Ask anybody in business what matters most and invariably the answer is profitability.
One business sector that will answer differently is accountancy. The humble and much parodied beancounter will emphasise cash generation, with practice growth coming a close second.
Let’s take a closer look at what profitability actually means within the context of an accountancy practice:
- Making money by chargeable time - the more hours you charge for as your practice grows, the more money you will earn, but there are only so many hours in a week especially if you are the sole fee earner.
- Making money by results or value added – leveraging your time and working smart rather than hard.
Becoming more profitable is often cloaked in the term “growth” – the holy grail of practising accountants, but profits are better achieved in many instances through pursuing the second option – working smarter through the value-added route.
I like to class practices in 2 categories, generally speaking:
- Compliance – broad brush, traditional
- Advisory – advice orientated, specialists, adding value
Compliance typically means annual accounts, tax returns and PAYE, mainly revolving around small self-employed enterprises. The practice may possibly have a smattering of larger fees, but clients are not growth stories in any meaningful way.
They are happy with their lot, a handful maybe out of ignorance of what could be achieved with the right advice. HINT, HINT ….
Some accountancy practice, even at the compliance end are highly focused, servicing single sectors such as contractors, taxi driver, dentists or doctors for example, which benefits from the network effect but carries sector risk.
However, if clients are not natural growth candidates it isn’t helpful to your practice growth.
These focused niche practices are well oiled sausage machines – data fed in at the year end, your firm process it and accounts are churned out the other end. Fee model is conservative and likely based on time charged, profitable and predictable or in some instances such as contractors a fixed monthly fee.
Advisory may be in a particular area of advice (maybe even advising other accountants) such as capital allowances, business growth or performance reviews.
Operational leverage is achievable as fees can be based on results, giving rise to super profits. Some have a foot in the niche door but don’t realise it and chunter along with a handful of special types of clients such as solicitors, and make no effort to develop this.
Advisory typically attracts larger clients seeking value added without flinching at fees. These are proper businesses as opposed to people with “jobs but working for themselves”.
Value added is how to get to the next level as it is less price sensitive because results are tangible for all to see – including yourself to gauge the success of the direction you are travelling in.
Clients feel the tangible benefits of your advice – you are assisting them in creating wealth and your fee is seen as an investment not an overhead. Allowing you to engage specialist staff and grow your firm.
These types like to talk about their success and likely to actively recommend you to their peers, creating more opportunities to upsell and cross-sell. It doesn’t take long for a good adviser’s name to spread like wildfire among the right type of client. Everybody likes to hear a success story and more so to be a part of it.
The risk is that in a downturn these businesses could be hid very hard – not unlike a high-end car dealer.
Now for the $64,000 question…..
Can a practice pivot successfully from compliance to advisory?
In pursuit of that elusive growth
Will the current reputation (or lack thereof) hinder the move?
Can you be seen as having ability to solve complex problems when you’ve pootled along mainly churning out hairdressers’ accounts for the past 15 years? Even if you do have the requisite experience or knowledge or have brough it into your practice.
One cannot be all things to all men, or women.
It is doable- think Toyota and Lexus – often copied but rarely carried off well
Compliance is your current bread and butter - a good solid steady pipeline of work with new business every now and then, but nothing exciting
It is do-able if you have a niche (fully or partly) and can leverage that further
So how do you achieve your dream of growth?
The answer lies in a sub-brand – it isn’t necessarily easy to pull it off but if it is planned correctly with the right level of investment it can be done. It may require a separate office especially as an influx of high rollers into your happy office could create tensions.
As your image ratchets up it is likely your fees will too and there may be collateral damage as a few clients leave – it might be worth it, or you could sell the goodwill in the “original” practice. A nice problem to have! May also depend on your sales pipeline – if you have a good system you don’t want to choke it off
It’s a calculated risk – and although the profession is famously risk averse it certainly knows how to calculate!