PracticeAccounting FirmsAdviser: No margin for error

Adviser: No margin for error

As competition in the marketplace hots up, greater efficiency and planning are key to improving your firm's margins.

The market for professional accountancy services has changed dramatically. Not only are clients far more demanding in terms of the range of advice they expect, but they are also prepared to shop around for the best price. Increased competition has meant that many firms are struggling to maintain the levels of profitability that used to be the norm.

These changes mean that firms must make a more conscious effort to improve their profitability through better administration and organisation of basic management functions, work planning and financial control. Partners may also have to rethink their own roles, particularly in relation to specialist work. Increasingly, they will be acting as a pivotal introducer to whoever is undertaking the work whilst retaining the trusted adviser role.

Improving margins requires greater efficiency and attention to detail with a well thought out action plan involving everyone within the firm. It should include a clear distinction between compliance and advisory services, their organisation and the people who provide them. It’s important to delegate work to the most appropriate people: partners should focus on client relationships and generation of work whilst staff do all the processing.

Charging appropriate fees may sound obvious but unless the fee reflects the quality of the advice, clients will not perceive its value. Firms should also benchmark to identify where the profit is earned. Better budgeting will reduce time overruns, but ensure that where they do occur the client pays for them. And improving staff training and play to the strengths of everyone.

Firms also need to concentrate on improving fee recoveries. The first step is to identify where the problems lie. Poor planning, inadequate budgeting, clients failing to produce information in time, the wrong staff level/skills for the job will all cause under recoveries. As well as imposing tighter controls, managers must have the people skills needed to run staff effectively.

The partners should target an improvement in recovery for every service line. Examining more fully the reasons for the problem, and not allowing the same ones to continue year on year, will enable them to deal effectively with all the issues.

Improving the firm’s margins requires a blend of work, management improvements, commerciality in billing, better human resources management and focused marketing. Most practitioners are well aware of this but are not prepared to face up to the problems and take the necessary steps to deal with them.

For many smaller practices the actions necessary to improve margins will require a major upheaval in the way that they are managed and organised.

They must be prepared to become much more commercially aware and focus on the profitability of the business. Failure to do so will result, at best, in stagnation and poor earnings, at worst the survival of the practice will be under threat.

Phil Shohet and Andrew Jenner are directors of Kato Consultancy.

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