This article was first published in the October 2017 UK edition of Accounting and Business magazine.

Many accounting firms are getting left behind in realising their potential and understanding their business. Nowhere is this more apparent than in the area of digital accounting and clients’ growing expectations of service.  

Traditionally, practices have focused on a geographical catchment, targeting clients in and around a particular area. But digitalisation is making geography irrelevant, and a number of practices are finding it a restrictive rather than protective environment in which they can depend on the support of local clients. If the geographic mindset is swept away, a larger catchment area or even national coverage can be serviced from one office.

Practices need to define clearly the services they are offering and have definitive information about their clients. They need to match their in-house skills to those servicing requirements and, through clever use of analytics, understand what they can achieve across the practice for all clients.   

These analytics are critical and are becoming even more compelling with the advent of digital. In understanding the drivers, the profitability and your own practice, you need some in-depth client and service data, which is not necessarily readily available. This is strange because many accountants advise clients on their profitability, offering profit improvement and performance improvement advisory services, but fail to apply basic analytical skills to their own business.

Understand your priorities

The first phase of analytical work to carry out is the individual client profile, which raises questions such as:   

  • What services are being offered?
  • What is the menu-driven pricing for those services?
  • Are there opportunities to develop additional services for this client?
  • Is the client difficult?
  • What technical expertise is required to service the client?
  • Is the client price-sensitive?

The second phase is to understand the clients as a group within a sector, location hubs or those requiring specific service, such as non-domiciliary tax client services or specialist advisory services for agricultural clients.

The analysis needs to be dynamic. The information that we request on clients is quite often documented but not easily accessed, and usually some information has been retained at the manager or partner level.

Once this information has been obtained and assessed, you can form a particular view on your practice and then direct marketing and service activities in a more focused way. Practices are becoming more proactive, actually using this information, rather than reactive to whoever walks in through the door tomorrow.

The panel on the right suggests some of the information that might be included when documenting key points on clients and that may not be included as standard on a CRM system or indeed or on the actual client file.

The information generated from this analysis will help identify what types of service you can focus on and their pricing; this can be reviewed for individual clients, across groups and across the practice as a whole.  

These service analytics should deliver a profit at a certain level, at least after direct costs, on which you can form a view of your profit drivers and potential, either in terms of pricing, scalability or available chargeable time.

Acquisition policy

Practices looking to merge with or acquire other practices often know who they want to target and what they want to achieve but fail to look into the effects of incorporating that practice into the existing business. They rarely take into account the scalability of certain services and how the pricing of these reflects core and peripheral activities.    

Client portfolio profiling can address issues of underused resources or short-term seasonality pressures, as they are key in driving the bottom line and should feature in acquisition criteria.

As well as understanding what you are trying to build, you need to be clear on your practice objectives. Is the overriding objective purely annual profitability, or are you trying to build a client base that is going to be attractive to a larger firm should you wish to sell or merge at some future date?

Once you have a real grasp of profitability by client and by service, you need to start bringing in the new fees, and fast. So understanding your marketing approach is key. It might make most sense – for example, in the context of payroll services – to create a service bureau branch of your practice and free up your managers to go out and generate business that can then be devolved to that team. Outsourcing process-driven services is another option, potentially offering significant savings and higher profitability.

You also need to ensure you are targeting clients you can deliver for. Some can be very demanding in terms of the amount of market data they need their advisers to provide. Small, fast-growing business are often rigorous in their analysis and will withdraw their custom if advisers cannot produce the level of information they need in a timely fashion. So client profiling in your newly targeted market is key. By contrast, you might also want to drop existing clients who no longer match your newly identified service offering.

Unless accountants are armed with the analysis of their own business, they will lose out to the specialist providers. There is much at stake, and practitioners need to be aware of the fundamentals of their business and client profile. 

Know your clients

Key points to include in client profiles:

  • Turnover
  • Profitability
  • Opportunity to grow revenues
  • Resistance to annual price increases
  • Growth potential
  • Quality of accounting information
  • Services used
  • Invoice settlement record
  • Governance issues
  • Accountants’ in-house technical skills
  • Resistance to above-inflation increase in fees
  • Fee potential
  • Budgeting and forecasting processes
  • Potential services to sell into client
  • Business expanding, contracting, status quo
  • Client’s industry risks
  • Knowledge of succession plans or exit plans
  • Recognition of and payment for advisory work
  • Relationship with decision-makers within the client and key influencing office holders
  • Quality of quarterly reporting
  • Fees, chargeable time, recoveries by service.

Keith Underwood is managing director of Foulger Underwood Associates