From the 1st to the 23rd of November I am presenting my latest seminar tour “The Proactive Accountant” across Australia and New Zealand – We promised the slides would be available to you on my blog, so here they are!
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?
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?
I have this little test I do with Accountants to see if they are servicing their clients properly. Here it is.
Grab any clients’ income statement for 3 years, their balance sheet for 3 years and then explain the ’story’ of the client to 2 other Accountants in your office. So tell them what the client does, how they do business, what their structure is etc. The other 2 Accountants are then to brainstorm (and you can be part of it as well) the answers to these 8 questions:
Don’t spend more than 30 minutes per client brainstorming. When you do I can guarantee that you have ideas (services) that you can take to your clients that will help them in some of these 8 areas.
These are all needs (services they should be buying) that are currently unmet. They do not know that you know the answers. The client certainly does not know what you know – otherwise they would have done it.
When you do this with all of your clients you will find that 100% of clients have unmet needs. Does it mean they will buy them from you? Not necessarily – but at least you should give them a shot at buying the service(s). Not offering additional services to your clients (especially when you know they need them) is doing your clients a complete dis-service.
You must service your clients properly. If you do not then there are plenty of ‘hungry’ accounting firms that will.
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.
I was asked a question last week as to when an Accountant should be using Value Based fees or value pricing. Simple answer – 100% of the time.
Let me explain. Let’s start with a definition from the guru of VBFs and my friend Alan Weiss.
“A value based fee is a fixed fee that represents your contribution to the value your clients receive, representing a dramatic ROI for them and equitable compensation for you”
So if that is the case then in an Accounting firm you are always contributing value. Even with compliance and audit work you are contributing value. The trick is to determine (with your client) what the value is that you are contributing. You need to get creative and work out the tangible or intangible value you are offering.
Here are some examples:
Tax planning service VE (value equals) knowing how much to pay and maybe a reduction
Compliance service VE the ability to make better management decisions, basis for planning & keep out of gaol
Systems audit VE knowing what to do to improve efficiency levels
Cashflow management VE Understanding and freeing up cash
Audit VE accuracy of records for better management decisions
Valuation VE ability to realise wealth
Personal income tax return VE tax refund (potentially)
And so on.
If you can work out the value you are contributing then you can work out what is a fair ROI for the client and then you can work out a fair fee for you. You will never work out a fair fee with a time X rate model. How do you know if the price is too low or too high?
The only right price (and it MUST be a fixed price) is just before the client says no. If they keep saying ‘yes’ then the price is tool low. Let the market place determine your value – with their payment or their feet.
You have to remember that without your expert help as an Accountant your clients cannot realise all of their potential. You have to believe that. And that’s the first sale – to your self.
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?
Business is a bit like monkey bars – you progress by letting go.
I was chatting with my buddy Michael Sheargold (super coach to the super star Real Estate Agents) 2 days ago and he told me about a real estate seminar he is running around the country as well as Auckland.
It’s called SuperCharge Your Results and designed for real estate agents and principals.
I floated the idea of being able to secure some complimentary tickets (they are $197 per person) for my blog reading Accountants to “gift” to your real estate clients.
Of course given the great relationship Michael and I have, he said sure thing! So you have up to 4 complimentary tickets to give to your real estate clients – very cool!
Now my recommendation here is that you become the hero (in your clients’ eyes) and give them a quick call and let them know what you’ve been able to organise for them.
You’ll also see a pdf of the brochure for you plus for more info about the event you can pop onto…
I’ve organised a special code so all your clients need to do is book in on the site and then pop the coupon code of ACC7 to take advantage of the relationship you have with Michael.
Or Michael has just popped an extra video up on Youtube at…
To be a success in the Accounting profession you need to focus on increasing the average project fee per client. Not the total fee but for each transaction how much margin do you realise.
Here are 11 points to implement to increase the value of each project – without increasing the labour component.
Finally a KPI that recognises that partners input or lack there of is very relevant when comparing firms. Well done!I would be interested to see the range of results.