Supporting the revenue base

This is the second in a series of three articles in which 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. It is a truism that partners primarily concentrate on service to the client and making sure that the end product (set of accounts, tax return, etc) is delivered satisfactorily and produces an acceptable fee. But in terms of their own business, partners must also focus on the internal structures, checks and balances that allow them to do this. Indeed, 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 all are of paramount importance if the firm is to have an enviable reputation amongst clients and prospects. No business is immune from the rigours of the changing economic climate, and whereas in the pre-recession, more heady days many practices grew rapidly (as did their clients), equally many did so without regard to a sound financial infrastructure. The result now is that they are showing up many of the issues and problems that follow from poor planning and poor access to and control of management information. The prerequisite is that every firm needs strong principles of financial discipline, and all clients (even old established ones) need to be considered with a higher degree of sensitivity as to their ability to pay for the services that they consume. It is a hard world out there and a partner must not be at the end of the queue when it comes to payment. Look at the terms of business. Examine the quality of the client base, the size of their businesses, and the inherent risks therein so that the firm can ensure that the business relationship has been clearly laid down and that there is acceptance by the clients of the financial arrangements for billing and payment. Accountancy businesses cannot thrive without a stock of competent and technically sound fee earners who have the know-how to competently turn around the work, and ensure that it is billed and collected. Their efforts can be measured, controlled and improved, but this partly depends upon the sophistication of the management and financial control systems in place, including cash forecasting, time recording, and work in progress, credit ratings, credit control, funding the practice, and sources of capital. Modern practice management software is about much more than time recording and billing, even if the systems in place need to handle these basic tasks better than the old software or manual system. Managing partners responsible for managing change within the firm need a clear understanding of the benefits and improvements an investment in new software can offer. Time recording helps managers and partners to manage workflow by showing them who is doing what, for whom and for how long. To respond to the quickening pace of business, the practice needs to minimise the time between undertaking the work and banking the client’s cheque. The strength of the firm’s practice management software is in the “management” half of the name: such software now comes with a range of tools to enable partners to manage staff, manage client engagements and marketing, and help improve the firm’s productivity and effectiveness of internal systems. Any firm where the system is old should take a reality check. Daily or real time recording gives partners and managers better control over staff and jobs, enabling them to spot jobs going wrong and to bill work as soon as it is completed, rather than waiting until the end of the month for timesheets to be compiled and entered into the system. Much of the routine billing can be delegated, especially where fees have been agreed in advance, and front line staff can also assist in credit control and debt collection because the system can alert them to outstanding fees. The message continues that to ensure the firm’s revenue base is underpinned, all management and administration should be formalised, and even in the smallest practice the elements should be present (see Box 1). Box 1 The basics of management which ought to be expected in any firm include: 1. A defined structure showing who reports to whom. 2. Proper supervision of staff at all levels. 3. Effective channels of communication, upwards, downwards and from side to side, so that policy is quickly, clearly and succinctly communicated to staff and feedback reaches the top quickly. 4. Mechanisms for keeping clients informed of matters which may affect them and for dealing promptly with client complaints. 5. Recording decisions taken and methods to implement those decisions. 6. Procedures for alerting management to problem areas and ensuring that any necessary changes to policy or procedures are made as soon as possible. Furthermore, every managing partner, and indeed every partner, must be aware of and pay attention to the six golden rules of management information systems (see Box 2). Box 2 Information systems – the Golden Rules 1. IT systems do not of themselves improve productivity and profitability. 2. Beneath a certain level of investment, the technology is unlikely to provide any perceived benefits. 3. Computerisation brings intangible benefits in standardisation and imposed discipline. 4. Any attempt to take on too much technology without time commitment for training and development is unlikely to succeed. 5. The benefit should be based on need and not the other way around. 6. IT does not replace common sense and the ability to interpret and use information. Every firm should be seeking to attract and retain the best people. With the mobility evident in staff today, the exigencies of HR legislation, and the costs associated with recruitment and training, there must be a great emphasis on rewarding loyalty, hard work and success amongst staff. This will go some way towards ensuring that trained staff stay the distance and are retained, and also good new recruits are attracted. Managing partners generally have a business plan that they seek to follow, but frequently it lacks a vision, and yet every firm should have a vision of the future, not simply a set of targets, a cultural vision that is conveyed on a regular basis to staff and potential staff. It is no surprise that those firms who have adopted Investors in People or equivalent tend to have more contented and motivated people. Partners will need considerable leadership skills to provide the practical help essential for coaching and mentoring their staff. In addition to technical ability, they will require relationship, people management and leadership skills as well as broader knowledge of practice management and development. Turning this around, more emphasis in staff training should be devoted to these areas, and particularly the more senior the individual, the more the firm needs to contribute towards management training. Investing in their people pays dividends, and openness, honesty, respect and trust are vital elements in inspiring the workforce to greater achievements and having a sense of longevity. Regulation and compliance are the natural surrounds for an accountancy practice, and it is unusual to find that any quality control and policies for the following areas are not in place to a greater or lesser extent: o Independence. o Ethics. o Training. o Supervision. o Recruitment. o Staff appraisal. Internal procedures for monitoring compliance should be present and external procedures operated by the accountancy bodies and other service providers certainly are , but no firm can ever be complacent. The link is with client satisfaction (do the procedures ensure that the client receives the service right first time, on time and to an acceptable technical level?), and with profitability (do the procedures generate economies of scale, efficient and effective work production, to a profitable level?). The firm’s revenue base depends on its people applying themselves diligently. Over-arching everything we have covered so far is business risk, and we will take a further look at this in our final article covering the strategic framework in which the firm should operate. For the time being, though, Box 3 interlinks many of the things we have touched on governing the requirement for strong internal structures to support the revenue base. 

Box 3 Practice Risk Assessment – a concept map for a practice