Profit or efficiency?

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Don’t confuse the two.

Whilst in an ideal world greater (perceived) efficiency will lead to greater profit, it’s become increasingly obvious to me recently that this isn’t always the case.

The decision to grow my practice led me to look at ways that I could improve and systemise processes to make it easier to train new staff and to adopt a systematic approach to a lot of work.

The end goal? To make more money and have a more valuable asset I could sell on in the future.

Standardised software across the practice was one way I looked at achieving this so I took the decision to move towards becoming a Xero only practice, well lets say 90% Xero, there will always be a few clients for who it won’t be suitable.

I’m happy with this approach and its working well. However, be aware of the true time cost of getting client set up on Xero. Yes you’ll save time long term but it always seems to take longer to get clients comfortable with the software than I (you?) imagined.

Another way was to introduce new software, specifically receipting scanning software for bookkeeping and practice management software for the practice as a whole.

Looking at the PM software, this has definite benefits but they will take a while to manifest themselves. I have taken around 40 hours to date working with the mTrio team to get the processes designed the way I want for my practice and to get the raw client data uploaded.

I estimate that there will be a further 30 hours to get the processes set up and staff trained. That is a lot of time which would otherwise have been spent doing chargeable work which means either we don’t bill as much,  need to work longer hours to get the work completed or delay the completion of that work.

Receipt scanning software – a word of caution here, don’t get caught up in the bright lights and jump in with both feet straight away. Beware of the pricing structures.

I initially opted for Receipt Bank, functional product and very modern design however a lot of the glitz isn’t necessary and the extras are expensive plus the pricing means that go 1 item over 50 documents a month and the monthly fee will double for each client.

I’ve now changed to primarily using Auto Entry – far more functionality (deals with not just purchase invoices but also sales invoices and bank statements). Not quite as pretty to look at but it does the job.

And, I reduced the monthly cost by around 60%.

I’ve also looked at some of the ‘added value’ reporting software – Futrli (what a stupid name!) and Spotlight. Nice looking products but when it came to the crunch and after calling my clients who I though would be most interested in it, I only managed to find 3 at most who expressed even mild interest. Most of them are happy with the standard reporting in Xero. The extra £20 - £30 a month just for the non essential but nice to look at software just isn’t worth it for all but a few.

Now I consider my practice similar to many small practitioners’ practices – we’ve embraced the cloud and are looking forward. However I’ve realised that in the process of looking to grow that we (our clients included) don’t need every fancy, well marketed app/software product which promises to make our lives easier/better.

In fact there are very few we need.

Yes they may make some things better but that comes at a cost and that cost has a habit of creeping up very quickly. Just make sure that while you look to improve efficiencies you don’t lose sight of profitability.

As we all tell our clients turnover is for vanity…

About Kent accountant

Man of Kent

Chartered Accountant based in Kent.

After leaving practice very soon after qualifying, swearing never to return, in 2011 I did exactly that.

Now a sole practitioner and loving it, business growing rapidly and looking forward to the future as my own boss.

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13th Apr 2017 18:46

Hello KA

Keep the blogs coming. Always good to get another perspective.

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By RedFive
14th Apr 2017 14:02

Thanks Kent, an interesting perspective especially in lieu of your comments on the 'receipt bank called' thread.

As a 1 man practice in the NE I'm at about capacity so looking to be even more efficient in order to squeeze a few more clients in.

I'm now using AutoEntry following the other thread and love it though I find the cost quite incredible. So your points are well made and timely for me.

My cloud choice is QBO as I don't like the xero 'ethos' or pricing. But i still maintain many clients on VT and Sage 50 as they (the clients) simply aren't interested in seeing the data and desktop still beats cloud for those. Especially with the AutoEntry integration into Sage 50 which receipt bank doesn't do.

My fork in the road is whether to take on staff to expand but I kind of like my own company and after years spent managing people in the corporate finance world I'm not in a rush to do that again. Plus I get to keep all the profit.

P.s. Had a few days in Brighton last week and couldn't get over how warm it was compared to back home. Was sat eating oysters and drinking cold beer on the beach late into the evening in just a t shirt. Makes me jealous of you working in the garden of England!

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14th Apr 2017 14:37

@RedFive - yes a lot warmer down here. My wife is a 'southerner'. I was actually born in Hexham (parents are both from up there), spent most of my childhood in North West, uni at Newcastle then moved south...

I'm always having to turn the heating down.

Yes, 'add-on' costs can ramp up quite significantly.

I spent a long time in your mindframe i.e. don't want the hassle of employing anyone and all the profit is mine.

I then started to resent having to do the lower level work and also turned away some decent accounts work as I didn't want to do the bookkeeping - prospects wanted it all under one roof.

The bookkeeper I now use around 1 - 1.5 days a week is excellent - picks thing up quickly, works efficiently, keeps me informed of issues/problems.

I can see a point where she will soon be doing all the bookkeeping, a few vat returns and hopefully the payroll as well. In around six months she's more likely to be working 3 days a week.

I can then focus on work where I will recover at a far higher rate.

Mrs KA will do most of the sole trader accounts prep and help me get mTrio populated and processes set up and keep on top of the admin side which sucks so much time.

Then I can concentrate on accounts, tax returns and other added value work for clients - tax planning, budgets, forecast, management reports.

10-15 hours low level work a week taken away from me will probably mean I could take on a further £40-50k of fees (accs/tax and a bit of bkeeping) and maintain this structure and the hours I work.

I chose Xero as I was more familiar with it, I've incorporated the cost into my pricing structure. It will be interesting to see how MTD pans out and what offering the software houses have for the very small businesses/property investors. It may well be that I find another software to deal with smaller businesses.

AutoEntry - yes I like it, I also like to get clients to save documents in dropbox. Then its often just as easy to attached documents as you reconcile the bank transactions.

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By RedFive
06th Aug 2017 16:26

Hi
Thanks again for your comments I think a part time bookkeeper could well be my next step.

Speaking of 'turnover is vanity' I picked up a client recently who runs a domestic cleaning business. £60k plus turnover but no profit. She was complaining of being far too busy but having no money left. So I sat down to analyse the business and met up with her, lovely lady but not exactly Elon Musk.

"So how much are you charging your client for a clean?"

"£10 per hour"

"1 of your employees does the clean for that?" I ask incredulously

"No, actually I send 2 of them"

.....at £7.50 wage per hour plus the van she supplies and materials.

Now this Accountancy isn't rocket science but..................

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By tom123
15th Apr 2017 14:16

All sounds good - although I wonder how much the profession will end up a co-opted arm of whichever software company is leading the way.

Granted, I am an observer from the sidelines in my 'industry' berth - but there is the possibility that for future new businesses:

accounts = Xero, and 'accountants' are just whichever people you get to deal with that bit.

Still, it's got to be the way to go -

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16th Apr 2017 21:44

Hi Tom, its a lit like that already isn't it?

Change accountants and the systems/processes remain the same just difference face/price?

With software I think the move to MTD offers accountants the opportunity to systemise their work more than ever.

As I see it there will be two general types of clients:
1. Those who need or benefit from having their accounting system on cloud based software to run their businesses.

2. Those that will only need software to comply with HMRC (MTD) requirements.

For type 1 Xero is my choice, for type 2 I'm not sure yet maybe some on Xero some on something else but there is definitely a gap in the market here perhaps something which is based on excel and is very cheap (a la Taxfiler)

On the whole clients tend to go with their accountants recommendations provided they get advice and support and aren't left to fend for themselves.

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19th Apr 2017 18:11

I am very much on the same page as you.
I decided on Xero as main practice software and will put most clients onto it, although many people worry about the cost I find the cheaper versions work for a lot of clients and will be all the need come MTD.
Invoice scanning is a useful bolt on and gets around the slower inputting that comes with cloud software.

I am actually quite slow at the data entry side number crunching stuff now so my part time Xero girl and my VPA deal with a lot of the crap I am keen to avoid, allowing me time to focus on more important stuff.

With regards to th Xero eco system you could get carried away with some things, but I think it's best to keep it simple, core product, direct bank feed and invoice scanning works for most cases, maybe add in something if you a till system. There is a whole host apps you can get for expense and mileage tracking and whatever else makes up the 1000 Xero add ins.

In the old days a third of the job cost was labour, you could easy spend the same on software now if you fall for the sales patter.

I would be keen to see how many clients in the successful Xero practices subscribe to the premium services where they get futrli and spotlight as they cost about £20 or £30 per month but I cannot see people paying £200 extra per month just for the enhanced reporting.

I think £1000 charge from Futurli to put your own branding on reports is out of order and shows content for their uses. In a practice of say 500 Xero clients do 10, 20, 50 or 100 clients sign up to the extras for Spotlight etc.

I have managed to grab a few days away in Northumberland for half term.

I do my plotting for my practice outside with my log burner on and a few decking beers, got a few fish for the barby as well today.

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20th Apr 2017 11:39

@Glennzy. Interesting thought that software costs for enhanced b/k are supplanting labour costs.

Continuation of a very long term trend I suppose.

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to Red Leader
20th Apr 2017 13:11

@redleader if I could go back in time I would develop one of these profit eroding tools.

I do a lot of work in hotel sector the likes of Booking.com charge 15% to 18% commission for every room. If your not on it your no where, in many instances they maybe make more from the hotel than those operating it. Normally you would increase your price to cover the commission however Booking.com drives price down not up as all your competitors are there side by side. I think there revenue is something like $80 billion and they don't own a single hotel bed.

Everyone pays by card there is another few % away in profit, the booking management system manages the booking automatically but charges 75p for every booking to software developer.

Obviously we can add the software costs onto our fees but I feel in a few time maybe 20% of our costs could be labour saving software.

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to Glennzy
20th Apr 2017 13:35

Carrying on tangentially, I recall that Rhodes in S Africa made money in diamonds by initially selling tools to diamond prospectors and then buying them up when they went bust.
Can't quite see Xero buying us lot, though.

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20th Apr 2017 23:27

@RL - I can almost hear you chuckling away and tutting 'I told you so..."

@Glennzy - touching on a comment you made on a thread about selling blocks of fees, streamlining and systemising work processes will make your practice very attractive to a purchaser (who is the right fit) when the time comes to sell.

A 1.2 multiple will probably be the minimum.

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