Practice profitability: Expand your servicesby
John Stokdyk collects insights and advice for firms that want to offer higher value business advisory value work.
Wherever you turn, the message is loud and clear: Compliance work is drying up and what’s left is turning into a commodity.
Recent legislative changes have brought this trend into sharp focus. In the past year, 120,000 companies have been relieved of the requirement to have a statutory audit. According to the government’s latest estimates, companies will spend nearly £400m less on audit fees a year as a result. Then there’s the bright idea to let sole traders keep cash accounts for tax purposes and European proposals to simplify statutory reporting for micro-companies (below £578,830 turnover). All that represents a lot of potential lost work.
The logical response is for the profession to exploit its “trusted adviser” status to broaden its offerings and become indispensable to clients in new ways such as management accounting, wealth advice, succession planning & HR, business growth, technology and so un. But understanding the need for action and actually taking it are different things. This article will set out some steps to help get you started.
Why advisory services matter
Principa founder and Accountants Boot Camp veteran Ric Payne explained why firms should offer business advice: “If you really care about your clients and you can see that they are not achieving their full potential, then you will logically want to do something about it either by partnering with an advisory specialist or building that capability in house. As the saying goes – if you want to earn more you need to be more valuable.”
According to Payne, business advisory services rarely exceed 10% of the profession’s overall fees, opening huge opportunities where non-accountants may be providing these services, or indicating that clients are not aware they need them.
“They don’t know what they don’t know,” said Payne. “One of the things we know is that when firms implement an overt strategy of offering business advisory services, their compliance services increase. Even though it may not be coming from the same people, they end up with more compliance work and more business advisory work because of better positioning.”
Is offering business advice right for everyone?
AccountingWEB member ShirleyM has been paying attention to the experts, but as a “bog standard general practitioner” she confessed to some mystification in March about what added value services actually were. “What do you do… that isn’t part of your standard service and enables you to make additional charges for the consultancy services?” she asked.
Put it into practice
Lamont Pridmore, winner of the 2012 Practice Excellence Award for medium firms, benchmarks clients’ business performance against their competitors and offers a profit improvement service designed to increase their profits by up to 50%. The programme includes a minimum of four meetings or telephone conversations a year.
Survey data showed clients wanted more value-added services and lower rates for compliance work, so Lamont Pridmore reduced its compliance fees and concentrated on added-value services such as an outsourced finance director service, business consultancy and wealth management.
Over a three-year period, the firm increased its fee income by 71% and net profits by 23%. Compliance work increased 1% in the same period.
Graham Lamont explains: “What we're finding is in working with clients who improve profitability, it takes the pressure off the fee, because if they're profitable, and we're perceived to be making a difference to their underlying financial performance. They feel good about us and the fee's not a consideration.”
Source: Graham Lamont
“It could well be that I am providing these services anyway but haven't realised it… I struggle to see how I could obtain substantial new sales for the majority of my clients, and I could have only limited input regarding value of sales. Once you have got the client as profitable as possible, and any further growth would take them beyond their ambitions, what happens then?”
While ShirleyM looked for answers, taxhound viewed added value as marketing speak for “we are fabulous and do more than Joe Bloggs & Co down the road. Whether it is true and amounts to anything or not is another matter.”
Aside from the “gimmick” angle, other counter-arguments that crop up include the potential professional liabilities that could entrap inexperienced business advisers and the potential effect on their independence and integrity. But Payne has little time for what he views as excuses for rationalising inaction. “What about adding loss of opportunity when you don’t do it?” he responded.
How to make the first steps
For those who are keen to offer business advice, but don’t know where to start, Payne offers the same advice he would give to someone who wanted to be a good skier: “Start and practise. You’ll be amazed at the progress. Just do it - find a mentor, get some tools, invest some time in developing some expertise, design and implement a minimum viable service with a trusted client, gather feedback from that experience, make adjustments and keep the do-review-redo loop going.”
AVN founder Steve Pipe understands that making the shift to advisory services does pose a challenge for accountants. “They need to ensure they’ve got the competence to be comfortable and confident doing it,” he said.
“Thefirms who are most successful at root everything in the numbers. Rather than cling to the historian role, which we have to continue doing for statutory purposes, we should use our skills with numbers to ensure clients have right insights to make better decisions.”
“Decision-support is a core competence for accountants. Not only do we have a role in putting together measures, we also have a role in discussing and prioritising actions based on those insights.”
Identifying the right numbers, putting measures in place and monitoring them is a natural extension of accountancy work, “but too few accountants are doing it”, Pipe said.
“Don’t talk about consulting, talk about decision-support and action planning. That change in language makes a real difference.”
Moving on from looking at just P&Ls and cash flows to defining and reporting key performance indicators that drive the business really starts to create a new role, he added.
“Sitting down and using those numbers as a monthly agenda item for discussing what works and what doesn’t and using them to plan for the month ahead creates a template for the decision-support role. The bonds become stronger with the insights you give. And it’s recurring.”
A final piece of advice comes from the original “trusted adviser” guru himself, David Maister. Not long after he published his famous book, Maister told an AccountingWEB.com workshop in 2000 that you didn’t have to come across as a superhero to give good business advice.
“It's a teaching skill,” he said. “You must give options, give an education about those options (pros, cons, risks, costs) then suggest a preference, and let the client choose.
“The key is not what is logical. The key is ‘How does this person think?’ If you can understand that, you can lead them to (what you think is) the right answer.”
Where it can go wrong
One of the most common pitfalls for the budding business adviser typically happens when a practitioner reads a book or goes on a course and sees the light, but makes the mistake of thinking that excitement is enough to drive the change, according to Pipe.
“Trying to run before you can walk and going too far down the Superman/red underpants path and not rooting the advice firmly in what you already do are huge mistakes,” he said.
For many accountants there can be a credibility issue if they suddenly start talking a new language to clients. “They can be taken aback and sometimes simply don’t believe you can be that kind of accountant,” Pipe advised. If you are seen as a more traditional practice, don’t try to bridge the credibility gulf in one go, “take it bit by bit and root it in the numbers”, Pipe said.
The other trick in this situation is to cut your teeth with prospects.
“If it doesn’t work, then they’re just not a client and you won’t ruin a profitable relationship,” Pipe said. “They don’t have any preconception of what you’ve done historically done so you won’t have that credibility gap. You can try things out with prosepects and as you get better at it you can transfer that kind of knowledge to clients.
“And if you talk a good game, you may well get a lucrative new client - you might sound like a proactive advisory accountant they may not have encountered before, so you will have converted someone who’s looking for more than minimum fee compliance.”
Lessons from the 2013 Practice Excellence Awards
Responses to our survey this year of more than 3,700 clients shows that only around 40-50% of them are aware their accountants offer business planning services; around 50-60% know about management accounts services; and 17-45% wealth management. So there is a lot of room for growth in all of these areas.
But the availability of such services wasn’t a huge factor in overall client satisfaction. Improving this aspect of the firm’s performance - and ultimately its profitability - lies in how you present these services and match them to client needs. Or, in simpler terms, “making them feel special”.
Maister used some surprising terms to explain this concept. “The key traits of a trusted adviser are similar to being good at romance. You must care, listen, be sensitive to moods, on their side, worry about them as much as the problem, bring flowers on unexpected occasions (or whatever the gender-specific action is).
“What makes you go with someone for your legal affairs, consulting work, your childcare, your doctor? Someone who never sells, but just starts straight away serving you, saying, ‘Have you thought of this? Have you seen that? Let me send you something.’ You and I are much more likely to be disarmed by that than someone who says, ‘Let me tell you about my capabilities.’
“We go with those who earn our confidence by demonstrating, not those who hustle us.”
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