Thursday, March 5, 2009

Good medicine for your practice

I was with a client in January and he was very concerned about the future of his practice as the nation sails into these uncharted economic waters. His AR is already beginning to get longer; reliable clients are cutting back on some of the optional project-type work he has come to count on and he’s getting some price pressure from a number of his clients.

We talked about his situation and explored a number of options to keep his practice on course and avoid a drop off of revenue and profitability as he goes forward into 2009.

First of all we looked at his client base. He has a general practice with a typical mix of about 240 – 250 active clients; some are quite desirable and some fall into the I’ll-take-them-for-the-cash-flow category. In this latter group it turned out there were three that were quadruply undesirable: slow pay, marginal (if at all) profitability, low billing rates and a disproportionate need for personal attention and unbilled time. He handed these clients off to a new, young accountant who, even after being told of the difficulties she would experience, took them willingly. “Paid experience,” as she called it. My client found the departure of these clients to be quite emotionally liberating.

We then looked at the revenue side of his practice. How long had it been since he’d adjusted his rates? Like many other accountants he does not have a blanket rate policy … he charges more or less with individual clients based upon any number of factors including their personal circumstances, how long he’s provided services for them, ability to pay, and others. There were over 30 clients whose rate had not been increased in three or more years. In response, he raised the rates of approximately 2/3rds of that group’s members. Most expressed understanding, some accepted the increase stoically, but he lost two. He considered neither of these to be a meaningful loss. On the positive side, the additive revenue from the others will boost his bottom line by something like $3000. He’s now looking at the group that hasn’t had an increase in the last two years and is confident a few will be adjusted upward. In the future he is considering adjusting his rates annually across the board. A quick poll of a few of his friendly competitors revealed the majority of them do it this way, but he’s not convinced yet.

The file clean up netted a loss of five clients (and maybe a couple more when some of the two year group is adjusted); none of whom will be sorely missed. In summary, a quick rate analysis and resultant situational adjustments boosted revenue, margins and profit. A few difficult clients were offloaded, and that in turn freed up more than a few hours.

Because business development is my consulting specialty, I encouraged him to devote all or a portion of his newly-liberated time to seeking up some new clients. He agreed, and we put together an action plan with a series of milestones.

The highest priority step in his action plan is to analyze his active files ASAP with an eye to developing more work from existing clients. These are people who already like him and trust him to do their accounting work. He doesn’t have to convince them of anything except that what he proposes has a desirable ROI.

We began by looking at any client operating a business. There were over 50. For only 11 of those did he do any work besides tax preparation. That means he is NOT providing advice, consulting services, planning or project work to about 40 opportunities!

We’re getting into tax season now, so he can’t act as quickly as he’d like, but the plan is to look at each of the files while he has their 2008 tax return in his hand. What story does the return tell? What is the year over year picture? Is the business growing, is cash declining, is debt rising, what’s happening to the owner’s equity, how about AR and AP, etc.? As he looks at these and other factors he is examining the situation and determining how he can add value to the businessperson. As noted above, the obvious activities are planning, advising, consulting and project work. There are no doubt others.

He’ll create a list of names and proposed services; each quantified by potential value added, cost reduced, margins increased, etc. When that is compiled he’ll schedule a series of meetings – tentatively three a week – to visit with each person sometime after April 15th.

At those meetings he will talk with them about how his professional accounting expertise can add value for them beyond tax preparation. Before the meetings begin he and I will talk about how to frame his proposals in a way that feels comfortable for his interpersonal style.

From these meetings he will develop quite a bit of work. The resultant hours will produce profitable revenue. But also of value in a shaky economy is the positive effect upon retention of these expanded services. It is axiomatic that the more services provided a client, the higher the rate of retention. The other positive related to providing more services to clients is that besides sticking around longer, they provide more referrals! Referrals tend to reflect the characteristics of the person making the referral. Hence, he’ll see more business referrals. Exactly what my client wants.

The bottom line here is that there are steps you can take to position your practice to weather, and potentially excel during the accelerating economic disruption we’re experiencing. Your accounting services are needed, arguably more than ever. This is a good time to give your practice a housecleaning. Sweep out the bad stuff and take steps to not just preserve your book of business, but expand it.