Why over 50% of practicing accountants are making losses
Even before the recession really started to bite, there was a brutal truth that no-one wanted to own up to: most accountants were making losses.
Don’t get me wrong, their accounts were showing a notional profit. In fact, IRIS sponsored research into more than 200 small and medium sized accountancy practices showed that the average partner appeared to be earning £78,000 a year in notional profits.
But, of course, that figure is misleading since, as any economist, dragon or venture capitalist will tell you, true profit is what is left over after you have deducted full arms-length salary costs for partners and anyone else who does not take a full market salary through the payroll.
And when you do that, by deducting the salary and related costs of a partner level employee who is willing to put in all the effort and hours that the partners do, the true situation is revealed, and it is not a pretty sight...
… more than half of all practices are actually making losses.
What would the Dragons say?
None of the BBC’s Dragons would consider investing in a business where the “profits” weren’t even enough to pay for the management teams salaries, would they? In fact, they would laugh at the naivety of any entrepreneur who tried to suggest it was a good investment.
Instead they would point out that making losses is the market’s way of telling you that you aren’t doing things right. And they would suggest, no doubt in uncompromising terms, that you need to start getting much better at:
- Attracting the right kind of clients – the kind who are happy to pay proper fees
- Doing the right kind of things for them – services they really value, and that make a real difference to their bank accounts and lives
- Getting the right kind of fee to cost ratio – by charging higher fees and improving productivity and efficiency
So how might you do that? Well, here is how one very successful practitioner does it.
Case study: How to earn profits of £200-280k by getting it right
Clear Vision is a two director practice with 12 team members. Based on the high street of the quiet Wiltshire market town of Corsham, eight miles from Bath, their current results are stunning:
- Turnover is in excess of £700,000
- And with only 130 business clients and 20 tax return only clients, their average fees are in excess of £5,000.
- In the last year they won £160,000 of new clients
- The 46-year old managing director Rob Walsh works an average of 40 hours a week, takes 14 weeks holiday a year, and in each of the last five years has taken home profits of between £200,000 and £280,000
It all starts with values
Explaining how it all started, the firm’s founder Rob Walsh said: “I did not want to call my business Rob Walsh Accountancy, so I chose a name that summed up perfectly what the practice is about. To me the most important thing an accountant can do is help a client identify and articulate what they really want out of their business and their life, and then help them to achieve it. That’s the way we really make a difference. Ultimately it is about being in partnership with your clients, and not merely having a transactional sales ledger/purchase ledger relationship with them”.
Focussing on your clients’ goals