People:

  • 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?

Roadmap 2

Workflow:

  • 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.

Roadmap 1

In the past 90 days my team or I have attended a whole range of seminars and brought into our business a range of experts to advise us.

With the world changing so fast you have to keep abreast of the latest and greatest techniques and developments for building a successful business. In no particular order, in the past 90 days, we been in the presence of:

Tony Robbins – personal development
Verne Harnish – growth
Jack Daly – sales
Joanna Martin – presentations
Robert Kiyosaki – money matters
Donald Trump – entrepreneurship
Sir Richard Branson – entrepreneurship
Timothy Ferris – personal development
Taki Moore – marketing
Paul Dunn – service
Alan Weiss – consulting
Harv Ecker – personal development
Patsy Rowe – business etiquette

+ another 25 or so speakers from 3 multi day events we attended.

Often people think that they need to ‘bring in the coaches or consultants’ when you are under-performing. We are leading the world in what we do and we continually re-invest in coaching and training.

I find that no matter how successful you are you will always learn from someone – provided you are open to learning.

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?

The glory days of the reactive Accountant who makes $300K plus profit (per partner) are coming to a grinding halt. Unless of course you know of the signs and you do something about it.

In the past it has been ‘easy’ to make a good living in the Accounting profession. Clients have been loyal. There has been little competition. The government has kept the profession in business with legislative changes. The costs of operation have been low and you really have not needed to market and sell.

It’s all about to change. And fast.

There are 3 current impending threats and if you do something about it they can be 3 wonderful opportunities.

1) Internet based (Cloud) Accounting.

There is a groundswell going on with business based accounting systems. There is a massive push to take accounting systems mobile – in the cloud. It makes total sense. Every other type of information is going mobile through tablet PCs and Smart phones. It was just a matter of time before accounting information caught up. Cloud based accounting is brilliant for the business owner. Real time everything from wherever you are. Debtors, Creditors, Revenue, GP, Profit, Cash-flow – all on your mobile device.

Because of the ‘realtimeness’ of the data and because it is already connected to the internet the time taken to have the annual compliance completed drops. It is estimated that it takes around 30-40% less time at the accountants end to prepare the compliance accounts when the client has cloud based accounting. This means fee pressure from your clients for compliance as compliance becomes a commodity. This is already happening. It also means (for you) much more capacity as well. So you either downsize your team or have capacity to offer value added services. Please choose the latter!

Cloud accounting reminds me of internet banking 8 or so years ago. Some early adopters and a lot of naysayers. Now? What’s a cheque book?  The same is happening with cloud accounting. Jump on it and promote it. If you don’t someone else will promote it to your clients.

2) Client education.

Clients are more savvy these days when it comes to dealing with accountants. The days of ‘Dad used XYZ firm so we should as well’ are numbered. Clients are asking more questions of their accountants and expecting more. They are interviewing a number of firms before switching. Clients are more connected than ever to information and the business press is promoting more and more ‘what your accountant should be doing for you’.

Are you going to stay on the back foot and react or get on the front foot and market your firm? Are you going to just stick to compliance based services or are you going to actively seek out products and services which can make a difference to your clients?

In the western world there is (approx.) 1 accounting firm per 2,500 head of population. That’s a lot of accounting firms. The issue is that it’s a sea of sameness out there with the accounting profession. For you to differentiate you must differentiate.

3) Other ‘professionals’.

Bank managers, financial planners, insurance agents, consultants, business networking groups, industry associations, real estate agents and business coaches all need to develop new products and services to remain relevant. And they know that you are the gatekeeper to businesses. They know that to remain relevant they must offer ‘value added services’ – not just what they have been doing in the past.

They can buy financial analysis software, attend the course and overnight they are a financial whizz. With the new information they can provide cash-flow analysis, KPI reporting, benchmarking, planning and even management reports to their (or your) clients. THIS IS YOUR SPACE. Do not let them erode the value that you can provide to your clients. Get on the front foot and offer these services – NOW.

Take the positive approach to these 3 threats and use them to your advantage. There are 3 great opportunities here if you act now.

Today is the first day of Spring in the Southern Hemisphere. Time for a spot of business spring cleaning. You know what it’s like when you clean out your wardrobe or your garage – it just feels good.

The same applies for your business.

Today is a good day to make some decisions and get rid of some baggage that might be holding you back. As my buddy, Michael Sheargold, is fond of saying “A breakthrough often happens after a breakwith”.

What do you need to breakwith in your business?

  • A system?
  • An attitude?
  • A piece of furniture – or the entire ensemble!
  • A product or service?
  • A supplier?
  • A team member or team members?
  • A business partner?

Business is a bit like monkey bars – you progress by letting go.

Monkey Bars Small

For many firms the concept of ‘pricing up front’ scares them. They are scared that the price will be wrong, that there will be ‘job blow out’, that there are variations and the dreaded ‘what will  the client think’?

Once you get over yourself and start pricing every job up front you will find that the clients love the fact that there is certainty in the price and scope of work. You will be pleasantly surprised.

To help you with some of the mechanics you need to have 2 paragraphs in your engagement / implementation plan letters:

Paragraph 1 – deals with ‘scope creep’ – when there is more in the job then you first thought:

“The price listed is for the scope of works that are documented that we have both agreed on. If there is anything outside of this scope that you request, or if we find additional matters that need dealing with that have not been listed and priced then we will communicate with you separately with what they are and how much the additional price will be.”

Paragraph 2 – deals with offering phone calls and emails.

Please feel rest assured that you can contact us as often as you like with questions or for
assistance. Our Annual Accounting Service only covers those discussions which assist you
with your initial query. If as a result of our discussions and/or upon your request, we deem that
there is work to be performed that will fall outside of our Annual Accounting Service, we will
advise you of this before we commence any work and provide you with a fixed price
engagement to complete the work, at your discretion.

“As part of this service you can contact us as often as you like with questions or for assistance. Our [Service] only covers those discussions which assist you with your initial query. If as a result of our discussions and/or upon your request, we deem that there is work to be performed that will fall outside of our [Service], we will advise you of this before we commence any work and provide you with a fixed price engagement to complete the work, at your discretion.”

By adding these paragraphs you will serve your client better and improve your margins. Win:Win!

We promote the use of whiteboards for workflow management. Nearly every firm has an electronic workflow system and that’s great – you need that to calculate how many hours to go (NOT dollars to go) on a job. The problem with only having an electronic system is that people can hide behind screens.

You need a visual management system as well.

A little while ago I was leading a group of Accountants in a coachingclub meeting. One of the delegates (Brent Dickins from Palmerston North, NZ) said “We turn work around in 10 days”. Of course, we were all interested in how Brent did that on a consistent basis. He told us he uses whiteboards to track turnaround time. So with Brent’s blessing we created a template of the whiteboard and it was then widely used with great results.

Since many firms have been using the system it has been updated and fine-tuned. It is now part of a daily stand up workflow meeting process. With no more than 3 ‘open jobs’ per accountant the client service coordinator updates the whiteboard every day before the daily meeting.

Every day…

1) Another day is added for the time the job is in the shop
2) The % completion number is added – from the electronic monitoring system
3) The hours to go (based on maximum time allocated) is updated

The objective of the ‘hours to go’ is to have a credit balance on each job at the end. Make a file note for next time and then reduce the hours every time – only do this of course if you price the job up front.

The photo’s below show the team at Hansens in Melbourne running their daily 10 minute workflow meetings.

The last photo is of Pat Hoey from Bacchus Marsh is taking it a bit far. He has put white boards in his Bedroom! I hear his wife if not so pleased about this strategy. I wonder why!!!!

10 day white board

Hansens whiteboard 1

Hansens whiteboard 2

Pat Hoey whiteboard in the bedroom