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.