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What Should a Practice Advisor Do? – Part 1

May 11th 2018
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Welcome adventurers! Have you ever wondered what those 'practice advisors' actually do when they get inside a practice? Well here's your chance to try your hand at being one!

We've teamed up with Panalitix to create a realistic firm going through some challenging times and we need your input to help them out.  Read the story and vote for which option you think our characters should choose - and then tune in for episode two to find out which option won out and how it all pans out. Choose wisely!

Max Draper and Rebecca Elliott started Horizons Accountants and Business Advisors in 2010 in Midtown, Illinois. They had previously worked together in a Big 4 firm in Chicago but were disillusioned with the culture of the office they worked in.

One evening, having drinks after work, Rebecca said to Max, ‘I don’t want to end up like the partners in this firm, working 80 hours a week and having an internal competition to see who can leave the office the latest.’ Max agreed and within six months they had left to start their own business.

Horizons was established to provide a boutique alternative to clients searching for professional help to improve their businesses. Max and Rebecca had a clear vision of what their ideal client looked like - a business owner with goals to grow their business prepared to pay a premium for external advice. However, like many young accountants starting their own firm, they needed to put bread on the table and so, understandably, they took all comers in the early days to build a client base.

Fast forward eight years. Horizons has revenue of $1.6M. Rebecca and Max remain the only partners and they have a team of five accountants and three administrators serving some 280 clients.

An analysis of the client base shows that approximately 15% of the client base would fulfill the criteria of an ‘ideal client.’ The rest are predominantly clients that use the firm for compliance services and the odd ad-hoc project. Many of them are perceived to be price sensitive and the firm suffers from poor cash flow because of clients dragging their feet on payment.

One of the clients, Jagger Components, has been with the firm since the very early days. Rebecca had worked closely with Jagger over the years to help them grow their business. With her help, they have evolved from a local operation to an enterprise serving markets around the world. This client is precisely the sort of client Rebecca and Max had in mind when they started Horizons.

The firm invoiced Jagger $190,000 in 2017 and expects the fee to continue to grow. It takes a huge amount of Rebecca’s time (last year, she charged 817 hours to Jagger) but she enjoys the work and considers it to be very profitable.

In 2016, sensing heavy dependence on Rebecca from Jagger and a couple of other strategically important clients, Max recommended hiring an experienced manager to reduce reliance on the partners for the delivery of high-level work. Rebecca agreed and they brought Vanessa Burns on board.

Over the 18 months Vanessa has worked with Horizons, she has proven to be a first-rate addition to the team. Clients love her and Max and Rebecca have freely delegated high-level work for some important clients to her.

The firm has just come out of busy season in reasonable shape. The team worked exceptionally hard and the partners are keen to get some clarity on the plan for the rest of the year. Then, two emails turned their world upside down.

Email 1 from the CEO of Jagger Components says:

Dear Rebecca

I am writing out of courtesy to let you know that we have decided to change accountants. We have very much enjoyed working with you over the years but unfortunately, the fees have simply become too high for us and we’ve been able to secure a quote for the same services at half the price we paid you last year. May I take this opportunity to thank you for your assistance and wish you all the best for the future.

Email 2 from Vanessa Burns says:

Hi Max and Rebecca

It is with regret that I am resigning my position at Horizons with immediate effect. I have decided to start my own firm. I would like to thank you for the opportunity you have provided me. It has been a lot of fun.

Best wishes for the future.

Within a week, the firm was notified that four clients that Vanessa had been working on were leaving to join her at her new firm. Max had the lawyers check out the non-compete clause in her contract but the advice was that the clause was not enforceable. The total annual fees for those four clients was approximately $110,000.

To add insult to injury, Horizons’ best accountant, Ryan, had also handed in his notice to join Vanessa. Rebecca and Max were distraught.

Within a week, they had lost $300,000 in fees (close to 20% of their total revenue) and their best two team members. They felt as though everything they had worked for over eight years was crumbling around them. 

As they considered their plans, Rebecca heard from an insider at Jagger that if she matched the quote from the other accountant, the firm would almost certainly keep the client. The condition was that Rebecca would need to continue as the prime deliverer of the work.

Given the circumstances, they saw three options:

  1. Agree to do Jagger’s work for $95,000 and hire a new manager to help Max out
  2. Walk away from Jagger and go back to the original business plan and only work with clients who fit the firm’s purpose - they are businesses with a desire to grow and work with a progressive accounting firm to help them do so
  3. Scale back the business by making two people redundant, hence maintaining prior levels of profitability.

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Choose Your Own Accounting Adventure is a collaboration between AccountingWEB and Panalitix to provide a glimpse into the kinds of challenges they face with their clients' firms every day.  Panalitix is dedicated to helping small firms through the strategic changes required to run a modern and profitable firm.