Reinvigorate your practice

It is an interesting time in the world of the accountancy practice – an exciting environment to operate in, very demanding and with new opportunities.

Covid has been a trigger driving fundamental change. Organic growth in client portfolios has generated higher fees in many parts of the world, and this has created a critical resource shortfall.

A pinch point has emerged with the recent surge in inflation leading to an increase in salaries, alongside a desire to expand staffing numbers to cope with the extra work required for existing clients. First Intuition’s 2022 salary guide finds that the pay of newly qualified accountants in the UK, for example, has gone up 6.8% compared with a year earlier.

With inflation and potentially reduced margins, practices are analysing their clients to look at margins, and identifying a new client profile.

Client base review

Over the past six months, firms of all sizes have been re-evaluating their client lists and taking action. Many smaller practices are considering where the value is, trying to gain a better understanding of their client bases and identifying those that generate the premium margins.

Low-margin clients need to be priced into acceptable returns or packaged for sale to even smaller practices. More clients on the books does not necessarily mean more profit. In fact, in many cases, the wrong pricing or type of client can erode profits.

Larger firms have been moving clients on, selling client blocks, or shifting service lines to maintain a core client focus. When rehomed to a smaller, more personable firm, the clients may receive more attention than they did before. It’s a win-win.

A close re-evaluation of your client list may not be a quick or easy process, but it can prove hugely effective and have a broad impact. Understanding who your best clients are (those that combine the highest fees with good margins and fit your team’s abilities) just makes good business sense. As does moving on those with little or no margin – ie clients who take up more time and energy than they are worth. A firm’s profits are usually generated by 40% of its client portfolio; the 60% for various reasons tend to erode the high-margin 40%.

Undertaking this exercise will also help you understand which clients aren’t being charged enough – it’s a thorny consideration that requires careful client management, particularly in terms of demonstrating your value to them. However, many would argue that the guidance and support offered through lockdowns and subsequent periods (and with uncertain times ahead) will have bought your firm a lot of goodwill.

Resource squeeze

Many smaller practices that have taken on much more work in the past few years have found it difficult to maintain a high level of client servicing. Remote working has forced partners to become more hands-on: they have had to help by piling through low-value tax returns and accounts. This, though, removes them from providing services or managing clients at the higher end, lowering the practice’s profit margin.

Hiring people is extremely difficult and so the margin becomes further eroded because, in an employees’ market, candidates demand a higher wage, particularly if they have too much work to undertake. In the UK, for example, although salary increases may be 7%, a new recruit may see a differential of 10%–12% in a like-for-like replacement. Embedding a new senior was recently costed at £40,000 – and that doesn’t take salary into account.

This resource squeeze is another reason why you might have to consider the structure of your client base. Removing problem clients and low contributors can lead to a happier workforce, and one where the more senior members of the team can focus on providing a better service to the most valuable clients – re-establishing the profit margin (and helping you afford salary rises and bonuses as required).

In addition, a more positive, happier and well-remunerated workforce will mean you retain employees for longer.

Loyalty

While some firms bemoan measuring the success of training and development – particularly as so many newly-qualifieds then move on – developing people engenders loyalty and is less expensive than recruiting.

Some recruiters believe job-hopping is more than just a fad, with a large tranche of the workforce happy to move year on year. Conversely, employees are more likely to stick around for the medium or long term if their skills and career are being developed.

More training means better-skilled and more engaged employees, and better retention means they become more proficient in their existing roles.

What else engenders loyalty? It’s not just pay and new job roles. Setting out a clear direction of travel for the firm – its ‘mission’, its culture and core values. The ‘vision’ can go a long way and help employees feel they belong.

But if you are reconsidering which clients you choose to serve, how you serve them and – ultimately – how you make a good profit – then it will help if you involve your people in that discussion. Even if they’re not directly influencing the decisions, communicate to them what you’re looking to achieve.

In short, understanding what clients you want and articulating that to your staff will make you more profitable and help keep your staff happy and motivated.