Exploring how you can increase your revenue per client with some easy to take revenue generating steps. Not only will you generate greater fees you will also be delighting your clients with your expertise and knowledge.
For as many years as I can recall accountancy firm owners have been advised that as compliance is becoming driven by technology, the way forward is to develop a range of advisory services. Yet, despite this there has not been the expected growth as advocated. Why is this and how can your firm maximise this opportunity?
The English Institute published a Consultation document in 1997 entitled “Added Value Professionals – Chartered Accountants in 2005”.
That document reported that:
“The broad skills and experience of Chartered Accountants make them ideally placed to provide management consultancy services. In a relatively fragmented and essentially unregulated market, they also have the advantages of an existing client base and a reputation for integrity and value. Consultancy and advisory services will continue to grow in importance, expanding from traditional financial and business planning into wider issues of business effectiveness and on to leading-edge areas such as re-engineering and corporate transformation. Some, at least, of the major firms will challenge the strategic consultancies.
At the same time niche opportunities will open up for smaller operators. And the business advice traditionally offered by practising accountants will be an increasingly important value-added service, although it will not necessarily be badged as consultancy.”
The report then continued with a warning:
“The low barriers to entry for business advice will also encourage other competitors, including banks and, to a much lesser extent, solicitors. We believe that the small firms who have risen to the challenge of adding value will be well-placed to build the long-term relationships needed to overcome these competitive threats. We are concerned, however, about the failure of many small firms to train enough staff to carry out the value-added work that is so vital to their success. If this trend continues, many of the most successful small firms of the future will be comprised of accountants trained in large firms and offering specialist services in areas such as corporate finance and litigation support to clients of all sizes.”
Key Point: The opportunities identified in this report have, by and large, not been taken advantage of. But, the marketplace is now more ready than ever to seek out real time business advice from their accountants.
Key Fact: Inter firm surveys report that revenue from advisory services is generally less than 5% of annual revenues.
The Rule of Fee Flexibility – Forward to Basics
Broadly stated this rule informs us that clients have a financial relationship with accountants that is determined by the quantum of the costs they incur for their compliance services. Thus if the annual compliance cost is ‘X’ then the rule further informs us that provided we can demonstrate and deliver value then, the client will have a budget of between 50-70% of ‘X’. The client is highly unlikely to be prepared to pay 1.5X because that is outside the scope of their financial boundaries which the compliance cost has established. As with any rule you may well be able to envisage exceptions – but going down this route takes us away from focussing on the opportunities afforded by the rule.
Key Questions: In a 12 month period what time do you capture that relates to advice or service beyond compliance work? Importantly, what revenue do you generate? Please only include in your calculation specific amounts as shown on your invoice for advisory work.
These are important questions which I would like to unpack.
At this point please know I am not going to advance the view that you are not giving business advice, rather that it is not being ‘sold’ in a way that entitles you to charge separately and according to value. I have no doubt that you respond to clients need for advice but equally, without knowing you and your firm, I am going to suggest that you are falling way way short of billing anywhere near 10% of ‘X,’ let alone 50%.
The nature of advisory services compared to compliance
By their very nature advisory services look at the present and future whereas compliance looks at the past – that is the focus is on our role as providing, certifying and/or submitting historical data.
Processes. Compliance work is replete with standard processes that take the engagement from beginning to end using software and standard procedures. Advisory services tend to be one offs with little opportunity for standard processes, systems or procedures.
Risk. The risks attendant to compliance work are insurable through indemnity insurance. The risk with advisory is that you might lose the client if you do not meet the client’s expectations.
Comfort zone. Compliance is our bread and butter. We understand what we are doing, how to do it and what results are expected. Advisory generally has few standard processes and those that do exist might need adapting. That is the general nature of advisory. Some international consulting firms have no systems – just an open computer/notebook from which they record answers to their questions.
Busyness. Most firms I know have adequate work levels. In fact most firms have been busier than ever and struggle to cope with client demands – especially with the onset of the pandemic. By and large accountants ‘love’ compliance – the more the better. It is not every accountant that feels that they have the time to deliver an advisory service.
Competency. Our competency levels for compliance work our high – that is what we are trained to do and we [hopefully] do it well. Training for advisory is less common and the question is often asked, “where do I start?” On a recent webinar, Jim from Los Angeles posted this question in the zoom chat box, “Where do I go for training?” In my succeeding blogs I will seek to answer Jim’s question.
Initial [sales/engagement] meeting and engagement letters
Many accountants admit that their initial meeting primarily focuses on serving the client needs. This is also the case with the [Institute prescribed] engagement letter. Why unsettle the client by introducing services other than those they are immediately seeking?
Let’s take a look at many firm’s approach to business advisory
Of course, as standard, you give clients business advice – it is what all accountants do. But consider this – the normal approach is to either make an enquiry or two of the client or to provide ad hoc answers to questions from your client. This is normal and regarded by most accountants as an integral component of the compliance service. It is the embodiment of the ‘trusted business advisor.’
The wording on your invoice may well reflect your service by describing this as ‘sundry advice.’
It may well be that your ability to advise and the wisdom and expertise you impart is what enables the client to be satisfied with your service. In other words you (1) do well with the compliance service, (2) reassure the client that they are not paying any more tax than is absolutely necessary and (3) provide answers and solutions to problems.
But, we have not really earned any of the revenues that could be regarded as generated from the rule of fee flexibility. There is yet further revenues that can be generated. We will deep dive further in my next advisory services blog.
If you have any questions, do please let me know – mark@marklloydbottom.com
