Prediction # 6 – Unmotivated accountants will fade away


Like any changing business model those that are not motivated to change will fade away. There are thousands of partners making a tedious yet comfortable living adding no value to clients. This the crux of the current issue. It is too comfortable in the industry. As a partner you can make $200k – $400k without much effort. As the industry changes the motivation needs to change as well.

Prediction # 5 – The next partners will want faster results and be less patient

There is a definite ‘needs requirements’ difference between the so called generation Y,X and baby boomers. Around 90% of all partners are either Baby Boomers (current age 46 – 60) or Generation X (current age 30-45). As I generalise the baby boomers are less resistant to change mainly because they have their asset base sorted (or they should have). The next generation (X) are building assets for their future and are keen to adopt new ideas.

The next group of partners to come through, generation Y (current age 20-30), are a different breed. There has been much written about their needs and style. Hasten to say it is a faster moving generation than the previous two. The have grown up on the internet and other technology. When they become partners over the next few years they will want faster results and be far less patient. They are not going to wait for years and years to get a return on their investment.

Prediction # 4 – There will be less firms but larger firms

The accounting profession is still a ‘cottage industry’ made up of primarily small businesses. Even in Australia where it is a (approximately) $14BN industry with approximately 10,000 firms only (approximately) 400 firms have revenues over $3M. There is also an estimated 45% of all current partners over 50 years of age.

There are too many firms and far too many small sole practitioner firms. According to industry statistics approximately 65% of all firms employ less than 5 people. There should be half as many firms yet they should be larger in revenue. Many of the current partners should not be partners. If compliance is to become a commodity then some accounting firms may not be interested in continuing in their current format. To thrive accounting firms needs to offer a broad range of services (see prediction 12) and as such they need to be of a larger size with a broader range of people offering those services.

Prediction # 3 – Compliance will become a commodity

Because of predictions 1 & 2 general business compliance will become a commodity. There is a market for businesses that provides commodity services. They are typically volume / price driven markets.

Compliance will not go away completely. It would be foolish to think so. How else is the government going to check that you’re paying the correct taxes? As it becomes a commodity there will be less ‘mystique’ around what accountants currently do for their money.

Prediction # 2 – Governments will simplify compliance

We can debate all day long the effectiveness of any given government at any time. My view is that the government exists to serve the people. In serving the people it collects taxes and then spends the collection on facilities to make our lives better. That’s the theory!

Governments want to be re-elected – all the time. Because of this driving force they want to please the people they serve. When it comes to business owners it is my belief that they will continue to find new ways to simplify the red tape and compliance that business owners have to go through. This will drive less need for the traditional accountant.

The accounting profession has been in existence for a very long time. After 16 years working with the profession in 5 countries I have determined it has been doing the same thing for a very long time.

A very long time doing the same thing over and over again – and expecting a different result.

During partner pontification time partners tend to ponder the possible future:

“Maybe this is the year that we reduce our write offs”

“Hopefully we can get all our lodgments done on time”

“I hope we earn more money this year”

“I wish the clients would send in their work when they said they would”

“Maybe, just maybe, the clients will refer more business this year”

“I know we can reduce our WIP and debtor balances for good”

“There is so much untapped potential in the client base”

“Productivity should be much higher – what do they do all day?”

These results are a possible future but not a probable future under the current business model and the same business methods.

If you want a different result then you must first make some different decisions and then put in place some different actions.

The typical accounting firm is a solid (but under performing) business. The clients are loyal, the revenue is mostly recurring and by and large the government determines what work you have to do with your clients. Although solid, this style of business encourages apathy.

There are many outside forces that will determine the future of the accounting firm however the main force that will determine the future is your desire. If your desire to achieve different results is strong enough then you will make some changes. If you have little desire then you will continue doing the same thing you have been doing – and you’ll get similar results.

I think the model of the accounting firm needs to change. For the sake of the clients and the people who work in it – it needs to change. Clients are typically underserviced – they want you to be proactive and offer them more. The people who work in the business are generally not rewarded enough for how smart they are.

The outside forces are listed in my 12 predictions of the future of the accounting firm. My predictions are based on working with many hundreds of accounting firms over a 16 year period and understanding the market implicitly.

Prediction # 1 – Technology (web based) will drive business efficiency in compliance.

There are already web based accounting systems for the business owner to use. There will be many more. As the technology and internet connection speed improves the functionality will improve as well. Part of that functionality will be where the software will seamlessly ‘integrate’ in with the various governments taxation departments.

As the integration happens it will be easier for businesses to get their compliance work done. This will mean less need for the traditional accounting firm who offers little value – other than the preparation of financial statements.

Yesterday my golf coach (James Staniforth, Royal Queensland supremo) gave me an exercise that involved hitting a green with a 7 iron. He use a scoring system based on the quality of the shot hit. Depending on how bad the shot was it would be neutral, -1, -2 or -3 points. If it was a good shot then either +1 or +2 points. It’s pretty tough because to score positive you have to hit the green on the full.

After the first 50 balls I scored my best of +11. After being pretty pleased with myself he then changed the rules and tightened up the scoring system. He took out the neutral score and gave my 40 balls only. I quickly went to -8 with 20 balls to go. Not a good look.

Then James said “I’ll give you one chance to reset to zero”. I told him NO – I will claw my way back.

And I did. I clawed back to +11 and then on my last ball scored a point and went to +12. Afterwards I felt it was time to give James a little seminar. This is what I said.

“When I ran the marathon I did not stop half way and start again because my time was not great. When Jessica Watson (teenage sailing sensation who just sailed around the world unassisted at 16) did not get half way around, quit and then start again.”

I think he got the message. There is no reset in life.

NB – A version of this article appeared in the Australian business publication, BRW, today.

Why do accountants take so long to get paid by their clients? They are nice people (bit too nice sometimes), they do fine work that adds a tremendous amount of value to the clients, they have reasonable client relationships, and they are trusted by their clients.

But they are often the last to be paid. Having 50-80 days in average debtors is not uncommon. Are they taken for a ride by their clients – or are they just too soft?

Yes they are too soft – and too nice sometimes!

Niceness aside I think a lot has to do with the traditional billing practice that most firms adopt. Do the work, calculate the bill after write offs (where the client knows nothing of the price) send out an invoice sometime after the work is finished, and then wait to get paid. And finally when the debtor hits 772 days outstanding a lame follow up procedure kicks into gear. I was being facetious about the lame procedure!

So why not fix the problem at the root cause. It’s not the clients fault – it’s the processes fault. Change the process and change the result.

I think accountants should price every job before starting. Give the client an agreed price on the project, what the scope is and what the value of the project is – just like every other business out there. Then when you present the engagement letter or proposal to them give them some choices how they can pay.

Here are some examples of some options on how the client can pay – that you can build into your engagement letters.

Payment methods:

Option 1 – 50% upon signing the agreement and 50% in 45 days

Option 2 – 5% – 10% discount if you pay the full amount before commencement

Or

Option 1 – 50% deposit upon commencement, 25% progress and 25% at the end

Option 1 – 5% – 10% discount if you pay the full amount before commencement

A couple of real examples: 4 partner firm in Perth. They gave the client an option of 50% now and 50% in 45 days or 100% now. Heaps of clients paid 100% now with no benefit!

Sole practitioner in Surburban Adelaide. They priced 3 consulting proposals (all of them well over $100,000) in the past 6 months. Each one was given a 10% discount if paid in full. They did.

You’ll have to position this carefully with your clients and you’ll be surprised at their reaction. The side benefit is that when you have all or part of the funds before starting the clients are more motivated to get the information you need – on time. Also, your team are more motivated to do the work more efficiently.

I rest my case.

In the past week I have presented 3 team training days for 3 separate accounting firms – and a client seminar for one of them also. There were all on-site and they all bought me at a charity auction. They paid a fee and I donated the fee to my favourite charity – stepUP.

We had the entire teams from the firms – 11-25 people at a time and all were encouraged to offer ideas for the improvement of the firm. Here are the comments from each of the 3 firms:

“Thanks for spending yesterday with our team. It was an awesome day for all of our team. They enjoyed the interactive was you worked with them on client service and working as a team. They’re buzzing and keen to get our action plan updated and prioritised for us to improve our rate of implementation. The senior team found the session excellent and it allowed us to clarify what we need to do to move forward from today. An excellent investment and we look forward to having you back again.” Leah Peacock, Sudbury’s, Whangerei NZ

“We had Rob work with our team for a day and as I see it, the most valuable part of the day were the ideas that came from the team and the goals set by the team. I was impressed by the way our team members contributed and boldness of their ideas in some cases. Those ideas would not have come forward the way they did in a regular team meeting. We are really looking forward to implementing team ideas rather than management ideas – the great part is that the commitment is already there! My only regret is that we didn’t have our supercharge day a long time ago!” David Hunt, Partner, Peter H Hunt & Associates, Sydney NSW

“The morning session on Tuesday provoked serious thinking within the team. In broad terms the outcomes were;

Clarity for one team member who was sitting in 4 different seats on the bus to move into 1 she likes – permanently,

The permission for one team member to feel Ok to want to move into a seat closer to the back of the bus,

Created a new seat on the bus to be filled,

The value of Marketing & Sales to an Accountancy Business,

Challenged their thinking regarding the ‘roles’ in our business – your new Organisational Chart,

Concentrate on delivering ‘Results / Outputs’, not ‘Activities / Inputs’,

Ask 6 questions and get to the root of the problem, not just the clients initial request for assistance,

Value of compliance and what our Client Managers (Snr Accountants) must be considering for the client at completion of each assignment,

Plus much more.

The afternoon session (7 Keys presentation) provided us with 11 prospects to meet with and provoked thought from 3-4 clients who want to chat further.” Ashley McGuirk, Core Business Management, Maroochydore, QLD.

The morning session on Tuesday provoked serious thinking within the team. In broad terms the outcomes were;
Clarity for one team member who was sitting in 4 different seats on the bus to move into 1 she likes – permanently,
The permission for one team member to feel Ok to want to move into a seat closer to the back of the bus,
Created a new seat on the bus to be filled,
The value of Marketing & Sales to an Accountancy Business,
Challenged their thinking regarding the ‘roles’ in our business – your new Organisational Chart,
Concentrate on delivering ‘Results / Outputs’, not ‘Activities / Inputs’,
Ask 6 questions and get to the root of the problem, not just the clients initial request for assistance,
Value of compliance and what our Client Managers (Snr Accountants) must be considering for the client at completion of each assignment,
Plus much more.
The afternoon session (7 Keys presentation) provided us with 11 prospects to meet with and provoked thought from 3-4 clients who want to chat further.

On my travels I often have an ‘in room’ massage. Not THAT kind of massage – a therapeutic one!

On my last trip to the UK Nat & I had 2 ladies in the room massage us each for 1 hour. Cost £95 each. Or in Australian dollars about $180 or so for the hour. I have paid up to A$225 for a 1 hour massage before.

Anyway, whilst I was laying 0n the massage bed being pummeled I started thinking about Accountants. Yes very sad I know. Why I was thinking about you?

The masseur was earning $180 as an ‘average hourly rate’ for work completed and I know heaps of Accounting firms who are not even close to earning an AHR of $180. Most Accounting firms I get to meet (before we start working with them) are earning $125 – $175 AHR – after write offs.

The work of the Masseur lasts about 24 hours. The work of an Accountant sometimes last a lifetime. Why do you charge by the hour? Why do you charge so little?