Adviser: Think ahead on IT spend

Growing practices can be limited by the capabilities of their IT infrastructure. Although the primary overhead in every firm is staffing costs, there is often a lack of awareness among partners that there is more to improving gross margins than raising chargeout rates.

Better planning, job scheduling, budgeting and efficient working methodologies have a vital role to play: using IT will enhance the productive capabilities of staff and may also be a substitute for labour.

In most independent firms, the majority of clients are smaller rather than larger, and the work is price sensitive. A key route to profitability is volume production. To negate any fee pressure, the staff allocated to this work should be those at the most junior level. The fee pressure will be offset through staff leverage and efficient use of IT, allowing the pricing to be more finely tuned.

Older partners, in particular, tend to be less comfortable with IT and the result is that many practices have yet to get to grips with the real benefits and are consequently over staffed.

There is a plethora of equipment and software now available, and on the face of it practitioners are spoilt for choice. Perhaps there is a feeling that, no matter what they buy, it will be outdated within a few months, requiring them to invest yet more money on the latest development.

Whatever the reason, a large number of independent firms have failed to take advantage of the opportunities that the right IT infrastructure can offer.

Outdated systems that are unequal to the task expected of them; a variety of accounts preparation, tax and other systems or software packages that do not communicate with each other; not enough thought given to fitting the IT systems to the firm’s requirements going forward; these are all major issues.

For growing firms, perhaps the most difficult aspect of IT is linking it to the business development strategy so that what works well today will also be relevant in three or four years’ time.

The aim must be to invest a bit more now in something that will adapt and grow with the increase in demand, rather than try and bolt on new bits on an ad hoc basis. There really is no substitute for getting it right at the outset – putting in place a sound and structured platform.

The key to success therefore lies in forward planning and in tailoring the IT infrastructure to the firm’s requirements – and this can never be beyond the firm’s budget. Partners must never make changes to their processes and working methods to fit someone else’s idea of how things should be done.

Instead they should invest in something that is not only closely allied to the firm’s strategic development strategy, but also has sufficient longevity and flexibility to deliver optimum results at every stage. Requirements will include power, flexibility, usability and the adaptability to suit the changing circumstances of the business. Adding value to both client services and practice management is vital.

Phil Shohet and Andrew Jenner are directors of Kato Consultancy