The Greatest Challenge in Accounting Profession
What is the greatest challenge in Accounting profession?
Continuously evolving technology? Ever growing complexity in regulations? Competition? Fee pressures? Staffing challenges? Succession issues? Relevancy? Changing client expectations? Indeed, these are challenges, but what is the greatest challenge in Accounting profession?
“How do I grow my practice without the expensive investment that I need for growth?”
Have you ever thought so? Surprisingly, the greatest challenge in the Accounting profession is NOT the capital.
What, then, is the greatest challenge in Accounting profession?
“Resources” is the critical difference between a large firm and a small practice. But even resources are NOT the greatest challenge for Accounting firms.
What, then, is the greatest challenge in Accounting profession?
Let’s begin from the beginning.
The moment you start your practice, you focus on getting your first client and some more.
Your focus is on getting clients.
When you get client/s, you start doing the work. You and your staff get more and more busy. Your focus changes to doing and delivering work. But, you can only add so much before overtime and stress start to disillusion you and your staff. You start to squeeze out as much as you can out from your existing resources. Before you know, it starts hurting the quality of your work; and your life.
Your focus, now, is to (produce and) deliver work.
Let’s say the next prospect you meet with has needs 60 hours of work a month. And right now, all your staff is already overworked and overwhelmed.
So where will these 60 hours come from? Or do you just let this growth pass by?
You want to maintain your high-quality standards. You want to protect the quality of your (and your staff’s) life. So you need to buy/rent extra office space and office infrastructure. And of course, hire new, competent staff. You hire a new employee and add 160 extra hours of capacity per month. Considering internal management overhead, you might hope to have 140 billable hours from this new employee. Let’s say you get revenue of $ 2,400 from this new client. You pay your new employee, say, $ 4,000 a month. (including overhead, payroll taxes, benefits, vacation, health insurance etc.) And not to forget your own time cost to review the work – which means your own revenue generating hours actually reduce!
So, you need to have at least 3-4 new, large enough clients to make this new employee profitable for your firm.
Can your marketing get 4 new clients within a month? Every month?
Isn’t that what you want to do to grow your practice?
But do you just HOPE to quickly get enough new clients AFTER you invest in resources?
Ironically, growth does not mean you are now making more money. Growth actually means first your costs go up. The new business from the new clients is almost always not enough to meet the extra cost outgo.
Incremental growth in the number of clients never matches the exponential, immediate increase in costs to service that growth. You will almost always be out-of-pocket when you grow. What a paradox!
Information publicly available indicates that nearly 70% of accounting firms have less than 5 employees. And 95% firms have less than 19 employees. It is the growth paradox that has resulted in this fact for the profession.
You have to allow extra cash flow out for months before you get enough clients to offset it. The other choice is to burn out yourself and your staff hoping to reach a break-even point for the growth you want.
And at the same time, you need to keep yourself up-to-date and up-to-speed. With the technological, regulatory and competitive transformations happening in the profession. Add to that the generational behavioral differences, and expectations. The millennials will form a majority of your clients and staff in the immediate to short term future. Creating a “fit” with their expectations is a huge challenge.
Where is your focus now?
Does that sound familiar?
Can you now guess what is the greatest challenge in Accounting profession?
The greatest challenge in Accounting profession is “FOCUS”.
Rather – the lack of adequate FOCUS. Focus on things that bring in the best returns on your time, efforts and money invested.
Smaller the practice, greater the challenge of focus.
Without focus, you can FEEL like you are accomplishing a lot. But, in reality, you may not be accomplishing anything more than just creating a job for yourself. Lack of adequate resources changes your focus to “survival”. You just want to somehow “sustain”. Your focus is miles away from “growth” (and from “creating wealth”).
Several surveys reveal the top reasons why clients leave accountants. Common reasons? Either it is because the accountant did not understand the clients’ business. Or it is because the accountant did not return calls! To be knowledgeable and to be proactive and responsive, you need quality time on your hand.
Remember, your new prospect is always worried if you have enough time to give the personal attention he/she desires.
If you feel you are not able to focus in things that matter, what can you do? To “fuel the growth”, your immediate need is to regain your focus.
Investment required to create extra capacity before signing new clients makes your “marketing” stressful. You may end up burning precious cash. Do you think your marketing is a great performer, right now?
Fortunately, you have better choices.
Buy revenue from some other accountant or tax preparer who is retiring or relocating or has no capacity to serve more clients. It makes sense to marketing investment you will need the revenue you are buying. Of course, you will need some upfront cash to shell out to buy these clients. It may not be necessary to make 100% payment upfront.The returns (can) start from day one. The caveat? Most likely, the clients are loyal to that “person” and not “the firm”. If that person “moves out”, (some of the) clients will likely move out too. So you will need to retain this person to be the “client relationship manager” of your “larger” firm.
– or collective power. Many medium-sized firms leverage a collective power of common resources. A firm with seven partners may actually have separate “books of business” for each partner. The firm size looks “bigger”. The number of types of services offered can be larger. And all that helps attract more and diverse clients to the firm. Again, it’s because clients “feel” that you (the collective firm) have the resources to give enough time and attention to them.
You can “rent” extra capacity at much lower costs than yours. It’s called “shared services” (just like your clients “share” your resources). From the same $ 2400, you can actually save a profit when you use shared services. Common wisdom says it’s called “outsourcing”. Actually, it should be called “out-resourcing” your competitors to outcompete them. Take a look at some of the real outcomes firms like you have achieved using this strategy. A majority of top 100 firms do it. Your clients do it – they outsource to you!
Remember – the clients buy “YOU”. Clients do not come to you because your firm has accounting/tax software, building, computers and physical assets. Yes, you need to have the resources but do you really need to own those resources? Or is it that you need to be able to sell the outcomes produced by those resources?
If your resources are producing less than 75% billable outcomes from their 100% time you are paying for, you definitely want to think of a strategic shift to regain focus.
If your resources are fully utilized and yet you are struggling to make a decent profit, you definitely want to think of a strategic shift to regain focus.
How will you overcome the greatest challenge in Accounting profession?
Pransform helps you FOCUS. Contact us now to learn how we can help you take home more.