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Downsizing your business

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6th Oct 2010
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Is size everything when it comes to accountancy practices? Nicola Draper finds one man who thinks not.

If you Google ‘grow your business’, you get almost 30 million hits. Google ‘shrink your business’ and you get more sites on how alcohol shrinks your brain that you would on business.

While everyone is talking about the importance of growth, is it always the right thing for your business? Downsizing tends to refer to people selling large houses for smaller ones, and it’s not something often discussed in business terms.

If you wake up one day and decide to take on more staff and office space and to aggressively market yourself to get more clients, well, fine but it does have its downside and it’s not for everyone.

I recently came across an accountant who has a successful practice with no partners. He has big offices in the centre of a city. He has 11 staff and a lot of stress, juggling everything from clients to staff issues. Being in the office on yet another Saturday, he worked out that he had some clients he really likes and whose businesses are big enough to bring him in GRF of around £100,000 a year. He looks after them himself, with straightforward audits and company accounts. His staff, meanwhile, look after what he calls ‘his little guys’ - individuals and very small firms. He overseas this, checking work and signing off, and it takes up, he reckons, over half his time.

His salary bill for staff is almost £300,000 a year, rent and rates come to £16,000 a year and other expenses such as utilities, stationery, computers, maintenance, travel, marketing etc. come in at an extra £20,000 a year. That’s around £336,000 a year. What do these staff earn for the company from his diverse range of ‘little guy’ clients? Last year it was just shy of £340,000.

Yes, he is giving people jobs. Yes, he is helping small firms, but all that hassle for a clear profit for the business of only £4,000? He was wondering if it is worth it. As his lease is coming to an end, he has made a life changing decision, for him, his staff and possibly for his clients. He is going to keep his big clients, buy a bigger house and create a home office, employing just one person and ditching everything else. Less stress, no commuting, low overheads, clients he likes, and more or less the same income.

He was about to just let his small clients go when luckily, a colleague recommended he talk to us first. I pointed out that a GRF of £340,000 was certainly worth selling as a block or even in several blocks. Even though he is an astute accountant, he didn’t realise these clients had value as an asset. Some of these small clients have the potential to become big clients, thereby making them more valuable; some who are older individuals less so. I am in the process of assessing the profile of these clients and their contribution to his GRF, to enable me to advice whether to sell them as one block or perhaps divided them into several. Either way, it’s about ensuring they are the most attractive they can be to potential buyers.

The moral of this tale (if there is one) is that big isn’t always beautiful and size, as they say, is not everything. Don’t discard a single client if you decide to downsize; whatever their profile, however small their contribution to your GRF, they have a value and you’d be foolish not to capitalise on it.

Nicola Draper runs Draper Hinks, a broker firm that specialises in buying and selling accountancy practices or blocks of fees.

 

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By Bob Harper
06th Oct 2010 17:04

80:20

I agree, too many people many think marketing is about growth, when in fact it is really about quality...better marketing = better clients = better life.

Anyone here interest can check out their Professional Wellbeing score click here.

Bob Harper

Marketing for Accountants

 

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By alan.broome
07th Oct 2010 10:11

I agree

I did a similar thing last year: I had a firm of seven people dealing with all sorts of clients and providing stress and headaches galore. I walked away from the general practice and concentrated on a niche which I enjoyed dealing with. I now no longer worry about making the wage bill at the end of the month; I pick and choose the clients I deal with; I probably earn more and I definitely work less, spend more time with my family and in general terms I am happier. Downsizing rocks.

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By Coates Franklin Ltd
08th Oct 2010 10:44

Small is beautiful

I am a sole trader, working from home with no staff.  I know several larger firms in my locality and I also know that I earn more than the partners of these firms, have less stress and work less hours! 

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By Bob Harper
08th Oct 2010 12:50

Choose

The Profitable and Sustainable Report published by the ICAEW says owners need to make a choice between a lifestyle or enterprise practice. Like they say, this is the first and sometimes the last decision for practice owners.

However, I reckon most partners are caught in the middle having not made an explicit choice!

Bob Harper

Marketing for Accountants

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By DraperH
08th Oct 2010 15:42

Who is in charge?

Do not let the tail wag the dog.  It is too easy to let clients run your business.

Nicola Draper

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By cymraeg_draig
11th Oct 2010 10:36

Big can be beautiful too.

Of course, there is another way, build the practice to the point where it runs itself, is profitable, and pays you without you having to lift a finger if you dont want to.

 

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