Accountants are now consistently giving out a message that the main constraint on growth and increased profitability is the difficulty in recruiting competent staff.
In the past, the biggest difficulty that firms faced was generating profitable new work and so personally I take the latest statements with a pinch of salt since, in my experience, very few practices find generating new business that easy.
Having said that, if one can accept the principle, looked at coldly, if you cannot get work done due to lack of resource then the best thing to do is to increase resource. If that is impossible then the next step has to be to reduce volume of output - ie sack clients.
Assuming that you have 10% overcapacity, the theoretical solution to all of your troubles must be to ascertain which are the bottom 10% of clients, ie those that generate the smallest profits, and politely ask them to take their business elsewhere. In this way you will immediately boost profits and quite possibly reduce hassle, since the least profitable clients are frequently also the most awkward.
This proposition does the rounds at most accountants on a regular basis but few have the courage to grasp the nettle and write to the undesirables saying goodbye.
One way of softening the blow might be to enter into an informal agreement with a smaller practice (or regional office), which can service your unprofitable clients with a lower cost base. In that way, everybody might be happy. As a quid pro quo, the recipient might not be able to offer some services that your practice can and may happily pass across discrete projects.
There is another alternative. My spies at AccountingWEB’s Practice Excellence Conference inform me that one of the speakers was advocating a 100% increase in fees for clients that are only of marginal benefit. Clearly, if the clients double the fees then they become worth knowing. More realistically most will depart without too much rancour. However, what they say about you behind your back may not be quite so friendly and could influence the actions of existing and prospective clients so take care.
I love the theory that sacking clients is a universal panacea. However, real life is not always like this. First of all, pretty much every firm with which I have worked has been neurotic about losing clients and can always see the benefit in keeping almost all of them. Recently, I was part of a massive exercise to retain a client where recovery rates struggled to hit 30%, even on valuable strategic projects where one would not normally expect to be discounting rates at all. It goes without saying that everybody involved in the project was moaning about the ability to recruit enough staff to get the current level of work carried out on a timely basis.
Over the years, my best clients have often been those that started out slowly and could not afford to pay decent fees in the early days. In addition, building strong, lasting relationships with clients is the way to optimise your business in the long term, since happy clients will refer you to their friends, ensuring solid future growth.
The other risk is that if you sack the bottom 10%, another 10% leave of their own volition for an assortment of reasons at which point you are only running at 90% of capacity. I have no doubt that many readers will blithely conclude that this will give them time to bring in lots of new clients. In the current economic climate, that may will be a possibility but as an experienced accountant who has seen far too many recessions and dips in trading, I would not want to stake my house on it.