Until you own a business, you don’t quite realise how personal it is and how competitive it makes you.
For owners of small accounting firms looking at their bigger local rivals with five times or more clients than they have, it’s OK to occasionally think that “it must be nice to be in their shoes”.
But before you feel tempted to punish yourself because they might be a better businessperson or a better accountant than you, you need to look a little closer, with respect.
Headache or hangover from hell?
Having 200 clients gives you and your team an occasional headache especially as year ends, period ends, and Self Assessments loom closely on the horizon.
As the owner of your company, the responsibility rests on your shoulders to make sure that you and your team get through the workload in time saving your clients as much money as possible.
Management of other staff is difficult at the best of times. And in the worst of times when the pressure is really on, management of staff under stress prone to occasionally emotionality because of that stress would challenge even the most patient and wise of us.
The owners of larger local rivals with significantly higher client headcounts than your firm go through what you go through to a much greater degree.
If having 200 clients is an occasional headache then having 1,000 clients is the worst and most persistent hangover imaginable.
“Ah”, you might say, “but the guy/girl running the practice with 1,000 clients has five times the number of staff I have so they’ll be able to cope”.
This is a fair point but you must also remember that the management stresses you feel at pinch points during the year will be greatly magnified for them.
In addition, it’s a truism that the more number of people you employ, the less influence and control you have over each of them individually.
So, for owners of large accounting firms looking at their small local rivals with a fifth of the number of clients to deal with than they have, it’s OK for them to occasionally think “why the hell did I let it get to this size?”
Your size is your greatest strength
It’s the greatest strength for you because, although you feel the pressure, it’s not always overwhelming.
For your staff, there are probably less clients to deal with per head than at your larger local rivals. They don’t realise that they’ve actually got it pretty good in comparison and, later on in this article, I’m going to suggest a way to make their lives and your life a little easier.
Your customers also benefit from dealing with you personally. Your practice, as it is now, will face many of the same issues and challenges as your clients’ businesses.
This gives you something in common with clients – this is important because people buy from people they like and they buy from people like them. In other words, to them, you’re just like them.
This gives you a competitive advantage over your bigger local rivals where client accounts are much more likely to be handled by someone without the experience of running a business or working for a smaller business.
Now how do you take advantage of this so that you, your staff, and your clients benefit?
Turnover is vanity, profit is sanity
Your bigger local rivals’ turnover figures will look meaty and impressive but the people who own these practices will pay a heavy physical and emotional price for this measure of “success”.
If you’ve ever helped a client sell their business and you’re helping them through the due diligence process, you know, the buyer knows, and the buyer’s accountant knows that turnover is important but not in the way that the seller of a business thinks it is.
For a buyer, the turnover of a company they wish to purchase gives them an indication of how much extra profit and value they can squeeze out of a business after they’ve bought it and re-organised it.
The seller will not get the price they want or believe they deserve for two reasons:
- in the mind of the buyer, the seller has run it poorly and
- the buyer has to spend his or her own time and money on putting it right.
Likewise, an accounting practice with 1,000 clients making the equivalent of £250 a year net profit from each client is intrinsically worth less than an accounting practice with 200 clients making the equivalent of £1,250 a year net profit from each client.
Despite both companies making the same net profit, the buyer of the smaller practice is taking over a much better run, well-organised money generating machine whose processes are probably much more automated and efficient and which requires less management time or post-purchase investment.
The smaller business is much more likely to have chased profit than chased turnover during its development.
Not only is that the type of accounting practice someone would want to buy but it’s also the type of accounting practice which is much more pleasant and enjoyable to run.
So how do you turn your current accounting practice into one which is much more profitable, much more pleasant to run, where the staff are happier, and where you can sell add-on services to appreciative clients?
Accounting is a process so make the process as simple as possible
Because the general operating rules of accounting are so well-established and because, when working on clients’ accounts, we’re also following clear rules set down by HMRC and Companies House, our day to day work, although mentally challenging, is not particularly innovative.
If all of the entries in a client’s financial record are properly recorded and attributed, we can’t save our clients any more in the tax they pay than our local rivals, whether they are large or small.
To prepare a client’s accounts and the year ends/period ends, you and your colleagues need to perform hundreds or sometimes thousands of relatively simple tasks over a given period of time.
In many accounting practices, this process of undertaking these hundreds or thousands of relatively simple tasks takes place in the two to three months coming up to year end, period end, or Self Assessment. By taking this approach, the eight to twelve weeks prior to the 31st of January is hell for many small accountancy practice owners and their colleagues.
But what if those tasks were much more evenly spread over the course of 12 months using the financial information recorded on Xero?
If you and your colleagues logged into each account once a month to check on how each client’s business was faring and how well they were keeping their financial records, you’d be able to spot many of the issues which cause such stress when submission dates are approaching.
If there was a particular issue – too many unreconciled transactions, low cash balances, clients’ customers taking too long to pay them – you or your colleagues could alert your client.
Not only will that mean that there’s a better chance that your clients’ bookkeeping will actually be usable but also your client is more than likely unaware that there is a problem.
One of clients’ major issues with their accountants is a lack of contact.
A monthly mini-audit gives your practice a reason to get in touch with your clients to let them know how they’re doing. Take each of these opportunities to learn something new about the client and their personal & professional financial ambitions.
If, following multiple contacts from you or your staff, the client does not mend their ways regarding the standard and/or frequency of their financial recordkeeping, let them know that, to continue with your services, they have to allow your bookkeeper in once a month or once a fortnight (for an additional fee) or that you will be unable to service them.
It’s unfair on you, your staff, and your other clients if one particular client takes up a great deal more time than is necessary and your practice is not being compensated fairly for it.
This is your business – it’s your practice. You decide which clients you take on, you decide the terms and conditions of trade, and you decide what is acceptable behaviour from clients and what isn’t.
The Hindsight app is built for just this
I realise that, with the way in which many smaller accounting practices organise their days, the idea of a monthly short audit of each client’s account will seem almost impossible to fit into your existing schedule let alone the support call you make after.
However, when clients know what is expected of them and you share with them the reason why things need to be done in the way you prescribe, the workload for you and your staff actually decreases rapidly because clients now have the confidence to do what you’re asking them and they can see the value in it.
The Hindsight plug-in for Xero is something which my team and I have been working on for 18 months.
It’s the tool I wish I had when I ran a small accounting practice. Every morning, it automatically logs into each client’s Xero account and runs a series of insights. You can either choose to go with the generic insights for a client or customise in your own (we’re on hand to help you do that if you need us to).
When you and your staff open up, it presents these annotated insights to you and your colleagues – you can assign insights to team members by task, by client, or both. Along with the insights, Hindsight will provide guidance on what to say to each client in each situation.
You’ll find that, within weeks, the workload on you and your colleagues will be smooth rather than lumpy at particular periods of the year.
Your staff will enjoy work with much of the pressure off and, for junior accountants, the ability to assign certain tasks to them is the equivalent of learning on the job and this exposure to different responsibilities will make them and your more senior members of staff more agile in times of extreme pressure.
And for you, the accounting practice owner, you have the benefit of retaining many more of your existing clients through enhanced communications and the ability through your deeper relationships with them and the extra time you have during the working well to sell on additional services.