PracticeAccounting FirmsAdviser: don’t starve the cash cow

Adviser: don't starve the cash cow

Offering an extra service is all very well - but don't forget about the core products that are the basis of your business.

At a time when the focus is on providing added-value services that will impact on clients’ business development, ‘production line’ services such as accounts preparation, personal tax, payroll and management accounts can be very low on the priority list for development. But such bureau services can be a real cash cow for certain types of practices.

Having set up the factory to turn out small-ticket work, why not expand it by attracting more of the same? If the economies of scale are right, the returns in profit terms could be very lucrative. High-profile consultancy services may attract higher fee levels, but getting the money in can take a long time.

The majority of bureau services generate a monthly revenue flow. And with so many practitioners experiencing problems with debtors and work in progress, a reliable source of income and profit could help to iron out any hiccups in the firm’s cash flow situation.

And even though bureau work might not be very glamorous, the more services you can sell to a client, the harder it is for them to take their business elsewhere.

So which firms are best placed to take advantage of the opportunities offered by bureau services?

Geography obviously plays a part, as the lower the overheads then the more competitive the pricing can be while still generating a reasonable profit. Firms in high-cost areas will, therefore, struggle to maintain a reasonable profit, while their colleagues in rural areas can take advantage of reduced premises and labour costs. Thanks to modern technology, clients can be drawn from all around the country so there is no need to be close to them.

Marketing bureau services also allows firms to compete for business with much larger practices. These services are all very price sensitive and most independent practices can offer a far more competitive pricing structure than national firms, whose charge-out rates are often dictated or influenced by head office. Small firms can therefore target much larger companies than they might normally consider as clients.

For slightly larger practices, looking to grow and develop more added-value services, taking on just one aspect of a large company’s outsourcing requirements will undoubtedly offer opportunities to promote higher value services. Payroll, for example, can provide a route to more lucrative work in the financial services sector.

Another important advantage to bureau services is that, while contributing to the profitability of the partnership, they are also businesses of value in their own right. Indeed, some firms give their bureaux a completely different identity. If expediency dictates, they can be sold off to fund development in other areas or smooth partners’ exit routes.

While there is competition from traditional bureaux, the broader range of expertise that firms can provide will give them the edge. For a great many practitioners they could offer the key to greater profitability.

Phil Shohet and Andrew Jenner are directors of Kato Consultancy

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