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What Should a Practice Advisor Do? – Part 2

May 30th 2018
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In Part 1 of our Choose Your Own Adventure series, the majority of readers selected Option 1 for our practice leaders Max and Rebecca: 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.

This is a good option and one that many firms of a similar size to Horizons would enjoy as it allows the owners to refocus on their original strategy without the financial pressure to have to take on clients that are not a good fit. However, before proceeding with this option, we would recommend that Max and Rebecca revisit their goals.

We find that most accountants are motivated by goals, although often they struggle to articulate them. We would walk partners through a process to consider the relative importance of the following goals across various time frames:

Revenue A bigger business can help stabilize the business, attract bigger clients, attract capable employees, grow the reputation / status, lead to bigger profits, and make the business more interesting to acquirers
Profit Profit can be distributed to owners and paid in bonuses to the team.  It can also be reinvested into the business to generate growth
Capacity This refers to your efficiency.  If you are maximizing user of your resources, your capacity is perfect.  If your team could produce more, your capacity can be improved
Community Your reason for being in business may be somewhat driven by a goal to contribute or give back to your community or leave a legacy
Lifestyle Some owners are unhappy because they want to work less (and do other things).  Others are unhappy because they want to do different things in the business (e.g. focus more on client management and less on administration)
Succession You may consider a change in ownership of your business, e.g. selling to a third-party investor, a management buy-out, transferring ownership to a family member, liquidating the business

Upon completing the above exercise, it transpires that Max’s primary focus for the next three years is revenue growth - but revenue of the right sort. This aligns with the original business plan.

To his surprise, however, Rebecca reveals that the news from Jagger was the final straw for her and she has decided that she wants to exit the partnership. Rebecca’s news completely blindsides Max. He realizes that as the business grew, everyone had become incredibly busy, especially Rebecca with her heavy commitment to the Jagger account.

Max also reflects that he has not spent the time to check in with Rebecca to make sure that she’s doing OK and now, out of the blue, comes the news that the firm could be falling apart. Following an intense discussion, Rebecca confirms that her mind will not be changed, but she gives Max the courtesy of a two-year time frame.

Her husband has been promoted in his job (another fact Max had been oblivious too) and she has calculated that his salary plus, say, $50,000 a year of private work from Rebecca will satisfy their financial needs. In saying that, she is keen to realize $750,000 for her 50 percent share of the firm.

The partners have heard that accounting firms similar to theirs are selling for approximately 80c in the dollar. To achieve her desired valuation, the firm would need revenue of approximately $1.875M. Some number crunching reveals that to achieve this result over a two year period would require 20% growth in each year. Stretching, but achievable.

The partners now see three options:

  1. Progressively visit each business client and offer additional services. There are 280 clients, but the partners assume that a maximum of 150 might be receptive to new services. At an average fee for additional services of $500 per month, the firm would need to convert approximately 100 by the end of the two month period
  2. Invest $30,000 with a marketing consultant to attract new clients. The partners calculate that approximately 2.5 new clients a month on average at a typical ‘A’ class client fee would achieve the desired result
  3. Make a small acquisition which has presented itself in a timely manner. A friend of Max’s Dad is retiring and has a fee base of approximately $500,000.

How would you advise Max and Rebecca? Submit your suggestion below!


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.



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