about pricing (or what lies ahead if we are a commodity)

Value Add

I agree (although I am not an accountant, I deal daily with accountants and so perhaps offer an outsiders insider perspective)

In 2011 we conducted a survey of our accounting partners who use the Online50 service to work more closely with their clients by sharing their Sage data over the Internet.  

There were 2 interesting observations:

1) It was clear that some were using their intimate knowledge of their clients finances to offer focused advice and assistance on issues emerging from the financial story. These accounting practices were growing right the way through the recession.  What is more they retained more of their clients because the clients felt their accountant was looking out for them.  Isn't that interesting - they paid more money and felt more satisfied!

2) Some accountants were offering their clients online access simply to save themselves travel or to make their own lives more convenient.  They had constant pressures on price.

This also resonates with me personally.  I went from an accountant charging me £550 per year for completing my company and annual returns to an accountant charging me over £3,000 per year because he spotted a way to earn my company £13,000 (after the fee).  Two years later that accountant has offered little or no additional support or advice (and was too busy even for an annual review) and we have renegotiated our fees to a significantly lower level!  

It seems the future is about adding value. Good luck as you work out what that looks like for you.

Regards,

Russell

www.online50.net

The squeezed middle?

I think practices offering genuinely niche or 'value added' services at the upper end of the market will continue to do well and build in some defence against the downward drift in prices. I also see little difference for sole-practitioners who offer a genuinely bespoke service to their customers who see the accountant as a trusted friend/advocate. 

Both of these relationships take effort and time to develop and maintain. If you are being paid good money at the top end then it is viable and if you have very low overheads and time freedom at the sole-practitioner level then it works too.

Where I see the problem is the middle ground practice who can neither attract great fees (because they are in generic competition with other similar providers) but neither do you have the time to hand hold the clients currently with sole-practitioners. The additional risk to this sector is that the market is fairly flooded with new sole-practitioners who to survive will take clients from the middle by offering lower prices.

How are you at telling jokes?

On the compliance side; whilst I get, and have had experience, of what you suggest, fortunately we are dealing with humans rather than robots and so Jill will think I'm a genious for being able to do her tax return wheras Jack (whose return is pretty much identical to Jill's) wouldn't dream of paying anyone to do it for him.  There are then loads of people within that spectrum and so, for compliance work, the art is to deal with the Jill end and make sure you do it so well they recommend you to their mates, who, in theory, should also be Jills.

Hopefully (unlike solicitors - sorry joke) we too are human (or can learn) and so, as with joke telling, I'd hope to bring some flair and imagination in how I do & present even the most boring of tax returns and sets of accounts.

Having said all that compliance work, as we know it today, will vanish eventually in that, whether for personal finances or business accounting the originating systems will report direct to government cutting out the middle wo/man.  Luckily I'll have gone on to more interesting activities by the time that happens but, generally, as has been the case for probably 20-30 years, it's a question of adapting what we know & do to fit the climate and markets we anticipate.

Some of the "Middle Ground" are lowering their prices too

It is not just the smaller practitioners that are offering the cheap options.  I am a sole practitioner but work out of an office and have a couple of part time staff.  I have a nice client base and have built it up from scratch, from the outset I set my fees at a professional level so that when the time came to move up a level - i.e take on the offices, employ staff - I had the fee base already in place. Not too far away from me is a medium sized well established practice.  Up to now it has not been a problem and it is a free market after all so everyone is entitled to a share.

Last week a client for whom we provide the whole kit and caboodle limited company accounts, CT returns, tax returns, payroll P11d, company secretarial etc and ongoing hand holding and support through the year told me that the medium sized practice have told him they can do it all for £700.  Fortunately, I have quite a good relationship with the client and after a chat about things he saw that cheap does not always equal good service and I managed to keep the client but had to meet halfway between our fees and the other firms to entice the client to stay.  We have lost most of the profit on the job and will struggle to push the fees levels back up again and all because the other firm would have done the job on the cheap for the first year then pumped the fees back up to their usual levels.  Such sharp tactics are extremely damaging to smaller practitioners who are already extremely hard pressed on fees because of the markets they tend to work in.  I think the only way smaller practitioners can protect themselves from this is to establish areas of specialism and build on that. 

As for accountancy being a well paid industry - well perhaps some of the very large practices attracting the bigger and wealthier clients might be seen to be well paid - but from what I can see these days the times of the general practitioners being considered well paid have long gone when you consider the number of hours most of them put into their businesses.   

@Jimess

I would have let them go, but tried to stay on good terms with them.

Did you see an actual written quote detailing what was included? Misunderstandings can happen and your client may have got the fees all wrong, either accidentally, or deliberately.

In any case, the new accountant is going to struggle to make a living from those sorts of fees, indeed they may be doing all the work for no profit at all. Lots of similar jobs would take them out of the picture pretty quickly or leave their reputation in tatters if they don't deliver on their promises.

Where clients move accountants for lower fees I wish them well and only take them back if they pay our going rate, or reduce their requirements so they can have lower fees. Why work for next to nothing?

Don't give up

Jimess - I think we tend to forget sometimes that we are still in a business downturn and so whilst we may all have to take a hit for a year or two some of the cream will return (God I sound like a politician).

I have had similar with one of my clients but with many others I've anticipated it and actually reduced fees this year or waived the standard inflationary increase.  This matches what many of my clients have had to do, especially in the softer services like training & advertising and so sometimes even a few % reduction can give the right message and will provide less incentive for them to be tempted by cheaper offers.

Ultimately however, we may also have to look at our own methods and infrastructure and ask if we are still running our business as if it's 2007.  I too would have had to grit my teeth a few years back to get anywhere near £700 for what you do for that client but not today.

Get better not cheaper
I too can see that, of you purely offer a compliance service (what I refer to as a postal service - clients send in their stuff and you send them back accounts and tax returns) then you are going to face constant fee pressure to the point that you will not earn a good living unless you can become extremely good at churning out these sorts of jobs.

There is a whole load of research, however, that shows that very little of someone's buying decision is driven by price. It is mainly driven by their perception of the value they are getting and the trick is always to demonstrate that they are getting much more than they are paying for.

So - the question is, how do you do this for smaller clients who take only compliance services?

Well you could do one, or all, of the following:

Send interesting and useful (and if possible entertaining) newsletters, postcards and letters to them on a regular basis
Give them their own mug and parking space when they visit
Provide them with a short report (like the operating and financial review in full sets of accounts for large companies) stating KPIs, what had happened in the year etc
Provide a summary of the tax you have saved them in the year compared to your fees
Make referrals to them from your existing client base

This was just off the top of my head. I could think of possibly 50 more things, but that's because I am passionate about helping business owners and never switch off from thinking of ideas to help them (and us) do better.

If you can take this approach, and deliver all the above efficiently and with great customer service, then you will pick up lots of clients who will happily pay you a good fee. There will always be a small percentage of people who will be focussing purely on the price and who won't appreciate the above, but I suspect that is less than 10% of all possible clients.

Don't get disheartened, get brilliant.

But - I agree with earlier posts that producing accounts and tax returns for many businesses on the smaller side will be a thing of the past in future but when that time will come, who knows!!

Compliance priced at Zero

I believe that the best way to address the future for a typical small accountancy practice is to start from an extreme position and work back from there.

How far one works back, if at all, is something that we will all have our own opinion on; but this approach does stimulate the right kind of thinking, I believe.

My starting position is that compliance work will sooner or later be free. Free because business owners will be able to do the job themselves using cheap, easy to use software. If accountants are out of the loop, they don't get paid.

The steps required for year-end accounts work have traditionally been:

Collect / Compile / Examine / Correct / Optimise / Publish

Bookkeeping software at the front end dealt with Collect and Compile long ago. For the past two decades accountants have earned fees performing the final four stages.

In the future, innovative new software will handle the Examine and Correct stages. Checking the client's records automatically and either fixing them automatically, or making it super-easy for the accountant to make corrections.

There's no value to the business owner in the Publish stage. That's just form-filling and filing.

Where's the value then? Where can accountants bring their years or training, practical experience and imagination to bear? The Optimise stage.

Optimising the financial results to suit the client's objectives. Optimising the tax position to suit the client's pocket. Optimising the client's business processes to meet their future goals. This is the bit that technology cannot hope to do now and for many many years to come.

And soon it's the only bit that business owners will be prepared to pay good money for.

How did you get there?

@ Paul Scoles - how did you get to where you are now?  I do take the view that I have to work with the clients in these recessionary times, and I have taken quite a large hit on the chin with that particular client, but if all of my clients followed suit I would pretty soon be sitting in the street with a cute dog and an upturned hat for company.  I am really intrigued to know how you could do that amount of work for £700 and not lose out. The only way I can see those sort of figures working for me is to get rid of premises and staff and go back to working at home on my own, which feels like a really backward step given the amount of clients the premises have brought in.  I would appreciate knowing how you got to that point if you would not mind sharing it.

But they won't all follow suit

Jimess - as I said above just because they are all called "clients" doesn't mean they are the same and so some will pay premiums and make up for the clients who, whilst may be underpriced, are still valuable in the long term so in the past few years my fees for something similar to what you state have ranged from £1,000 to £12,000 pa.

Up until 3 months ago, I had a similar structure to yours, but, again, this doesn't mean your view of what is a reasonable fee level or profit level is the same as mine.  For example you talk about giving up the office & staff, and I know how that feels like a backward step, but just like any other business if the income is not there and your personal circumstances mean the profit isn't either, then something has to give.

All I was saying was that 5 years ago I wouldn't have entertained a client who wanted what you say for £700 pa whereas now I wouldn't necessarily turn them away.  You indicate that the other firm was deliberately attracting the client with a low first year to then take advantage year two?  If so then the client would come back.  On the other hand, as I have done on a few occasions, I will offer a discounted first year if the client is a start up, or or has fallen on hard times, but has potential, it's an investment.

You say that at £700 you will make no "profit" on the job whereas, depending on how the firm is run, others may see £700 as a contribution to fixed overheads, better to have it than not.

Need and want?

I'm not sure I understand how the distinction between need and want means that compliance work is not valued.

If you are a surgeon and somebody comes to you after being in a serious accident is that a need or a want? I would say that it is a need but the customer would be willing to pay a good price for you to do a good job.

Needs and wants are spurious distinctions. A business person will pay you to prepare statutory accounts but if you asked them if they wanted a report with pretty graphs and what if scenarios most business people would think it is unnecessary.

Some people will say that if you did it for free then they would appreciate it but I think they would still prefer a lower price.

Why is working from home a backward step? I prefer working from home.

I agree with Andy

Peter also makes a good point. Want and need cannot always be differentiated.

We 'need' MOT's for our car to keep them legally on the road, but we also 'want' our cars to be safe, and an MOT goes some way towards less worry and a more peaceful nights sleep.

Clients 'need' tax returns, but having an accountant prepare the accounts/tax goes some way towards 'wanting' to know, or provide reassurance, that it has been done correctly, and achieved the lowest possible tax liability (legally!).

Value in need

I don't agree that there is intrinsically no value to the client in compliance work. 

Yes, at one extreme, the client may see an audit as a necessary evil and so not only see no value but resent having it imposed upon them but when it comes to accounts and tax returns many will value the opportunity to dump everything with the accountant. How often have clients told me how relieved they are to leave all the annual stuff with me or when I get the return done and in on time and with no grief.

When the alternative is do it yourself each client will have a different perception of value in letting someone else do it.  The quantum of the value is determined by various factors (including fear of getting it wrong) but, on the whole, is determined by weighing up the price offered and their ability and desire to do it themselves.

As mentioned above, this is the current state of play but it is bound to change in the next few years as compliance is made easier and more routine.

Working from home

@ Peter Saxton - I did not mean that working from home is a backward step for everyone - it just feels like that for me - sorry if my comment offended you. 

@Paul Scholes - thanks for your reply - I do agree that some fees are better than no fees, I appreciate the value of contribution and know that different clients have different perceptions of what a fair fee would be, but I think that comes down to knowing your client.  We all have clients that you know will pin you to the board for the last pound, and others that will be more than happy with the job at twice the price, and we know just what some clients may or may not be willing to pay. The thing is though that more and more people are getting very price aware these days, they use price comparison sites for almost everything and will shop around.  We cannot stop that happening any more than we can stop the tide and my worry is that fees will get pushed into a downward spiral. Even without premises and staff costs there must be a minimum amount that you would charge for a certain amount of work - surely you would not for example take on a job that you knew would take you several days to complete for £700.  Thanks again though for the food for thought.

Jimess

Thanks for your thoughts and I certainly agree that, with the exception of pro-bono or self-investment time, we all have to have limits below which we will not go.

In real terms I think fee rates for bread & butter stuff have been falling ever since I went out on my own X decades ago however what I think tends to happen is than in a recession/downturn (and I think this is my 3rd), when people are forced to look at their costs, some expenditure is suddenly regarded as very over-priced or even unnecessary meaning the revenue stream for that sector or service takes a knock.

This is clearly what is happening here and it's no coincidence that we've seen the rise of the website/phone accountancy resources that do it all (and make your coffee) for <£100 pm, relying on being able to pick up thousands of clients on what might seem like a conveyor belt.

So over the past few years I've lost several personal tax clients who now prepare their own tax returns for me to give the once over for £60 and probably 90% of my business clients prepare their books, VAT returns and even accounts to a level that would have been inconceivable 10 years ago.  What's ironic is that we've encouraged this in clients, especially with the availability of online accounting.

But I'm still in business making an income that is enough for me and I think that comes from flexibility and creating capacity to sit back and anticipate or generate other revenues.

On homeworking, after yonks of going out to work and running an office and staff who I would see face to face I went back home three months ago and so that's why I said it can be seen as a backward step.  At my age, in my personal circumstances and with the ability to run everything, and work with colleagues, online it's made a huge difference to my costs and stress levels but it doesn't stop me missing the office environment and managing a team, still at least I can watch my bird feeder all day long.

I did say in the future ...

@andy.partridge - I agree that software cannot currently handle the Examine and Correct stages of the process, but are we in any doubt that at some time in the future it will? Software can fly planes and perform surgery, so how much harder is accountancy?

Some steps toward nailing the Examine and Correct stage are already being taken :)

I am not saying that accountants will not be needed by small business owners. Just that they will (mainly) be needed for the Optimise stage only - which is what the client values and will (happily) pay for: and is something that software will take much, much longer to catch up with.

Software is eating the world? http://online.wsj.com/article/SB10001424053111903480904576512250915629460.html

Andy - best to be prepared

I'm with Adrian on this and believe that, even in the few years I have left before I hang up my calculator (if I can find it), changes will come thick & fast.  They have in the past 5-10 years and the evidence is that government wants things to flow easier and quicker and software houses are there ready & waiting.

In some countries I believe your tax return  is sent to you ready prepared from pay & other tax related items already recorded and notified to the authorities.  For VAT registered businesses, their bookkeeping systems are already submitting basic accounting information to government every quarter, without an accountant's intervention which, even a few years ago, none of my clients would have dreamed of doing. 

It doesn't take too much imagination therefore to think of a time soon when the boxes on the VAT return are expanded top encompass the core P&L and Balance sheet from the system and with simplified accounting lilely for micro companies (all of my clients) my role will be to merely give each quarterly return and maybe an annual adjustment the once over online before the client pushes the button.

With many of my business clients, especially those whose books I monitor online, this could happen tomorrow.

Andian mentions the examine/correct processes being taken care of by software, and whilst we might like to think we humans will always do a better job, that's based on a high level of accuracy being expected whereas, as with the £10K VAT correction threshold and cash accounting submissions for small traders in the pipeline, government will not demand that level of accuracy or assurance, especially if any adjustments are merely a timing issue.

Not offended

"@ Peter Saxton - I did not mean that working from home is a backward step for everyone - it just feels like that for me - sorry if my comment offended you."

It didn't offend me at all. I like working from home. I'm sorry if you would prefer to work from an office.