Succeeding in stormy waters

If you had asked most small practices 12 months ago how they viewed the coming year most would have answered that they were busy, things were going tolerably well and dealing with the work load was not an issue. As we stand today the perspective has shifted enormously, and for some firms it has shifted more that they could have imagined. The movement in the economy and the impact on business has been remarkable. Partners are now freezing rates, imposing salary caps, pushing harder for cash and seeing fees and profits flatten out (or drop). There is no question that many partners are contemplating or have undertaken some of the “solutions” that were deemed to be appropriate in the recession of the early 1990s. Yet these “solutions” (cutting direct salary costs, cutting marketing and training in particular) are fire-fighting; partners then did not look up and look around and think ahead to the inevitable upturn, with the result that when the upturn did arrive they took another 9 to 12 months to be in a position to take advantage of it. Those other more prescient managing partners who had indeed laid their plans were well ahead of the game by that stage!

The message is: fire-fighting is all very well but be prepared, make sure you consider the best place to focus your services and business going forward, as the way practices fulfil client services and make a profit will undoubtedly experience change as a result of the current economic climate.

Indeed, the era of having a client for life is long gone. Frankly, partners cannot now practice without a well thought out business plan with achievable and realistic goals, one that has been properly costed and has a managing partner to keep it all on track. The precursor to any plan is to set and answer some specific questions (see Box 1). Too many firms do not see it this way though and struggle to maintain their position.

Box 1

SOME KEY BUSINESS PLANNING QUESTIONS

1. What is our core business?
2. What is our core market?
3. What resources do we need to penetrate that market?
4. What is our organisation now?
5. What external influencing factors do wee need to consider?
6. How does our existing operational structure work? How is it meant to work?
7. Does the operational structure meet operational requirements? What changes are needed to increase effectiveness?
8. What management is needed for the future?
9. What staffing level is the optimum level required? Do we need to recruit expertise?
10. Does our structure provide performance recognition?
11. What size do we wish to be? What will be the source of the necessary capital and income to meet our plans?

In this and future articles our aim is to help you to take a step back to consider the specifics of what needs planning, the changes to be effected so that not only do you thrive now, but in the future you will prosper from the changes and in a changed business environment.

A natural start point is recognising that clients seek four essential things from their accountant (see Box 2).

Box 2

WHAT CLIENTS SEEK

1. Compliance services.
2. Tax mitigation.
3. Wealth management/protection.
4. Consultancy/business advisory services.

Currently most practices are small practices having four or less partners, with the majority being sole practitioners, whose clients are predominantly small OMBs requiring predominantly compliance based services. This may be subject to change, but the traditional virtues of professionalism such as reliability, integrity and knowledge are as valuable today as they have ever been. On the other hand many of the working methods adopted over the years have become less relevant for today’s business climate. Firms should ask themselves which elements of tradition continue to benefit the practice, and which are an obstacle to progress.

Looking ahead, how will practices change in the future:

• Fees will be earned on the basis of value for money.
• Firms will be organised into specialist departments.
• Statutory requirements will become a smaller part of the firm’s work.
• More competition will come from outside the profession.
• The firm will be a provider of business services.

A large number of diversification opportunities exist for accountancy firms for which the level and extent is driven by the market that the firm wishes to service, and the entrepreneurialism of the partners. The firm’s service is promoted as partner led, but is more often than not partner delivered, a very important distinction. This creates an immediate problem as with partners undertaking a lot of coal-face work, and with their chargeable hours high and linked to their profitability, where is the time to sit back and think about the longer term and strategy – let alone effect plans?

Accountants have a responsibility to provide a full range of services to their clients, and clients should expect this assistance as a matter of course. The services should be tailored towards the clients’ needs and the partner must see that it is rendered to the client’s satisfaction. No firm can afford to make mistakes, appear unreliable or dilatory or indeed uninterested. However, a high proportion of smaller practices do not have a clear cut view on the profitability of the fees they derive from client services, or the extent to which the services are provided to the client base, and without this knowledge they lack the creativity that shows responsiveness to client needs.

Recognising revenue generation and the channels by which this can be achieved can be looked at from a fresh direction:
• Service lines: the partners must decide on the best and most appropriate means of delivering the services. Regulated areas (such as audit) require planning and scheduling of staff on and off site, working to an agreed timetable. There is little scope for enhancing the value of the service per se but some scope, as a by-product of the work, to identify areas of need and assistance by the need.
• Positioning and marketing focus: many firms have a view of their standing in the local community but have never realistically assessed how third parties see them in the market place. For example, location may generate a perception that the firm is small or generalist, a High Street practice, when the truth of the matter is that the firm has particular specialist or niche skills that if promoted would make it stand out and attract new and better clients and referrals. Not having a marketing plan or focused approach will mean that the firm reacts to prospects walking in off the street, rather than seeking to boost its fees by a well thought out attempt to get better quality work and fees.
• Managing relationships: all firms require a better understanding of who the key work referrers are locally and how they can be influenced to refer to the firm. Knowing someone is not the point; knowing what to say and how frequently is the point
• Client loyalty: service delivery on time and to the quoted price is essential as are proactive advice and value for money in the eye of the recipient. There is no substitute for the offer and provision of further services, with a relationship based on trust and value.

The quality of support for the ever changing revenue base of the firm, which includes IT, HR, finance and administration, legal support, compliance and regulation, etc. is of paramount importance if the firm is to have an enviable reputation amongst clients and prospects. We shall develop this theme in our next article.