Why 73% of partners believe accounts are fundamentally flawed

In the fourth article in the major new series “The key numbers every practising accountant needs to understand and act on”, Steve Pipe explains why accountants feel annual accounts are fundamentally flawed and what you can do about it.

A few years ago I surveyed 250 accountancy firms and found that 73% of their partners (i.e. the people who make their living producing annual accounts) acknowledged that there are at least five fundamental flaws in annual accounts.

Two weeks ago I repeated the survey with 50 more partners and found that nothing had changed.

Of course, 73% of accountants are not saying that accounts are wrong, don’t add up or don’t fully comply with all the relevant laws and reporting standards. What they are saying is that annual accounts are of little or no use to the businesses that are forced to pay for them since they don’t give business owners the information they really need to drive their businesses forward.

Find out more about the 7 key numbers at The Accountants Conference 2011
Steve Pipe FCA is a leading strategist on commercial issues and opportunities facing accountancy practices. You can see him in action at The Accountants Conference 2011 on 23 June

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Comments
stevepipehome's picture

This stuff will help...

stevepipehome | | Permalink

Here are a couple of things that will help you do something about the issues raised in my article:

 

Benchmarking – Members of Mark Lloydbottom’s Accountants Club get some really useful benchmarking software for free which produces all the reports you need. Annual membership of the Club is only £100, which seems like a bargain to me. www.myaccountantsclub.co.uk

 

Graphs, ratios, analysis and commentary – I am told you can produce some good reports from within IRIS Accounts Production software. Alternatively AVN have created a software tool for creating Financial Performance Review reports

 

PMI system - If you want some extra details on what a Performance Measurement and Improvement system is, and how to make the most of one, please contact me on steve.pipe@avn.co.uk and I will gladly email some guidance notes back to you.

 

STEVE

 

steve.pipe@avn.co.uk

 

PS  If you like what you read, it would be an honour to connect with you on LinkedIn –  http://uk.linkedin.com/in/stevepipe

Great article....

justsotax | | Permalink

Some very good points to take on board....from my point of view I deal mainly with small (probably considered micro) businesses, and since starting up just under 2 years ago have tried to give the client more than just an annual return and set of accounts (which generally they would rarely read...or perhaps not understand because it has never really been explained to them).

You have certainly offered some ideas as to how to break down this barrier and put information in front of the client that is more useful to them. Like you say probably most of us already do this in some form or way, but perhaps not consistently.

(and just for clarity i am not an AVN member....just like ideas that i think will work in my practice)

Bob Harper's picture

Focus

Bob Harper | | Permalink

@Steve - great stuff.

When accountants strat admitting that their core product is not really that useful it will come as no surprise that they will continue to come under more price pressure because of simplification, new competition, technology and outsourcing.

The key is differentiation and added value. Having a different set of accounts to other accountants is a great starting point.

Historically, firms have focussed on accounts/compliance and topline GRF (Gross Recurring Fees) but times are changing and the firms of the future will be thinking NRP (Net Recurring Profit) or more importantly NRV (net recurring value) in terms of what value they deliver to clients.

The report you kindly contributed to with Mark will be released next month. Anyone who wants a copy can email me bob@portfoliomarketing.co.uk.

Bob Harper

Portfolio Marketing

Bob was right.

Paul Dunn | | Permalink

In those immortal words of Meatloaf, "You took the words right out of my mouth".

thank you Steve. And thank you Bob for such an insightful comment.

 

-- Paul Dunn Chairman,
B1G1 Come join me at www.b1g1.com Giving your business the power to change our lives
Follow me on Twitter at http://twitter.com/pauldunn Connect via LinkedIn:http://sg.linkedin.com/in/paulsdunn 

Email me at: paul@b1g1.com

Tom 7000's picture

Analysing data

Tom 7000 | | Permalink

I never seem to be able to argue with what you write. What you say is the right way to do it.

 

Problem is

 

a) 99% of CLients dont want to spend money on it, they just want the cheapest option.

b) Even when you find the odd one that does and you sit in a 4 hr Board meeting each month taking them through it and suggesting improvements, next meeting nothings been changed. We were all too bust doing our regular day jobs, or CBA. Eg you have £125k of stock which will be obsolete in 2 months...next meeting...1 month...next meeting...whats this £123k loss in the accounts, thats the stock I told you about 2 months ago that you havent done anything about...we did we sold £2k of it...doh!

If you can find the magic client who will pay and who will listen and implement what you say then yes perfect.

I'm not holding my breath though.

The view from teh coal face

 

Tomandco

 

 

Nick Graves's picture

Nice one Tom!

Nick Graves | | Permalink

ain't that the truth!

Also, many clients live in the real world, where staring hard at historical numbers doesn't mean you can increase sales or margins in a declining market by fiat, despite what the ol'beancounter keeps wittering on about, much as they'd like to.

 

 

 

 

 

Horses for courses

shoshana | | Permalink

Nice article (not too sure about those pound notes though!).

As with all client matters, some will just be using their accountant for compliance services at minimum cost believing that they are best placed to make decisions about their business (rightly or wrongly).

Other clients will be interested in value-adding activity but the accountant needs to judge how his client base is split before investing in software which might end up not being used. Of course we would all like our clients to want us to provide such services but the reality on the ground is very different.

A possible strategy might be to offer it as a freebie in year 1 (as a special introductory offer) then if clients like it, to charge for it in subsequent years. Even so, many will take the freebie and never ask for it again!

Malcolm Greenbaum

Director, Greenbaum Training and Consultancy Limited

IFRS, US GAAP, UK GAAP, UK tax and VAT

 

stevepipehome's picture

Not all clients will want to pay...

stevepipehome | | Permalink

 

Some clients won’t be willing to pay, I agree.

 

And that doesn’t matter at all, since as long as ENOUGH clients will pay for it, it will work commercially for you.

 

As for how many will be willing to pay, the answer seems to vary according to who you talk to.

 

For example, a few days ago I was with two practitioners from the same town. Both were equally likeable people, and probably equally capable too.

 

One was lamenting the fact that their average fees were well under £1000 and that their many hundreds of clients were really hard work to service.

 

While the other (a sole practitioner who had only started up in 2007) was explaining in detail how he had attracted around 30 clients who were happy to pay him average fees of just under £9000 each. And how much better (ie more enjoyable and successful) this new arrangement was compared to when he used to work at a third practice in the same town.

 

Same town. Same profession. Very different results.

 

Yes the first firm had hundreds more clients, but so what? The second firm had fewer clients, fewer hassles, much bigger profits and was having much more fun.

 

So clearly in that town it was possible to find ENOUGH clients. Just as it is in every town.

 

STEVE

 

NB: By the way, the other firm is still adamant that not a single one of its clients will pay the sorts of fees charged by the other firm.

 

`The times they are a changing`

DAVID O MAHONEY | | Permalink

Once again Steve your comments are right on the money.  Compliance work will become scarcer and less profitable as technology rapidly solves this problem.  The future for accountants is to become The Trusted Advisor that we all think we are. But a starting point might be to admit that heretofore our services have not perhaps served our clients as good as they could have, but with some new training we are in pole position to advise and guide businesses.  But we need to be aware that there are several other players who are seeking to fill this role and if we dont take action soon we will be left behind. We should embrace this opportunity and be energised that we can play a very positive role in the development of the economy.

Dave

 

 

 

marklloydbttom's picture

Do clients look at the accounts we produce?

marklloydbttom | | Permalink

 

 

Based on a survey of 20 business owners in the High Street in Bristol where I once plied my trade as an accountant I decided to reintroduce myself to former clients and make some new friends along the High Street I have walked for the best part of 25 years. My question that day was simple, "How long do you spend looking at the accounts your accountant produces?" 

Based on this [I accept, limited] survey the responses were interesting, 16 people said less than 5 minutes, 3 declined to respond and 1 said - a whole day!! On further examination I discovered that this lady was not only the owner of a hardware store but also a part-time bookkeeper. "How could you spend a day on looking at your accounts", I asked.

I just keep looking at every figure seeing what it means and how it needs to change. I left thinking that such an exercise could be completed in far less than a day, but was nevertheless reassured that I had found someone who thought that the [historical] accounts were interesting - even helpful. 

I remain excited at the thought of what we will all learn at The 2011 Accountants Conference on 23 June- something tells me we are all at a Tipping Point!

 

listerramjet's picture

I recognose this

listerramjet | | Permalink

when I worked in practice it was a regular "suggestion". But from the other side of the fence it is flawed. Financial accountants are not management accountants, and nor should they try to be. I know there is a market for consultancy based management accounting, but I think if you try to do it as an add-on to compliance based stuff you will probably fail, because you have missed the point.

73% of partners think Accounts are fundamentally flawed...

Abacjm | | Permalink

Not surprising, really, considering that for a Partner, adding the company signature is virtually the only connection he/she may have had with their production, but the Customer will never know that and will keep on thinking not only that  the Senior Partner deals with HIS very important and personal business Accounts, but actually deals with them personally too!

As for the two Accountants sharing the 9:1 ratio in the same town, there are Golf Club 19th holes like that up here too, but with the rise in duty and vat, they no longer drink pints or shorts, as they now only have the price of a tee! But inflation does not really affect their stories although some do get blown up out of all proportion!

Fish Farmer to other Fish Farmer in club-house: Seals are bad this year and affecting our stocks. How's yours going?

2nd Fish Farmer: Same problem, here, also Otters.

1st Fish Farmer: Fancy going Clubbing later?

 

 

 

DMGbus's picture

Less notes + less pages = more value

DMGbus | | Permalink

For the vast majority of clients that I deal with making the accounts more understandable and straightforward is the objective.   They don't want added value features that cost more and add even more pages.

The more pages = the less understandable to the ordinary client

The more notes = the less undertstandable to the ordinary client

Having said the above I appreviate thatb there must be some clients who might appreciate additional information as part of the annual accounts package and who might even be willing to pay for it, however my £500 to £1000 Ltd Co fee level clients do NOT fall into this category neither do my £75 to £750 sole trader clients.

So, for my clients the objective is feewer notes and fewer pages (5 pages is legally attainable for a small owner managed Ltd Co as comparerd to the 14 pages that some forms think is acceptable in these circumstances).

 

 

Real time Information empowers the owner

John Cotter | | Permalink

Businesses should be encouraged to develop their systems, to deliver real time insight into their key performance indicators.

By the time a business gets to review the first draft of their audited accounts, usually, they are deep into the following financial year and the benefit is lost!

Too few small businesses, have robust mechanisms to review their key indicators dynamically and in real time.

By providing greater visibility(without major investment)  to revenues, margins and cash flow, or whatever the key drivers of the business are, on a daily, weekly or monthly basis, gives the business the data and comparables to empower them to react to performance.

This type of information can be delivered in many platforms and merely requires a dynamic link to the accounts package and of course, good data entry routines.

Surely, that kind of advice and proactive approach, would be the best way to empower a business?

http://www.visionqanda.co.uk

John.cotter@visionqanda.co.uk