In Practice
A Schizophrenic Profession! (?)
By Richard Walters
Feb 2, 2010 - 7:04:18 AM

Life used to be so simple!
 
As an accountant you prepared accounts – because no-one else could; you completed clients’ tax returns – because someone had to; you audited limited companies accounts – because that was the law.  You were always busy and all you had to do was multiply pay rates by three, turn the time-clock on and make sure you billed most of your time!  If you did these three simple things properly you were virtually guaranteed performance that adhered to the old rule of; one third direct costs, one third overheads and one third profits for the partners.

Before the 1980s marketing by accountants was banned and as a result you didn’t need to excel, just be diligent, honest, hard-working  and reasonably accurate, and all would be well.  The worst that could happen was that business people disliked the time-clock, but lived with it and let’s face it, they had no choice. ‘Nasty’ people like John Cleese did mock us for being boring, but we had the last laugh – you always needed an accountant!  No sign of any schizophrenia and life in practice was simple and virtually unchanging.

Taking a strategic and commercial perspective of the immediate past, we have enjoyed the ultimate beneficial market conditions:

1. A built-in need for our services – businesses had to have our compliance services.

2. A virtual monopoly – in reality, qualified accountants were the only sensible choice.

3. A profitable business model – which was simply based upon effective recovery of time.

Using a genuinely commercial metaphor such as that of an engineering client; we produced widgets that no-one else could, that people had to have and where we engineers controlled the price of widgets.  All we had to do was invoice for the hours each machine ran and produce widgets in a professional manner.  Continuing this metaphor: We were a highly efficient commodity and supply production facility.

These market conditions have been under threat for a while and although changes in the market have been highlighted by industry commentators for some years now, the 2008/09 recession might just have been the tipping point for real change.

In my experience of advising accountancy firms on their strategic development and growth plans, it is very rare for a practice to have key performance statistics available for the average length of stay of clients. Why would this be the case considering that this measurement is a very important key performance factor?  The answer is that for most firms their average length of stay of their clients was a very significant number of years, often between 7 and 10 years and therefore fairly irrelevant when assessing practice value and performance.  Clients didn’t readily change accountants and in fact you probably had to do something wrong in the client’s view, and possibly on more than one occasion, for them to leave you.  However, anecdotal evidence suggests this client ‘average stay’ statistic is dropping and fairly rapidly.  I suspect in due course it may well reach a level that many other industries have to accept and in fact are very happy with, at between 3 and 5 years.  With an average length of stay of clients of 5 years, this would mean we would need to regenerate our client base at the rate of 20% per annum or alternatively increase average client spend by 20% each year.  If you have 500 business clients that would mean you would need 100 new clients each year, just to stand still!

This is a frightening thought isn’t it? However, the reality will probably be that change is incremental and replacement growth can be gained by a mixture of both new clients and increasing average clients’ annual fees spend.

This change to our business model is inevitable and is being driven by:

• Technology – the preparation of financial statements is becoming simply a technological process and the use of online tax returns is a growing trend
• Audit regulations – although auditing is becoming a niche specialist service and its value is rising, the ever increasing small company threshold means less and less companies need an audit
• Competition – clients are extremely cost conscious and the lessons of the credit crunch will not be forgotten for some time.  Everyone is fighting for clients with small firms chasing medium sized firm’s clients, medium sized firms chasing large firm’s clients and even large firms wanting medium sized firm’s clients. However, competition is not just driven by pricing pressures and because of the most-recent recession and other factors we will see the building of a highly competitive market

If you haven’t already, I suggest you have a good look at the UK’s Revenue and Customs’ online tax return facility. You will find it’s impressive and very easy to understand.  TurboTax in the USA now have tens of millions of online clients and in working with my American practice clients I have noticed a change in their attitude to TurboTax as a source of competition.  Originally they said, “They aren’t competition, it’s only for small cases.”  This then evolved to, “They still don’t steal clients but they have brought clients’ perception of the value of a tax return down, and thus created fee pressures.”  The latest view seems to be, “Some good clients now use TurboTax and get us to check the calculations and this is a worrying trend.”

When it comes to advisory work, all manner of other industries want to steal from the profession our current status as, The Most Trusted Advisor.  Speaking to a number of partners in medium-sized firms it is clear that they now see organisations such as Action International and Shirlaws as their main competition rather than other accountants.  Once the business coach is ensconced as the client’s Most Trusted Advisor your firm will only remain tax accountant and auditor whilst it suits them - not you!  Before too long you are likely to hear from clients, the business coach induces dreaded phrase, “We feel we need to look at our accountancy fees and therefore this year could you please provide us with a formal quotation?”  A business model that relies upon pricing rather than a client’s perceived value of your input will always be less profitable for you.

In all the past surveys carried out with Owner Managed Businesses the accountancy profession comes top as the client’s Most Trusted Advisor.  Why has this been the case?  Dealing with peoples’ money requires high levels of confidentiality and thus trust and with some very rare exceptions, for 150 years we have delivered our services, confidentiality, professionally and with integrity. We earned our status as Most Trusted Advisor.

Because of the demands of an industry that was production line led, but required high levels of integrity, our profession quite understandably attracted people who had the following strong behavioural traits:

• Pragmatic, sometimes verging on cynical
• Data-focused
• Logical
• Open to learning new skills
• Steady and reliable
• Honourable

All of these traits, other than probably cynicism, are sound business attributes, although to compete in the future we will need to extend our skill sets and approaches to adapt to fresh demands.  The good news is that we don’t need to become red hot overbearing sales people; in fact the excellent news is we just need to focus upon and refine some latent skills we have already developed.  The skill that is at the core of maintaining our position as Most Trusted Advisor is client engagement.  The key to establishing our position as The Most Trusted Advisor is control over the client relationship.  This in turn offers the following benefits:

• Retaining clients because you are the Most Trusted Advisor
  
• Increasing client spend because you are actively engaging with clients and their wants, not just needs.  They will sometimes let you know when they have a need but you usually have to establish a want
  
• Gaining new client referrals from clients who you are actively engaged with and of course, greater client contact in mist occassions equals greater fees

Research of Owner Managed Businsses often shows two of their top wants from their advisors are:

1. To really understand them and their business.
2. To be proactive.

Being proactive doesn’t mean dealing with things promptly; it means being seen to engage with their wants and needs.  A ten minute, off-the-cuff telephone advisory chat doesn’t count.  The danger in thislazy approach is firstly that the client doesn’t value this loose style of advice and secondly that there is no record of your advice, which is very risky indeed.

Therefore, our industry’s market position has changed significantly from a production process delivering professional time, to that of The Most Trusted Advisor who markets time, a subtle but important shift.  As a result our imbedded past business model we seem to face the following current challenges:

• The traditional skill sets and behavioural traits that drew people to the profession require enhancement and addition
• Time recording needs to be less a pricing and charging system, but rather a job-costing system
• Our key performance monitoring systems need to now measure key data such as client profiling, client contact, client numbers and average spend, business development conversion rates, referral rates and average client retention times
• Our firm’s reward and thus power and status structures currently tend to encourage portfolio ownership and discourage leverage and unnecessary client contact.  We tend to encourage harvesters rather than rain-makers and of course any successful business needs both.  The key question to answer appears, “Where is the real value to the firm and thus where should the power, reward and status be focused?”
• We say we are business advisors but when our clients are surveyed they very often say they don’t see it that way at all, even though that’s what they want from us.  Many firms now call themselves ‘Accountants and Business Advisors’, but we need to be seen to be engaging as advisors not just say we do this, and make this a reality not a claim

Despite these challenges I believe there are five strong reasons for us to have real hope for the future:

1. Our trustworthiness is proven and other industries have yet to prove theirs.
2. We do care about our clients and genuinely want what is best for them.
3. We have significant broad-based commercial acumen.
4. We like learning new skills.
5. We own strong existing client bases.

The obvious answer to avoid any element of schizophrenia between who we were and who we now need to be, is to focus upon the Five Reasons to Have Real Hope and deal with the threats and maximise on the opportunities that are developing.  The solution is as simple as effective and active client engagement, because this is something we can do well and allows us to be - who we really are!

This might involve a change in attitude in many firms where client engagement is currently often seen as a necessary evil but now needs to be an integral part of a firm’s culture and processes.  This will involve implementing processes to dedicate time, resource and skill training and focus upon regular, visible and proactive client engagement.

Many firms have dealt with recessionary pressures by laying people off, in some cases 10% to 20% of the workforce and you sometimes hear firms talking about “Falling-back upon our core services”.  If driven by external pressures our schizophrenia is not to build, then perhaps we should rather fall-back upon the core benefits of our client base and implement effective client engagement.

Of course we will still be offering the following services but the positioning will be different:

• Assurance
  
• Tax
  
• Business Advisory
  
• Wealth Generation

This may involve some subtle changes to our business model, reward structures, key performance management, business structures and culture; and of course in every single situation, subtle change is considerably more comfortable than forced and dramatic change.

Richard Walters is author & innovator for the Complete Advisory Solution Toolkit. This suite of Planning tools assists practices:-

• Retain existing clients through proactive engagement
• Increase annual spend of existing clients
• Gain new Clients
• Assist their Clients to sustain & build for the future

For more information please contact Micheal O'Neill of OmniPro on 01 4110000 or moneill@omnipro.ie.  Visit www.omnipro.ie for more information.

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