Senior Consultant Foulger Underwood
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Practice profitability
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Take charge of practice profitability

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Partners must get to grips with profitability, writes Phil Shohet. This means management of roles and processes.

27th Sep 2021
Senior Consultant Foulger Underwood
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The market for accountancy services has changed quite dramatically over the last few years. Not only are clients more demanding in terms of the range of advice they expect, but they are prepared to shop around for the best price. Increased competition in the marketplace has meant that many firms are struggling to maintain the levels of profitability that used to be the norm, and the situation is compounded by surrounding issues such as increased regulation and competition for high calibre staff.

Partners may have to rethink their own roles, particularly in relation to specialist work. The model should be to act as a pivotal introducer to whomever is undertaking the work - while retaining the prime ‘trusted adviser’ role. They must then carefully consider how the bulk of the standard or compliance work is undertaken and managed efficiently.

Margin(al) gains

Improving margins requires greater efficiency and attention to detail, with a well thought-out action plan involving everyone in the firm. It should include a clear distinction between compliance and advisory services, and the people who provide them. Different people concentrate on one or the other; with partners focusing on being the trusted adviser while staff manage and undertake processing and compliance work. Also consider:

  • Delegation of work to the most appropriate people is never undertaken to the level it really should. How much work does a partner undertake that could be dealt with appropriately by others in the firm? In our experience, 20/30% of the work done by partners could be done by a manager or more junior-level employee.
  • Lack of efficiency is also exacerbated where too-low fees are charged. Too often the price to the client does not reflect the quality of the advice that has been given and hence they do not perceive the value.
  • Benchmark to identify where profit is earned in the firm. In most firms, the partners don’t report profitability by service line, nor do they have a fix on which services are more profitable.
  • Budget more rigorously and actively to reduce time overruns, but ensure that the responsibility for why this happened is understood and, where they do occur, the client pays for them.
  • Improve staff training and IT proficiency; play to the strengths of everyone in the firm.

Factory processing

There is a further aspect to the profit improvement strategy for the busy practice, namely concentrating on improving fee recoveries. Although many fees produce a satisfactory recovery the question has to be asked about those that fail. Core compliance work is time-phased and should be more straightforward to budget for and control.

This does depend upon the partners and senior staff managing appropriately to ensure standards and efficiencies are maintained. Have the ‘managers’, as the title suggests, been trained in the people skills to run what is effectively a production line? Most managers are promoted according to their technical skills, not their people skills. But, the latter are essential if production is to be efficient and appropriate quality.

The description ‘factory processing’ may not be a term normally associated with accountancy practices, and doubtless few partners will be flattered if their firm is compared with an industrial unit.

But the fact remains: the majority of general practitioners’ work is process-led, with digitisation and automation a should play a key role in a firm’s operations. If the attitude towards it is to treat it like a production line then the results will not only be speedier and more efficient, but also more profitable.

Company directors and senior executives are seldom found operating the machinery on the factory floor and the situation in accountancy firms should be no different - delegation is the key. This requires that everyone involved should know exactly what they are trying to achieve:

  • Better fees
  • Greater efficiency on individual jobs
  • Improved job turnaround
  • Lower WIP
  • Better recoveries
  • Higher profits
  • A better service to clients through speed and efficiency
  • Partners and staff doing the right work at the correct level
  • Overall, a smarter and more efficient practice

Client control

To achieve all of this demands that everyone involved knows precisely what is expected of them and they follow procedures agreed for every job while monitoring the firm’s standards and quality control procedures. Controlling the workflow means the firm should be in charge, not the client.

Clients should be encouraged to produce their records at the firm’s convenience rather than their own, and all records should be checked for completeness before starting work.

Firms with problem clients that are incapable of delivering their records will need to consider strategies to ‘encourage punctuality’ - including doubling the fee if necessary to cover the inconvenience and extra workload.

Process planning

Maintaining a constant flow of work into the practice means that assignments can be planned in advance much more effectively, but it is in the allocation and supervision of work that the production line really comes into its own - partners and managers are only involved in a supervisory capacity except in the most dire emergency.

Internal deadlines should be set for every stage of the assignment and a system of checks and balances put inter place to ensure that these deadlines are achieved.

On completion of each assignment, if relevant, a meeting should be arranged with the client as soon as possible to approve the work and (if no payment on account agreement in place) the invoice submitted immediately thereafter.

The entire process should be tightly controlled with work planned between one and three months in advance, and weekly meetings to monitor progress and results. The mantra for everyone involved in the factory process should be ‘get it in, turn it round, get it out’.

Internal focus

Improving practice profitability is not simply a case of adding more fees (a mistaken belief that so many partners focus on). The secret is to concentrate on the internal organisation and administration of the work, coupled with a well thought out strategy for gaining new work, much of which will come from existing clients.

Unfortunately, the traditional organisation of an accountancy practice -each partner with his own portfolio, manager and either dedicated staff or access to a pool of staff -does not make for effective work processing.

Phil Shohet FCA is a senior consultant at Foulger Underwood.

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By Hugo Fair
27th Sep 2021 17:38

If you want to run 'a production line' then don't resource it with people - let alone those with any competence, professional expertise or personality.
To see the impact of applying mechanistic rules/measures to people-driven processes, you only have to look at Quality Standards - which inevitably result in a race to the bottom, as the standards being achieved become the lowest common denominator - used to re-calibrate the targets! Reductio ad absurdum. Heaven help the employees (and indeed the clients) of an employer following this mantra.

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