When you run your own practice you have to make all of the decisions. But are you clear which role you are fulfilling when you do this?
As an adviser to professional practices I have long referenced the fact that partners can be rewarded separately for their roles as service providers, as providers of working capital, as equity holders and also for any practice or firm-wide executive role they perform in the firm.
This concept is less of an issue for smaller firms and is largely irrelevant for sole practitioners.
Recognising the distinct roles that you perform however can be extremely helpful when it comes to taking decisions about how you are going to run your practice. With this in mind, I spoke recently with William Buist who addresses this point when advising business owners.
ML: William, how do you distinguish the different roles that business owners need to fulfil?
WB: Many business owners have three overarching roles: Shareholders, directors and operational staff.
The shareholding of a small business owner and the business interest of a partner can’t be easily bought and sold. They are usually only changed when there is a big change in the business, through additional investment, or partial or total sale. The shareholder role is focused on value and systemic risk.
Directors sit on the board, and their role is focussed on the company’s vision and direction. They set out the resources available and budget for their use. It’s a strategic and business risk role. Operational staff focus on delivery of the product or service and meeting customer service requirements. It’s a tactical role.
ML: The combination of these roles is very common in accountancy practice too. Sole practitioners and partners typically have to fulfil all three roles and these overlap. What challenges do you think this scenario creates?
WB: When all three roles are being performed by one person or by a small team the biggest day-to-day challenge is allocating the right priorities to each role. That will depend on the current status of the business, but a rough rule of thumb is an even split.
Over the longer term it's often the competing priorities within the roles that comes into play, and when they are being undertaken by the same person the roles can become muddled. That's a recipe for making costly mistakes, whereas when the separation is maintained the opportunity to unlock sustainable profits is much clearer.
ML: That's an interesting perspective. What are some of the typical costly mistakes that you see?
WB: I think the most common thing is when individuals are time poor, they tend to focus on the tasks in hand rather than the role. The last customer they spoke to, or wrote to will be uppermost in their mind, and small things that need to change for them, can seem like a pointer to strategic change for the business.
Operational roles are often very fast paced, and the time to analyse and think about the implication of things is short. Great businesses make this environment work by having well designed processes that handle most situations and handle exceptions with care. The board 'hat' however is a strategic one, and needs strategic pace, with proper consideration and 'abstraction' from the day to day to get an overview.
Only then can the best decisions be taken. An example might be changing a product based on limited feedback, and then finding that it's no longer suitable for a large cohort of customers.
ML: You mentioned sustainable profits, what did you mean in this context?
WB: Sustainable profits are generated when the business is able to repeat them consistently in their market and which are resilient to competitive pressures.
ML: The second part of that sentence is crucial for accountants who have long been able to rely on recurring compliance work. The question now is how resilient are their business models to new competitive pressures. Do you have any tips on how more general business advice might apply?
WB: It needs a deep understanding of the cost of doing business, and how that changes in different circumstances, as well as an understanding of the market. It's also about building dynamic capability into the business so that external change can be properly managed without harming the profits being generated.
That happens when the business or partnership has real clarity about all aspects of its business model. The insight that gives allows the business to scale quickly too, if that is its choice. The shareholders’, or owner’s interests are best served by locking in that capability and value (and that may require investment in systems and people).
Again day to day pressures can mean the business fails to see the strategic importance of the work when wearing the board 'hat'. After all it's work that can be done tomorrow, even if it should be started today. If it's not done the impact is that profits will be eroded over time, and lost to competition.
ML: I've certainly seen some accountancy partnerships fail to adapt fast enough to external change and lose business, so what you say will have resonance for many. What are the key things you would advise them to focus on?
WB: If you are a sole practitioner, or are in a small partnership where you are all working in all three roles, one of the simplest things you can do to make an immediate difference is just to overtly state which role you are currently acting in. When you are a shareholder/partner your prime focus is value, so the key question is 'How does this add long term value to the business'?
In order to manage system risk it's worth planning some time each month to actively review upcoming changes in regulation, the actions of your competitors and the market, Ask the board (formally, even if it's the same people) or an external mentor to provide input to those things and to report on the progress of the business.
When you are acting as a member of the board, the focus is on strategic business issues, creating a vision of the future and the path to reach it, as well as dealing with the things that happen and which, unmanaged, would throw the business off track. Two key questions to ask in this role are: "How does this help us create the vision for the business?" and "What is worrying me?"
Make sure that the operational staff (including yourselves) are keeping the board properly informed about the results of 5 key areas of the business: Marketing, sales, customer service, finance, and resources.
When you are in the operational parts of the business the focus is on delivery. The questions to ask in this role are questions like: "What does this customer need from me, and what can I provide?"
If something highlights a more strategic or value based challenge, then I recommend recording it (in writing, email, audio note, etc) and referring it to the relevant role. Pick it up again when you are wearing that 'hat'.
ML: Finally you mentioned business models earlier and having clarity about how they are designed, but is that relevant for accountants? Their business models are pretty well defined and established, so that's less of an issue isn't it?
WB: At the core of the business, what the services lines are and how they are delivered is probably well established and understood by most practices. My experience of professional service firms is that their business model is nuanced in ways that often aren't understood well. It's those nuances that often generate significant value because if those differences are surfaced customers often find them remarkable.
Once you have a deep handle on the service lines, target markets and activities, I suggest going further.
Designing the business to ensure the reactions you want from your target market actually happen, and designing your marketing to highlight the unique skills and experience your business has, will make you stand out from the pack. It's a job to be done with a board 'hat' on.
ML: Thank you very much William. That's very helpful. I look forward to seeing the feedback and comments from AccountingWEB members on this.
William Buist works with remarkable professionals to unlock sustainable profits and avoid costly mistakes.
Mark Lee is consultant practice editor of AccountingWEB. As a speaker and mentor his focus is on helping accountants who are determined to be more successful. He also facilitates The Inner Circle group for accountants and is chairman of the Tax Advice Network of independent tax specialists who provide support to smaller practices