In Part 2 of our Choose Your Own Adventure series, the most popular selection was Option 1: progressively visit each business client and offer additional services.
You’ll recall that 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 clients by the end of the two-month period.
It was a close result, much closer than that for Part 1. This is a good option but it comes with some risk. Specifically:
- We know the partners are time poor and this is a numbers game. To achieve the additional revenue required based on new work from existing clients alone is a big bet to place. If the partners cannot get to all 280 clients because of time pressure, the expected revenue will fall. Of course, they might decide NOT to visit all 280, making a judgment call on the ‘hot’ prospects and targeting them first
- The forecast conversion rate, 100 clients out of 150 considered receptive to buying something additional, is 67 percent. That’s pretty aggressive. Do Max and Rebecca have the sales skills needed to close over one out of two of their clients on a new project? This is unknown. It’s our experience that a conversion rate of closer to 40 percent is the likely outcome. Some sales training might be needed to set up this strategy for success.
- What are they going to sell? It’s one thing to visit a client but another to have something to sell! This is a product development challenge and they would be well advised to get some clarity on what they might sell to their clients as well as figure out how they can articulate that in terms of the benefits to the client.
- How are they going to deliver the new work? If it’s advisory services, it may simply create more work for the partners, which then eats into sales time and creates yet another problem.
So, after much consideration, Max and Rebecca conclude that given the two-year deadline imposed by Rebecca, they simply don’t have a long enough runway to succeed with this strategy. It’s with that in mind they decide to pursue the small firm on the market, owned by a friend of Max’s Dad.
They quickly conduct due diligence and discover the following facts:
- The fee base is $508,000
- 95 percent of that revenue is compliance based
- The firm has one partner (retiring), a senior accountant, a part-time graduate accountant and an administrative support person. The senior accountant has advised that she will be retiring when the partner exits.
- There are 238 client groups in the client base, meaning the average fee per client is $2,134.
- The average age of the clients is 56.
- The firm lost 27 clients in the past 12 months (approximately $50,000 in fees) and gained just three new ones.
- There is no marketing happening in the business.
- Prices haven’t been increased for five years.
Rebecca and Max also establish the following facts during the due diligence process:
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- The partner charged 1,500 billable hours in the past 12 months. It’s Max and Rebecca’s view that at least 1,200 of those hours can be taken on by their own team, meaning they are not saddled with significant extra work themselves.
- The internal systems are disorganized and inconsistent and the partners believe that efficiency gains of around about 20 percent are easily achievable.
- The average hourly rate recovered in the firm is just $106. This is very low relative to their own number of close to $200. They determine that it can be increased to close to $150 in the first instance by increasing prices by 10 percent and the efficiency gains referred to above.
- Upon analyzing the client base, they determine that there are 20-30 clients that operate decent businesses but those clients have never been offered business advisory services by the firm. They are quietly confident that they could find an additional $50,000 in fees in that segment of the client base
- They can bring the remaining team into their office and close down the old firm’s office, which is just two miles from where they are situated, hence saving some costs.
- Importantly, they discover that one of their competitors is also interested and the word on the street is that they are prepared to pay $500,000 for the firm to get a quick deal done.
|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.|
About Colin Dunn
Colin is Chief Innovation Officer at Panalitix, a cloud software company that helps analyse and monitor clients’ financial status all on one real-time dashboard. He is also a Chartered Accountant with 20 years’ experience in helping accountants develop and implement strategies to build better businesses.