In the first part of a series of articles, Surekha Aggarwal explains how accountants in practice can optimise their income, but they must make tough decisions.
When you’re running a practice, whether as a sole trader or as a partner in a larger firm, you can be very busy servicing clients but at the end of the day, does your fee income reflect the time and expertise you put in, or indeed the stress you take on?
In general, accountants are more focused on delivery of client work than they are on their own business management aspects. We love problem solving and tackling technical issues.
However, the market is changing as tech-based products turn the traditional work done by accountants into commodities. Clients tend to think of compliance work – accounts and tax – as a cost, not a benefit. Unsurprisingly, their focus is on minimising costs.
Accountants bring a wealth of experience gained across many different businesses and client situations, making their technical and commercial expertise of tremendous value. Even small incremental changes across a number of areas of your practice can add up to a significant impact on both revenue and profitability, as well as freeing up time for business development.
Think like a buyer. When you are shopping around for a service, sometimes you’ll go for the least cost option. But many other times you will want some feature or benefit because it’s of value to you. And you’ll be prepared to pay extra for it.
It’s not enough to simply justify your rates against the market norms. Understand the real value your services add to your client, and then communicate it in a way that the client gets it.
It’s easy to focus on the fee in a negotiation. Identify which non-financial factors will have an impact on the cost of servicing and therefore, profitability. Examples include: unrealistic deadlines, the client’s responsibility for delivery and quality of information.
Identify how much time your billing administration takes each month. Can you delegate? Do your processes need an overhaul? If your admin systems are inefficient, it’s potentially diverting you from chargeable work.
Secondly, client work can delay raising bills. Not only does this have a direct impact on cash flow, but the longer you delay getting invoices out, the weaker your hand will be if you need to recover overruns.
Sometimes, this is the most painful element of a client engagement. Collection cannot be an afterthought. Consider if it’s feasible to get staged payments to manage your exposure on larger engagements.
5. Client Quality
Do a rigorous and honest analysis of your client list to determine how profitable they are to service. As with many areas of life, the 80/20 rule applies. There will be a stub of unprofitable clients. Dare to let some of them go.
One justification for hanging on to them is that they contribute marginal income. Challenge yourself by identifying the opportunity cost: how could you use that time to grow more profitable lines of business?
This article was originally published on the London Accountant website.