What’s the Right Growth Strategy for Your Firm?
In the third article of a series on how you can take the right steps to truly add value to your clients and transform your firm, author, CA and Founder of Spotlight Reporting Richard Francis goes into the specific types of growth plans your firm can explore and achieve.
His most recent article laid out how you decide on a growth strategy. Here, he maps out the kinds of growth you can choose from, specifically: Revenue, Profit and Value as well as what is involved in each path.
In crafting your firm’s growth strategy, you need to first think very carefully about the type of objectives you want to set.
All too often, there is an assumption that advisory practices are all about expansion growth; expansion in fees may not necessarily be a key priority for you, or it may be for just a defined stage of your business journey. Here are the growth paths you can choose for your practice:
1. Revenue Growth
Over the years I have had the privilege of advising a number of high-growth businesses. These days I still sit on a couple of Boards where growth is a recurring theme, as it is for Spotlight Reporting now that we are operating globally.
A common attribute of growth businesses is a conscious decision to grow. Growth expectations and methods are agreed, as is the type of growth that is required.
Four huge revenue growth opportunities (beyond the expansion of core services into advisory, that most of this book covers off) are:
- Word of mouth referrals
- Verticalization (or specialization); and
- Global engagements.
Whatever lens you look through, the best revenue is often sitting right under your nose. Clients who are already satisfied and engaged can have additional services sold to them more easily than it is to sell to prospects.
Upsell in the accounting context means offering an expansion of the same services; an additional meeting, more frequent Spotlight Reports, movement between one package of services to another. The addition of brand new services and/or the sale of advisory services in addition to existing base compliance will be possible for many of your clients, including businesses and family groups.
I recommend that you have a defined process to identify and action upsell opportunities. Bake it into firm, team and individual KPI’s too.
Word of mouth referrals
For accounting practices, it is easy to grow organically by referrals if you look after existing clients well. Don’t be afraid to ask clients for appropriate referrals proactively.
You can actively seed referral streams from banks, lawyers, financial advisors and even other accountants. Again, if you’re delivering value and a great customer experience, you’ll stand out from the crowd and grow the cadence of third-party referrals.
The risk of referrals is that you get addicted to a flow of new fees and your acceptance criteria can slip back to the old "a wallet plus heart-beat" criteria that many firms find acceptable. This doesn't necessarily seed the right type of growth, nor are random referrals a very filtered way of growing a client base that fits your new value-add model.
We specialized in ambitious start-ups, with a smattering of mature businesses of ambition as well. Other firms look to a more defined vertical and seek to grow expertise that is hard for others to replicate.
Carl Reader of d&t is one example. Carl has grown perhaps the most dynamic franchise consultancy in the UK and has also built out his personal profile so that he is now seen as a small business expert to a wide audience.
Peter Lalor, Managing Director of fast-growth advisory firm Blue Rock is another example. Peter and his team target exciting entrepreneurial businesses as their core dynamic, offering an advisory service mix that resonates with this ambitious and expertise-hungry market cohort. There are many other great examples in the industry.
The cloud and increasing connectedness between like-minded firms has led to an explosion of cross-border collaboration. Firms that can engage globally - utilising local professional expertise to lubricate the opportunity - are also able to scale as their more ambitious clients do too.
Paul Gardner of Fresh Accounting has a necessary international perspective given his location in that dynamic hub of global trade, Hong Kong. But Paul also travels frequently and networks extensively to ensure that he can take advantage of those multi-national opportunities.
2. Profit Growth
Surveys indicate that a large proportion of firms are under-achieving to their own profit expectations. Profit weakness can put pressure on investment opportunities, salary levels, capacity and resource deployment, leadership and staff work/life balance - not to mention an erosion of value.
- Sustainably profitable firms all seem to have many of the following attributes:
- A material component of higher value advisory services
- Strong processes and workflow management (they’ve “automated the grind”)
- Some degree of specialism or verticalization
- Value-based pricing - or at least a clear idea of pricing tiers and achievable margins
- Some outsourced or non-traditional resource deployment
- A focus on capturing value from ‘outlier’ services and projects (i.e. not falling into the ‘packaged service trap’ of not charging for additional requested work)
- Regular reviews of pricing and servicing (levels, methodology etc).
For profitable firms, the understanding that pricing is only a problem where value is weak is well understood. Staying profitable requires you to deliver on the promise of your value, consistently.
Practices that struggle to achieve decent salaries for staff and principals (let alone clear profit), are often caught in a spiral of over-servicing, under-charging and trying to be everything for everyone. Don’t be this accountant!
If you are wondering why you aren’t profitable - or are making less salary than you want to, look out for these common profit-killers:
- The wrong proportion of ‘premium’ value work vs lower value grind work that you do (it’s up to you to change the mix)
- Letting clients utilize your experience and expertise for free (the martyr complex is strong in our industry, as is timidness around charging for ‘extras’)
- Allowing WIP to sit on the books and never get charged (this can happen in time-sheet driven firms as well as value-chargers…where it can be obscured or ignored by poor capacity management and monitoring)
- Poor Debtor collection (this can to a certain extent be mitigated by monthly retainer pricing models, but many firms still expose themselves too much to poor client payment processes)
- Charging too little (i.e. not believing enough in your own value proposition or, the lamest excuse of all - “my clients won’t pay that much”; if clients won’t pay for the services provided, you have either chosen the wrong clients or have decided to be a non-profit organization)
- The cost base your practice operates with (how can you invest the time, thought and money to have better resource options, improved systems, flexible technology options etc.?)
3. Value Growth
Many accountants, particularly in the 45+ age-group are concerned about succession. They have every reason to be worried, as there are many distinctly ordinary accounting practices in the market with little inherent value to the entrepreneur-accountants now looking for careers of exceptionality or the acquisitive firms expecting secret sauce.
Accounting firms can focus on revenue growth to the detriment of actually generating additional value. More low quality, low margin and/or high churn fees is ultimately a poison chalice, not a desirable mix for either new Partners or potential acquirers.
Show Me the Opportunity
Desirable firms reflect their value in a number of tangible and intangible ways. We were approached by a number of firms over the years wishing to sell and have been able to assess the thorny issue of value and opportunity directly.
As a cloud advisory firm, we focused our due diligence across these 12 areas:
- Client mix and desirability
- ARPU now - and potential to grow via advisory services
- Pricing methodology
- Staff skill-set (technical and soft)
- Dependence on principal(s)
- Geographical reach
- Technology tool-set
- Systems and processes
- Brand presence;
- Relationships and partnerships; and
- Profitability opportunity.
Due diligence showed (and we don't think this is necessarily untypical) substantive weakness in a number of areas. We didn’t buy, deciding instead to build our own success step by step - a decision I’m grateful for every day.
Succession to the newer breed of accountant, or outright sale to an acquirer, is simply made more difficult if what you're offering is behind the times and compliance-heavy. What would someone doing due diligence say about your firm? Does it really have the value to prospective Directors or at trade sale that you would wish?
Advisory as Value Multiplier
Anecdotally, firms that have significant advisory fee streams command higher multiples. It makes sense that if you are able to demonstrate higher value workflows and clients, a progressive firm or future partner will see this as a better investment.
As you build out added-value work effectively and efficiently, you are more likely to grow revenue, profit and value simultaneously. If you can show a track record of advisory success, you should ultimately expect to command the kinds of multipliers that only the most progressive firms achieve.
This extract is part of a serialisation of Richard Francis CPA's new ebook Transform! - his accountant playbook for adding value and seizing opportunity in this exciting time of industry change. Richard is founder and CEO of Spotlight Reporting, an award-winning performance reporting and cash-flow forecasting toolset designed to empower accountants to have great client conversations and deliver real impact.
Richard’s next article will discuss Killer KPIs for you and your clients.