I think that technology is ‘dumbing down’ the value of the Accountant. Before technology Accountants had to think about the client’s situation more and communicate (with spoken words) more than they do now. These days the Accountant just needs to know which keys to hit in which order on the keyboard.
It seems Accountants would rather ‘rip off an email’ and think their job is done rather than give the client a call. It seems Accountants would rather send work via email or courier rather than present the work to the client. I think most of the value created is in the conversation and the presentation.
Take a look at what the 428 business owners told us when it comes to annual accounts. Over half (52%) said they got their year-end work either emailed, posted or couriered to them for signing.
This is disgraceful. Most of the profession’s revenue is in compliance right now. This is your primary product and you email it to your clients for signing! Save me please. No wonder clients do not value compliance! You don’t value it. You downplay the value of it by emailing it. I (and your clients) have 2 primary questions when it comes to our year end financials.
- How much tax do I have to pay and why?
- Where did the money go?
How will I know those answers if you email me your primary product? I do also wonder what happens in the face-to-face (45% of occasions) meetings. I bet they are not structured nor do they offer a huge amount of value.
Stop sending your primary product for signing via courier post or email. You are wasting an opportunity to add value, ask questions and maybe find another project.
Make sure when you do meet with your client to present the year end accounts that you actually explain what they mean. Make sure you do a 3-year historical ‘Business Performance Review’ at least once per year to add value to the history. Make sure that you ask (in this meeting) what their goals are and then you can start to match services that help them achieve their goals.
Technology can certainly make our lives easier and more efficient. Technology should enhance a client experience not diminish it.
Without a doubt the no. 1 technology thing that you can do in your firm is to suggest/encourage/cajole/insist your clients move to a cloud accounting product. Although there are issues associated with cloud accounting I think it is the most important thing you can do with your clients. The issues are only issues if you do nothing about the efficiency gains you get from using cloud based accounting.
With your clients on a desktop product you have redundant data. With your clients on cloud accounting you can be so much more real time. You can add value now, not later. You can get a heartbeat of your clients every day. You can make a massive difference to their financial condition. You can take the ‘financial intimacy’ up a number of levels.
Many firms are insisting that 100% of their clients move across to a cloud based accounting system. It just makes sense to do so. The vast majority of firms will have 2-3 products in their client base. Most Accountants will not align themselves with just one provider. I think that is the right thing to do. You match the product to the clients’ needs.
There are many firms who are going further than just promoting a cloud based accounting system. The ultimate solution at the client’s site is where every aspect of the technology ‘talks’ to each other. The accounting data is integrated with the customer data. The accounting and customer data is integrated with the inventory control data and all that integrates with the distribution system. So the entire supply chain is covered. All of that data is consolidated into daily ‘dashboards’ so the business owners can see what is going on in every aspect of their business. This sort of technology used to cost millions of dollars to buy and implement. Because of the massive development in cloud computing you can get it for a few hundred dollars per month.
The right technology can give the business owner better data to make better management decisions. You can be at the center of all the technology by recommending systems which will help.
You are the expert in financial coaching. With better data you can be a better financial coach. With the right technology and the right data you truly can become the Real Time Accountant. You can download the entire report on what 428 business owners want from their Accountant my clicking here.
Last December we ran a trial 2 day event for Product Development. Specifically how Accountants can create products (that require minimal labour for delivery) out of what they already know. Turning intellectual property into intellectual capital. It was supposed to be a one off event. The delegates loved it so much (many saying it was the best event that they had been to) that we are doing it again. The facilitators (including me) have got some form in this space. We have created sold and delivered >$170M in IP products. We are revealing all in a small workshop environment. Complete transparency on how to go from idea to production to monetisation in very fast time. You get training and support by a crack team who do this every day. You can find out all the details of the event here. Dates are September 15/16, 18/19 or October 16/17. Here is a sample of the ones who have already been.
The problem with pricing by the hour is that the assumption is that the price per hour is correct (often calculated by a salary multiple) and the time to do the task was correct. The assumption is that time multiplied by the rate equals the correct price. In my view, nothing could be further from the truth.
When selling intellectual property it truly is a bizarre pricing model. You are valuing what you know and the outcome the client gets based on a salary multiple (to get to the charge rate) and the time taken to do the task. Very strange! I understand it’s an easy way to calculate a price. The issue is this model does not value how smart you are and the impact you make.
There has to be a better way. And there is. It’s all about value pricing. Value pricing is where you price the job upfront based on the value you create for your client. You cannot value price after the fact. That means you have to ‘scope’ the project out first (by talking with the client and doing some research), find the value you are adding and then present an implementation plan to the client based on how you are going to help them.
Now for historical work you have a challenge with pricing. And that’s price parity. You may think it is worth more but if the client has been paying $X for the past few years then they may pay $X + a bit -but not the price you think it is worth. For a new project that the client has not bought before then that’s a different story.
To work out the value you are adding you need to think the following. Without me, they can achieve ‘X’ result. With me that can achieve ‘Z’ result. The difference (‘Y’) is your value that you can add. The impact might be financial, emotional or both.
1. Cash-flow improvement. If the client is constantly juggling cash, never with any money and always stretching creditors and arranging payment plans then that is the current situation. If you can educate them, put systems in place, show them how to improve profit and then monitor their behaviour and let’s say the outcome over the year is that they are $200,000 better off. Your cash ‘value add’ is $200,000. They are also sleeping better at night; less stressed, have more working capital to expand and are generally happier. Your emotional value add is massive. How much would you charge? Well a 10:1 return is a pretty good deal. So maybe $20k – $30k.
2. Tax minimisation. If your client has a tax exposure of say $550,000 because of their current structure and trading environment then that is the current reality. You come along and re-structure their affairs and negotiate with the tax department and you get their exposure down to $150,000. Then your cash value add is $400,000. What can they do with $400,000? Maybe expand the business, pay the house off sooner, retire early and get some of their life back. Your emotional value add is huge. What’s that worth to the client? Pick a number – maybe $30k – $60k.
If you know the numbers in advance (cloud accounting helps with that enormously) then you can scope out projects that make a difference with your clients. If you can articulate your value in advance and present in such a way that makes sense financially and emotionally then you’ll win the business.
At the end of the day the only right price is what the market is prepared to pay for it. That means the right price is just before NO. In other words if they keep saying YES without hesitation then the price is too low.
Starting on Monday, March 17 I am presenting a full day workshop (visiting 14 cities) called ‘Capitalising on the cloud’. It’s all about helping your clients based on you knowing the numbers. Pricing is part of the program. Bring your team along and learn how to use cloud accounting as a service offering which adds value to your clients. Check out www.cloudseminar.com.au for more details.
The topic of pricing is the most requested topic I have had in 19 years advising Accounting firms. Just recently I did a webinar on the topic on had close to 3,000 people listen in. I think it is so popular because Accountants are not taught how to price their intellect and value contribution.
As as result of not being taught how to price appropriately most adopt the archaic “Rate X Time = Price” system. It’s outdated, doesn’t work for efficiency and certainly encourages the wrong behaviour at the team level.
I have devised a formula for pricing “Value Belief + Value Perception + Value Contribution = Ideal Price”.
So to get to the ideal price you must believe in yourself/team/project, put your value across in an articulated way and make sure you are contributing to the clients situation.
If you are not contributing to your clients results, you do not believe in the work that you do and you cannot put that across to your client then expect to have low margins.
What holds Accountants back from pricing appropriately are limiting pricing beliefs (see picture) and talking too much in inputs (things we are going to do) rather than outputs (what the client gets as a result of the work that you do for them).
All of this can be fixed with appropriate training. The type of training I am talking of has helped our member firms be 29.8% (on average) more profitable per partner than the rest of the Accounting profession.
To help you out we have created an ‘office / home study’ training program just on the topic of pricing. It’s 11 modules of video based training. It comes with checklists, forms, letters, workbook, examples, templates and a price list of 275 services priced by 300 Accounting firms. You can investigate and buy the product here.
To increase profits per partner you have 4 key strategies only:
1) Reduce costs whilst maintaining revenue
2) Increase revenue whilst maintaining low costs
3) Reduce the partner headcount whilst maintaining revenue and low costs
4) Maintain partner headcount whilst growing revenue and lowering costs
Many “high profit percentage firms” have low leverage of people per partner. That means they have too many partners for the headcount and the revenue. As a result of this they may have high profit in percentage terms but in absolute terms they will have relatively low profit per partner.
Think very carefully about the next person you want to bring on as a partner. Do you have too many partners now? Can a better management structure suffice? Are you looking to bring on the next partner to retain them as a team member or are you doing it for good business reasons.
If you like the current partners you have and they are working well together bringing in lots of new business – then don’t get rid of them. Grow the headcount and the revenue into the partner base.
For great profits per partner (more than $1M per partner) you need to be thinking of leverage of more than 13:1. That’s at least 13 full time equivalent people per partner.
Enjoy the final video in the series.
I have written an extensive report on Accounting firm performance. You can download it here.