This article was first published in the November/December 2013 Ireland edition of Accounting and Business magazine.
When the economy started its downward curve, many accountancy firms felt they were in a good place, and indeed firms’ results in 2008 seemed to bear that out. Yet how many managing partners predicted the extent to which the market would fall and, more pertinently, had a well-thought-out route to sustaining profitability and remaining competitive?
Partners typically regarded steady as she goes and not rocking the boat as the norm in a downturn and failed to maintain investment in marketing, business development, training and IT. Their firms now lack competitiveness and face stalled profitability in a market where price constraints abound, service demands are higher and clients exhibit more desire to move elsewhere.
Planning and a degree of innovation are important elements in turning this situation around, and strategic thinking will help enable improvements. Partners cannot be complacent – one of the greatest dangers is assuming that all that is needed is more of the same.
Those who are not already planning ahead are likely to suffer as a consequence.
The keys to unlocking future competitiveness are not hidden away and there is much a firm can do to improve its performance. British Cycling is a good example: its success came from a ‘marginal gains’ approach, as coach Dave Brailsford explained: ‘If you break everything down that goes into riding a bike, and then improve it all by 1%, you will get a significant increase when you put it all together.’
The recognition that there is always room for improvement, that there is strategy and execution of that strategy (with the basics in place), along with discipline and determination to succeed, was British Cycling’s route to success and applies equally to accountancy firms.
What this means is providing services that customers are prepared to pay for, adopting low-cost methods of production, and ensuring efficient organisation. Doing this gives partners the chance to introduce new services, improve working methods and adopt efficient organisational structures.
The size of a firm does not affect its efficiency, but many firms underperform because of their operational structure. This does not mean that a firm’s size, structure and operations will need to radically change if they are to become more competitive. Better organisation can maximise productivity with minimum wasted effort or expense.
Accountancy practices are fortunate to have GRF (gross recurring fees); for most this year-on-year annuity is 80% or more of turnover.
The imperative is to manage compliance and regulation, to invest in technology to reduce costs and increase efficiency, and to improve recruitment and retention policies (finding and keeping the best people for the roles). These three things must be combined through an operational production line that ensures the right person for the job, right methodology for the work, right skill sets trained into staff and improved use of IT to deliver the finished product. The leverage this brings is vital because leverage (and the ability to delegate, which leverage provides) is a key to profitability.
Firms outside the top 60 cannot be all things to all men; a focus on a more limited range of services or sectors at which the firm is good and for which it is known, and with better use of their relatively scarce resources, is likely to be a more sensible and successful way forward in the longer term. Organising to provide clients with the advice and service that they now require, at an acceptable price and with an emphasis on fast turnaround and service, has to be the route forward for a profitable business. In 2012 one small firm set out to reduce turnaround time for the average job – by the end of the year that time was down from eight weeks to five.
The core services of audit and accountancy, business and personal tax, and business support (management accounts, write-up, payroll, company secretarial) are supplemented by business advice, tax planning and corporate finance. Think of that 80% GRF: who should be dealing with the production of this work and how best can it be organised for quick turnaround at reasonable technical proficiency?
The answer to the first question is ‘staff, not partners’, and to the second is ‘by adopting a divisional approach with the right skills applied to the type of work’.
Setting up a production line with an operations manager at the helm fully utilises staff and gives them the responsibility and incentive to perform. It is not rocket science, but it does need application and persistence.
Moving to lower-cost methods of production puts the emphasis on questioning productivity levels. Some partners may not wish to become more productive by adapting their role to be less hands-on and more advisory. Their comfort zone may not extend to this, with the result that it may not be possible to profitably deliver the lower cost and value-for-money services that clients want. But the key questions are simple:
- What should partners and staff do more of, less of, better or differently?
- Will all partners go the extra mile?
- Are all partners putting more effort into effective business development (rather than expecting work to be given to them on a plate by others)?
- Are all partners trying to develop new and enhanced skills to enable the firm to better compete?
- Are partners effectively measuring performance so they can plan productivity profitably?
Gains come from listening to clients, asking how they are being looked after, the services they will want in the future, how they want them delivered and what they are prepared to pay. If partners ask, they will get positive feedback; without this, they will always be at a disadvantage. The same applies to listening to feedback from prospective clients, and those who refer work. What clients really want is a good job done at a reasonable price and to feel involved with a partner who focuses on the future for their affairs rather than dwells on the past.
Listening enables a firm to look critically at all services it provides and to consider whether there will be a profitable market for that work in the future. This provides a basis for realistic consideration of what the firm must do to get into shape and build long-term business. Armed with the knowledge of what clients and the market are going to require, a firm is in a better position to take a realistic look at itself and to answer the question: ‘What kind of practice do we need to become if we are to successfully compete in the future?’
Where the views of some partners may not be aligned with what clients are telling the firm they want, then a reappraisal of ‘what it takes to succeed at this firm’ may be called for. Otherwise the firm is unlikely to gain the competitive edge it is seeking.
Andrew Jenner FCCA and Phil Shohet FCCA are directors, Kato Consultancy