hour will keep you in the poor house.
- Retention rate. There is no point in getting loads of new clients if you cannot look after the ones you already have. You must work out ways to retain your clients for the long haul. If you have a client that pays you $10k per year and refers 1 client per year that is worth a similar amount then that direct client is worth $200K over a 10 year period – plus inflation! You need to look at the lifetime value of each client – not just this months transaction.
- Average project value. Each time your client buys a project from you is an opportunity to add value, up-sell, and make sure the client is paying an appropriate price based on the value you provide. Pricing remains a hidden gold mine in an Accounting firm. 99.9% of firms undercharge for what they do. The right price is just before “NO, I do not want to pay that amount of money for that”. What your client is really saying is they do not see value in what you are proposing. It’s not until you get a lot of push back do you know if you have hit the threshold. Do not assume what the right price is – test it and listen.
- No. of projects / client. Accountants can offer huge amounts of value to their clients. If you have done your job right then your clients will be buying a large range of services from you each year. Most clients buy around 2 projects per year from their Accountant. Based on what clients need and what Accountants can provide that number should be an average of 4 or more.
- People mix / selection. You’ve probably heard the term ‘get the right people on the bus in the right seats on the bus’. Nothing could be truer. There are hundreds of thousands of great people you could employ – they just currently don’t work for you. The better your people the better your business. Do not accept anything but the “A” team. Get rid of the cancerous terrorists on your team. They will want to recruit others into their little gangs. Give everyone a chance to be coached – then fire fast if they are not with you.
- Capacity model. Are you building capacity before you need it? Most Accounting firms do not. They seem afraid to hire the $100K plus person in fear of no work to get a return on the salary. A $100K person is really only $400 per day in hard costs. With the amount of opportunity out there and the amount of low level work that a partner does I am sure you could find $2k per day in work for this person to do! Hire the good ones and you’ll generate the work.
- CSC Admin team. Most firms run their administration team at 10-15% of their total headcount. Somehow partners have a belief that because the administrators are not ‘charging time’ then they are a cost and therefore ‘not worthy’. My research shows that Accountants spend around 20% of their day doing administration work. If you hire more administrators (what I like to call Client Service Coordinators – CSCs) and delegate those tasks to them – then the Accountants capacity can increase and you can do more work for less cost. Some of the most profitable firms I know have their administration headcount at 30% – 40%.
- Training / Development. Your professional bodies/associations demand 30-40 hours each year of ‘professional development’ and nothing on personal or business development. This is crazy. It is breeding more technical accountants but not better people skills or business skills. Make sure you invest heavily (weekly) in non technical training. Your business will better off for it.
- Implementation process. An idea worthy of implementing should be implemented. Many Accountants have great ideas and they just go by the by. To implement any idea you must allocate the time and do it. You need a structured process. A list of actions, to do’s and projects is just that. Yes, start there but do not FTI – fail to implement. They will not implement on their own. Give the worthy idea to someone on your team to implement. Most partners of Accounting firms are lousy implementers. They are best seeing clients and selling.
- Management / Leadership. Q. Where did a partner of an Accounting firm learn how to manage or lead? A. Hmm – from the partners they worked for. So where did those partners learn how to manage or lead? You guessed it. From the partners they worked for. Management is not leadership and leadership is not management. Leaders need to inspire by being inspiring. Accountants are supposed to be the leaders of business. Would you like to be lead by you?
- Team performance. It’s very simple to see how well a team in an Accounting firm is performing. Just look at the revenue per full time equivalent person (FTE). That is a measure of the entire team – including administrators and partners. Most firms have revenue per FTE at around $125k – $175K. That’s very very low. If the leadership, people mix, methods, pricing, services, efficiency and clients are close to right then revenue per FTE should be well over $300K person. What’s yours?
- WIP / Debtors. The objective is to have the minimal amount of work in progress and debtors (receivables) at all times. With profit, low WIP and debtors will guarantee great cashflow. Ideally WIP and Debtor days combined (lock up) should be well below 40 days of revenue.
- Productivity / Average hourly rate. Traditional firms focus on productivity (charged time into available time) and this it WRONG to focus soley on this. It typically means the more productivity you have the slower you are going. Average hourly rate should be increasing every month. It is a function of how much you charge and how efficient (not productive) you are. If you have productivity at around 75% per Accountant you’ll be doing well. AHR should be over $400 per hour – but not based on charge rates.
- Write on’s. Traditional firms who price in arrears will have write offs. It is discounting before billing. What advise would you give a client about this? STOP IT. It is complete waste. Price the job upfront, put an hours budget on each job and drive the time down – you’ll achieve write ons every time.
- Systems / Technology. You should not have paper files. Every system you run should in the cloud. The technology is here today where you can run your firm from a mobile device. How good are your systems? How cumbersome is your current system of doing work? Spend the money and get the results.
- Pricing up front. You know how much the job is worth. So price it upfront and tell the client. It’s common courtesy. Send them an email, a letter or have them sign a form that indicates the scope of the work and the price. If the scope changes you can always go back. Once you have priced the job then (as well as being great client service) you are now directly incentivised to be super efficient. Every project, no matter how big or small – MUST be priced up front.
- Policy / Processes. As the owner of the firm it’s your business – not your teams or your clients. It’s your name on the building, lease, mortgage, loan, credit card or insurance papers. You are taking the risk. As such you should set the rules. If you want to be paid upfront then go for it. If you want to fly first class and your team in coach – then do it. If you chose not to start a job until all the information is in – then set the rule. The one who makes the rules wins the game.
- Efficiency model. Most Accountants over engineer jobs. Do you really need the report and the extensive preparation at the start? Do you need to fill in a 20 page checklist. If you are focused on charging time and productivity then logic says to pad the job out and do more than needed. However, not a good look for the client. They pay more! Price the job upfront and then get rid of time wasting activities and “bin” excessive tasks.
- You are the trusted advisor
- You are the natural business leader
- You can add serious value
- You should be the hub of business success
- You can make a massive difference to your community
- You need to be proactive rather than reactive
- You have a business to run – not a practice
- You need to stop focussing on writing up history and start making history
Go on! I know you can do it and live it.