PRACTICE - Making money is the real objective

I always find it surprising that the part of our profession engaged in providing services to the public is described as ‘being in practice’.

I know it’s an unfortunate play on words, but I would really rather not be thought to be practising. I think I’m doing this for real.

It’s voguish to look to the future as the millennium approaches. The English ICA has issued its 2005 report. Recently, Accountancy Age reported the findings of a survey on the future of small firms. Its conclusion was that the provision of value-added services was the key to firms’ survival and success. No one could disagree with such an analysis. But how many firms are really meeting that objective? Too few, I fear.

Take one example. Fifty per cent of all audit registered firms are not registered to conduct investment business. How is it possible to provide a service to an audit client without undertaking corporate finance activities? Are those firms not servicing their clients unaware of their shortcoming, or are they just not doing it for real?

Take another example. Most practicing firms have partners who work at least 50-hour weeks and take no more than four weeks’ holiday a year.

The majority charge for their services by the hour and charge no more than 1,200 hours a year to clients. Almost 50% of their time is wasted, given away, or used doing administration, marketing or menial jobs to which others are better suited than they. Why?

What you can be sure of is they’re not managing their firms in the rest of that time. If this were the case, the average firm would not have combined debt and work in progress amounting to about eight months. Some are much worse.

I once advised a firm of solicitors where the practice accountant had an average of 2.5 years’ fees outstanding at any time. Hardly surprising it had little to offer the lawyers in the way of advice on how to make money. Also unsurprising is that the accountants have since ceased to trade.

Understanding business

My point is that if you’re not managing your own business, how can you tell someone else what they should do?

If you’re only practising, it’s unlikely you’ll be in any position to offer good advice. You have got to be in business for real to understand what it is like.

Value added is about making money while giving an extra and higher level of service to the client. There are lots of suggestions as to how an accountant can best achieve this.

Some suggest the future is in tax planning, others argue for financial services or information technology.

But I prefer the basics.

Most firms of accountants primarily serve the business community. And while making money is not everything that business is about, it should be higher on the list of priorities than tax, pensions and computers.

Without cash, the others are irrelevant.

The most important service an accountancy firm can provide to its clients is to tell them how they can make money. It doesn’t matter whether the client turns over £10,000 or £10m. If you, or someone else in your firm, are their accountant, you should be able to increase the amount they make, before tax.

And the client should know it. Because they will pay more for that advice than for anything else.

Knowing your strengths

But you can’t do this unless you can do it for yourself. You must know what work you are good at, who you want to work with, how much you want to make, and when you want to be paid. You have to understand what makes you money, and then try to do those things well, and often. And you have to know when things aren’t working, for either you or your client, and how to put either right. And, most importantly, you have to know when to say ‘no’, or (even) ‘it’s time to go home’.

It is, therefore, quite extraordinary that in the whole value-added debate the importance of providing sound advice on making money has been ignored, and the need for accountants to learn how to do it has been swamped in the desire to diversify our interests. Isn’t it time we ‘got back to basics’ and dealt with this, or are we going to carry on practising until someone else proves they can do it better, and for real?

Richard Murphy is senior partner with Murphy Deeks Nolan chartered accountants