Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Seven ways firms undermine their profits

by
1st Jul 2013
Save content
Have you found this content useful? Use the button above to save it to your profile.

At the recent AVN Conference in Birmingham, AVN tax partner Mark Wickersham shared his insights into how firms can be more profitable.

Based on AVN research among some of the profession’s most profitable firms, Wickersham took the stage to explain what they did differently, and highlighted seven mistakes less profitable firms make that hold them back.

According to Wickersham, the average profit per partner in the UK is around £68,000, while half of firms make less. This was way below the amounts being earned by the six profitable accountancy firms that featured in AVN’s 2012 One Million Pound Summit.

“As a profession, we have to do better. We deserve to do better. Three of the six most profitable firms are sole practitioners, so it doesn’t matter about size - you can be profitable. And none of them are in London, either,” he said.

“All of these firms are earning sustainable annual profit of £200,000. This is not from windfalls or one-off advanced tax planning, this is doing the core stuff incredibly well.”

Mistake 1: No clear strategy

First on Wickersham’s list of mistakes is not having a clearly defined strategy. All of the six high-earners he interviewed have a clear core purpose and know where they are heading. To develop a good, solid strategy, he suggested following the example of the profitable firms:

  • Take time out to think about your strategy. Go away for a week somewhere different, out of the office and think about different strategies your firm could implement.
  • What's even more important than having a clear vision is sharing your vision of the firm with your entire team and making sure it aligns with theirs.
  • Hire a non-exec to come to monthly meetings and hold you accountable for implementing your strategy. If you have someone to answer to, you’re more likely to get it done.
  • Put down the profile of your ideal client in writing. You can’t act for everyone, so consider a niche such as dentists, start-ups and so on.

Mistake 2: Poor sales and marketing

Many firms are poor at sales and marketing, said Wickersham. This may be due in part to accountants not being naturally predisposed toward selling, but "£arketing is the most important part of any practice or business,” he said.

While many may think the technical aspect of accountancy is the most important, it’s how you differentiate that by marketing yourself that really counts. Clients don’t understand the technical side of accountancy, so accountants need to tell them how they’re different.

Both strategy and marketing should grow out of your ideal client profile. Many firms may already have identified its own A-list clients.

Figuring out who they are and if you already have them is just the first step. Thee next is asking them what they really want from an accountancy practice. After this, you can then identify what you can do for them, and in turn, gain more A clients.

One mistake growing firms make, according to Wickersham, is spending the morning on client work and the evening on marketing - but this is wrong.

Client work fills the entire day, so doing the marketing in the morning can bring in a lot of benefits.

Marketing is too important to be left to chance, said Wickersham. “You need to set aside time.”

Individual accountants can put in the hours and develop their own marketing and sales skills, or the firm can bring in new team members already skilled in marketing. Taking on a new staff member need not become a pure cost burden. According to Wickersham, you can turn their skills into a revenue stream by figuring out how to make their services available to clients, too.

Mistake 3: Wrong pricing

“When you’re skilled in pricing, the results can be profound. Just by changing a few things and adding value, you can get clients to pay you more. People value things in different ways,” Wickersham said.

For example, many UK accountants do mortgage references, but AVN research found 41% of firms don’t charge for these. Clients are usually willing to pay, so accountants who don’t know how to price this service are missing out on earning more.

If accountants change some services, add value to it and then explain it coherently to their clients, then they will get significantly higher fees, Wickersham argued.

Firms generally opt for one of two strategies when it comes to pricing:

  • The first is low cost leadership, or offering cheap services. Some businesses do this well, he said, but this doesn’t work for accountants as anyone can copy what they do and the firms will end up in a downward spiral of competition.
  • The second was for firms to differentiate what they do by adding value to their services and charging a higher price. All of the top six AVN profit-makers would class themselves as expensive, Wickersham said.

Most accountants don’t actually have a pricing strategy, he said.

In contrast, the six profitable firms all demanded a minimum fee and used direct debit to get payments up front, rather than sending accounts to clients and waiting for payment, which AVN recommends as best practice.

Mistake 4: Average service

Accountants tend to do general compliance work such as tax and accounts that can be considered quite average. But average is “not the place to be”, according to Wickersham.

The six profitable firms focus on proactivity, a phrase many firms put on their brochures but actually know nothing about.

Some of their proactive measures include:

  • Having an agenda before meeting clients
  • Benchmarking - the top six firms benchmark client results and measure their key ratios against their competitors to find out where they can improve
  • A one-page plan to help clients identify their key performance indicators and create a measuring system.

“Use tools systematically to help clients,” Wickersham urged the audience.

Mistake 5: Poor people management

Accountants are not the best people managers, Wickersham continued.

However, the top six firms involve their whole teams in the recruitment process and tend to fill their practices with staff much like them.

But you can’t run a practice this way, he argued.

Having a variety of different people who work well in their assigned areas is a good way of managing people. Wickersham advised using personality tests to determine whether some existing employees in one area woud be better used in another.

AVN's advice is to have a team of client managers,  each with a maximum of 20 clients so they can spend more valuable time with each of them.

Mistake 6: Not having written systems

To grow your practice, you need one that doesn’t rely on people, but rather on systems, according to Wickersham.

Once you have a good, solid system implemented, anyone can then run the firm. If you write the procedures down they don’t lie with just one staff member or partner, but will be available for anyone to use.

Wickersham added that in 1999 he systemised his own practice with a cloud-based piece of software that made sure every person in the practice was running on the same system.

Mistake 7: Measure the wrong things

The final mistake firms make is measuring the wrong things. On this point Wickersham quoted Accountants Bootcamp founder Paul Dunn as saying: “What gets measured, gets done.”

If you want to avoid making the seven mistakes, you need to make sure you’re measuring the right things and have the right measurement systems in place.

“When you make a change and it works, then you can use it with the point above and systemise it so it happens systematically every single time,” he said.

While historically, accountants’ measurements are based around time sheets and measuring things like productivity, charge out rates, and so on, try measuring things like client delight, turnaround times and staff satisfaction that matter to a client more, he advised.

Replies (6)

Please login or register to join the discussion.

By The Doctor
01st Jul 2013 20:36

Half below average?
Wow - who would have thought? ;)

Thanks (7)
By birdman
02nd Jul 2013 13:31

Well behind the times

I reckon that my problem was not knowing about the Cloud in 1999; must have been too busy doing things badly to notice ;)

Thanks (0)
avatar
By Jason Dormer
04th Jul 2013 14:23

Its a shame that such an important article has been devalued by such sloppy writing.

As stated above, half of firms make less than the average?!?!?!

Also, in the opening, 'these firms are earning sustainable income of £200,000.00 a year or more

How is income relevent on an article regarding profits.  Turnover vanity, profit sanity so they say.  Are these firms generating 200k income making in excess of average profit?  If so how much?  What size are they?'

With regards to the people management section

"Accountants are not the best people managers, Wickersham continued.However, the top six firms involve their whole teams in the recruitment process and tend to fill their practices with staff much like them.But you can’t run a practice this way, he argued"

So is he arguing against the methods of the top six firms?

It is no surprise that firms that are too operationally focused are not making sufficient profit, those that treat strategy, pricing, value adding, marketing, people management,and measurement will always thrive.  All firms in all sectors are guilty of neglect in one or more of these areas - the surprise is that accountants are guilty when they are, or should be, trained in these areas, even if not suited to perform some or all of these roles personally.

Of course these are all interlinked anyway, your marketing will reflect your pricing, your value expectations from your clients will result from your marketing and pricing, your service standards will result from your strategy and your people, and your measurements will derive from your strategic planning.  All firms should have someone responsible for the above, and review at least quarterly.  For one man bands that either means the owner or buy in.

Jason Dormer

Seahorse (UK) Ltd - For Accountants & Bookkeepers

 

 

 

 

 

 

 

 

Thanks (0)
avatar
By Jason Dormer
04th Jul 2013 12:29

Having said all that

One of the more interesting reads on this subject - thanks Rachel.

Thanks (1)
avatar
By vowlesj
09th Jul 2013 23:27

You had to be there
Reading the article drives home that you had to be there to catch some of the points. And for example Jason, in the article it's says £200k sustainable profit, not income. What Mark said was £200k or more in profits per partner.

My advice: check out the stuff that Mark has written or his You Tube videos and get more info straight from the horses' mouth.

Thanks (0)
avatar
By Jason Dormer
10th Jul 2013 07:51

vowlesj

Hi - The original article said profit not income and was amended after my post.

excellent article though, and looking back my first post reads much harsher than intended

 

 

Thanks (0)