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Practice Tip: Can you be all things to all people?

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24th Feb 2005
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I've suggested recently that if you're serious about planning your practice you should assess all your people to make sure they're doing the right job. And one commentator in that article rightly anticipated that I'd also suggest you should assess all your clients. I'd agree. If you want to increase your profits for the effort you expend, and more importantly, if you want to enjoy what you do, then this task is just about essential.

It's an almost universally acknowledged truth that 20% of clients in any business provide 80% of the profits. I would add that 20% provide 80% of the grief, and I suspect there is almost no overlap between these who provide the profit and those who provide the grief.

But it's not just these facts that makes it worth looking at your client base and wondering whether they are the right people for you to deal with. If you want to do work you enjoy you have to decide what gives you that satisfaction and then work out whether the clients you have are providing you with that work. And since it's just not possible to enjoy all aspects of accountancy practice everyone must have some work they just don't want to do. Amongst the smaller practitioners I know I can think of people who won't do book-keeping, payroll, VAT, limited companies, charities, trusts, tax, offshore, financial services and more. All cover that part of the work by knowing others who will cover the job for them (sometimes, of course, they are called partners ' but not all of us ant them).

So, you now have three groups of clients:
1. those who pay well;
2. those who pay acceptably;
3. those who cause grief and at most pay acceptably;

and two categories of work:
1. that you like
2. that you don't like.

It would seem easy to now rank the clients. Well, almost, because whilst deciding what work you like and don't like is relatively easy, deciding who pays well and who does not is not so easy. I know it's controversial, but I've got to say it; you can't do this job without time records. I don't care if you don't use them to raise your bills, the scarcest resource in any accounting firm is that of skilled staff (and of partners in particular) so unless you can work out the ratio of fees earned to time expended by grade of staff you simply do not have the necessary information to rate your clients by who is making you most profit.

And if you have this data you might be shocked. Most likely it's your biggest fees who are amongst your least profitable. They can bargain the most with you. You're most frightened of losing them. The quite common result is low recovery rates.

And equally surprisingly, if you've got your systems working well small jobs can be very profitable, especially if they take little partner input.

The point is this, size of fee is no guide in this game. You have to use data.

And when you've got it, you then have to be ruthless. A cull of clients is always liberating. I did my most recent one at the end of January to coincide with the close of the tax season. And almost immediately it made me realise some work I had wanted to do, but could not see how I had the time to take on was now a possibility. The gap I created my getting rid of some clients where the relationship was simply not working anymore has created some really exciting new possibilities.

I'm busting a gut as a result right now to keep the new clients happy. But it's worth it. The work is challenging, fun and should be acceptably profitable. Which means it meets both my criteria for an acceptable client and a good life in practice.

I suggest it's worth doing the same. Not least because if you chose what you want to do you'll become an expert in it. And then you can charge more for it. And then people will believe you're good at it and will ask you to do more of it. And that's a quite rewarding virtuous circle!

Richard Murphy
[email protected]
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. In addition to accounting, writing and lecturing Richard develops and markets software tools and guides to help accountants in practice systematise their operations.

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