Monday, June 22, 2009

Learning From The Best

Of all the accountants I’ve had the pleasure of working with, Michael is the best business developer. His practice focuses upon businesses with annual revenue ranging between one and twenty million dollars. The billings his efforts have generated since 2004 average over $3,000,000 annually. He personally manages a book of business approximating $1,000,000 and has spread the other clients among younger, but nevertheless highly capable accountants in his firm.

We had a pleasant lunch recently and in response to my prompting Michael gave me an overview of his success formula.

He began his practice with a few clients he “inherited” from a retiring accountant. By conventional personal marketing tactics, e.g. encouraging referrals, networking, socializing, getting involved within his community, etc., he slowly grew his practice to the point where he was working approximately 65 – 75 hours a week.

He then made his first hire. He selected an experienced, knowledgeable and relatively highly paid former staffer for one of the national firms. He delegated everything he could to her, and within a month her efforts had freed up almost half of his time. (Since then several more professional staff have been added; each one hired only when revenue growth could support the added overhead.)

The strategy was then to contact every one of his business clients and arrange an informal lunch date. When he met with each client he had a simple business development strategy he refers to as “casual probing.”

Here’s how it works: (In advance of the meeting Michael has reviewed the client’s latest financial docs so he’s very familiar with the numbers.) He begins by thanking them for their business. Then there’s a bit of chit chat to catch up on personal events and at an appropriate point he asks, in effect, “So, how’s the business doing?”

As the client responds, Michael interjects comments like, “Yes, I noticed your year over year margins have dropped about 5 percent,” so the client knows Michael is up to speed and they can discuss details. By asking more questions (probing) Michael isolates various issues the client perceives as problems. Michael then offers casually phrased suggestions about possible courses of action, e.g. “The best way to anticipate what funding package will be optimal to purchase the tractor is to do some projections so we can predict where you’ll be with cash, the bank line and profitability,” or, “We know that closing the Kansas City sales office will cut expenses, but it’s more complex than that. You need to run the numbers out so you have a handle on how this impacts longer term profitability, cash, quantity purchase discounts with vendors, and other factors.”

As Michael makes these comments, he’s mindful to never suggest any course of action that doesn’t have intrinsic value to the client. In other words, he never suggests anything that doesn’t have an obviously excellent ROI. In the first example above, the tractor will cost around $250,000, so paying Michael, say, $4000 to run a fairly detailed projection is an easy decision to make because a funding package that is poorly thought out could cost much more in terms of interest, lost opportunity, etc. In the second example, closing or not closing a sales office is another action that has significant ramifications. It involves personnel, leases, revenue, costs, client/customer service, and a host of other meaningful issues. Again, the prospective dollar impact will be much greater than the cost of the study to examine the elements.

Michael never goes into business development mode during these meetings. He keeps the luncheon discussion completely conversational and he picks up the tab.

If he doesn’t act like he’s looking for work, how does Michael benefit from this process? First of all, he retains ALL of his clients. They don’t go somewhere else because they aren’t getting enough love. They send him an inordinate number of referrals because he’s helpful and expresses an interest in them. And, approximately half of them will engage Michael on the spot to do some sort of project work or schedule a consulting session!

Whenever his client activities involve interaction with an attorney or consultant, he ALWAYS repeats the above procedure and invites them to lunch. He thanks them for their help and cooperation; talks about mutual interests and asks them about their business. Because he is so experienced with this methodology, he can “wing it” as they talk about their business and toss in valuable suggestions and ideas.

Even if they don’t hire Michael as their accountant, they more frequently than not become part of his network and send him referrals.

Michael averages about 75 lunch dates a year with clients, attorneys, consultants and others individuals who are centers of influence. This process has made him millions of dollars and generated hundreds of loyal clients. The other accountants in his office are expected to adopt the same approach.

As a caveat, Michael mentioned that these lunch meetings are not the only time he interacts with his clients. He deliberately creates situations where he will be talking with and/or actually visiting his clients, especially the ones that generate significant revenue.

As Michael points out, with this method he doesn’t ever have to “sell.” He only talks, asks some questions, expresses interest in the client, makes them feel appreciated, picks up the lunch tab and offers some casual advice. He recognizes that an important element of his continuing success is that the suggestions and ideas he offers are based upon solid knowledge and a sophisticated understanding of how for-profit enterprises really work. This level of acumen has taken years to acquire, but when he began he knew no more than any other accountant with a couple of years experience. Nevertheless, the method worked well right from the beginning.

There you have it. That’s how one of the masters does it. Can Michael’s method work for you?

Thursday, June 11, 2009

War Stories

I’m getting more war stories from readers. Some are very businesslike, and I respond to those in a serious manner, but a few are humorous and I think you will enjoy reading one of these every now and then. Here’s something from Diane, who has a practice in New York (facts are slightly altered to protect the client’s identify).

“For several months I have been cultivating a gentleman who owns a large automotive body repair and painting shop and he recently invited me to meet him at his office and discuss the possibility of using my services.

It turned out to be a large facility, with at least twenty cars being worked on. His office is on the second floor and overlooks the shop below. His wife was also there. She majored in accounting and has been acting as his in-house bookkeeper and tax preparer since the business was started in the mid-‘70s. I was told she wanted to step down from that role and that’s why they wanted to talk with me.

Surprisingly, the office has birds. Lots of birds. Parrots, macaws and a host of others whose names I had never heard before. Big, small, blue, yellow, red and more. A few were in cages, others were on perches and some were free to roam about the room. They weren’t noisy, but it was disconcerting to have this sense out of the corner of my eye that there was constant movement all around us.

Things went well for awhile and then, without looking, I reached down into my briefcase I’d placed next to my chair. Instead of the folder I sought my hand wrapped around a warm, feathered and suddenly highly agitated trespasser. I screamed and the bird screeched. This set the rest of them off and for a few seconds every other bird in the office was squawking at the top of its lungs. Then, as though a secret command had been issued, all the birds went back to whatever it is they were doing as though nothing had happened.

Whatever sense of professional competence I’d been projecting had evaporated. My heart was jumping out of my chest and for a moment I thought I was hyperventilating. The owners apologized for the ruckus, but didn’t seem all that surprised. I got the impression that this wasn’t a particularly unusual occurrence.

We got back to business and things seemed almost normal. Except, of course, for the 20 or more sets of beady eyes I now imagined were watching my every movement. Was this going to evolve into something out of Hitchcock’s “The Birds?” What would my family think? “Accountant pecked to death!” Film at 11.

I heard movement behind me and correctly surmised a bird had landed on the top of the back of my chair. I was determined not to lose my composure and pressed on. The owner and his wife glanced at each other and I could tell she was suppressing a smile. The reason became clear a moment later when the bird latched on to my left earring. Struggling mightily to not completely lose it, I slowly reached up with the intent to gently push the bird away. It repaid my concern for its welfare by drawing blood on my index finger. Now angry, I snapped my head around to face my tormentor, who quickly flew away before I could punch its little lights out.

The owner and his wife were laughing hysterically. After we all recovered our composure and I had stopped the bleeding with a Kleenex, he apologized and inquired if this meant I wasn’t interested in becoming their accountant. I hesitated because I really was thinking about whether or not I wanted to. The wife, who was still chuckling, broke the silence by wondering if it might help if we scheduled any future meetings at my office.

That worked for me.

My feedback is that the business development method works well. I don’t suppose you could provide an update explaining how to avoid situations like this in the future? No, I didn’t think so.”

Monday, June 8, 2009

Sometimes You Get Lucky

Todd, who has his practice in the Chicago area, sent me a recap of a recent business development experience that contains lessons for all of us. I then phoned him and got the details so you can really get a flavor of what happened. The names have been changed to protect the client’s privacy.

Todd has a 1040 client who works as a nurse at a local hospital. Her annual income from her work is in the mid 60s, but she additionally receives disbursements, amounting to low six figures, from a trust.

When “Shelly” picked up her return she unexpectedly said to Todd that she wanted to look at engaging another accountant for the trust, and would he be interested? Having come from several years of blue chip non-profit experience with a national firm, Todd replied that yes, he would.

Shelly said that she’d set up an informal meeting so her two siblings could meet Todd and he could get a feel for the situation. True to her word, a couple of weeks later Shelly called and said that they’d meet at her sister’s house and gave Todd the address which, not surprisingly, Todd recognized was located in an area of expensive houses.

The appointed date and hour arrived and Todd entered the circular driveway of a large – make that very large – estate. Impressive, with a number of upscale cars parked in front.

Shelly’s sister, “Kate,” greeted him at the door and after a brief introduction he was ushered into a formal living room and offered something to drink. There were nine people in the room, and Shelly introduced him to her brother “Tom,”
and six (!) other professionals – four lawyers and two accountants; only one of whom he had met before.

They all seemed to be sporting full briefcases. Documents were scattered around on various tables. He sat down next to Shelly with a dawning understanding he was there to represent her interests and a growing feeling of dread, knowing that he was completely unprepared to participate in a substantive discussion about any aspect of the trust. In fact, he learned there wasn’t just “a trust,” but instead three, with a total value exceeding two hundred million dollars!

Hardly an informal, let’s-chat-and-kick-things-around gathering, Todd watched as things immediately evolved into a contentious, tension-filled meeting wherein the participants were voicing strongly held and widely different opinions about the trust and how its assets were being disbursed. The lawyers postured and competed and highly detailed spreadsheets were produced by the accountants who then advocated their respective positions.

It turned out that Kate was the dominant sibling, and also the oldest. Tom was a manager of an insurance office and quite aggressive about accelerating the pace at which the discretionary portion of the disbursements were finding a home in his personal bank account. Kate’s agenda seemed to revolve around passionately advocating any position that stood in stark opposition to Tom’s. Todd learned Shelly was the youngest and both Kate and Tom were dismissive and uninterested in her opinions as they conducted their own private war.

Fortunately, Shelly didn’t have any convictions she was seeking to advance, so she wasn’t relying upon Todd to cross swords with the other participants. He spoke up every now and then, but for the most part kept his head down in his foxhole as the bullets flew overhead.

At the end of the meeting Shelly formally engaged Todd and he is, perhaps as I write this, quickly coming up to speed so he can effectively advise Shelly in the future.

He is fully aware he got lucky and hopes he learned from the experience.

As Todd phrased it – He:
a) didn’t understand anything about Shelly’s siblings or their dynamics
b) didn’t know anything about the trust(s) and the dollar magnitude
c) accepted Shelly’s interpretation that the meeting would be informal
d) didn’t ask any questions
e) was completely unaware of the agenda
f) didn’t realize Shelly was relying upon him to represent her interests
g) didn’t ask to see Shelly’s copies of the trust accounting/returns/etc.
h) didn’t know who would be at the meeting
i) (here’s my favorite) will never again show up at a shark feeding frenzy armed only with a couple brochures, a yellow legal pad, some pens and a few business cards.

Good advice for all of us.

Friday, June 5, 2009

Making Your Marketing Efforts Really Pay Off

If you wish to find prospective clients for your practice the options available to you are relatively straightforward and well understood.

If you have a general practice primarily serving individuals, small businesses and organizations you can reach your target audience by conventional marketing avenues. Almost every city or trading area with a six figure or greater population has marketing services available. If you do your homework you will be able to mount an appropriately scaled program and the upfront costs shouldn’t break the bank.

On the other hand, if you have, e.g. an audit practice, or service non-profits, high wealth individuals or larger businesses, classic direct marketing isn’t very effective. Instead, you will be better served to rely upon more personal marketing such as, e.g. referrals, speaking, authoring articles or a book and meeting prospects at appropriate gatherings, etc.

In this blog we’ve talked about some techniques to get your own personal marketing campaign going and, if you are a ProfitCents subscriber the new business development manual I’ve written for Sageworks has some very specific, step-by-step suggestions for how to do this.

Whatever the nature of your practice or how you market it, the bottom line is you want to create opportunities to talk with, and persuade, the “right” prospects to become clients.

If your goal is to add clients whose annual billings are almost always less than, say, $500 - $1000, then you will in all likelihood interview and close them over the phone or a relatively brief meeting in your office.

But if your practice consists primarily of clients with more complex situations and annual billings ranging into four figures or above you will almost always meet with them in person before a client relationship is formed.

In this latter instance there is, as Shakespeare famously put it, “Many a slip between the cup and lip.”

I conducted a survey for several years in the mid ‘90s with the goal of determining the conversion rate of accountant – prospect business development meetings. The results were sufficiently consistent to conclude that the industry average was a success rate of roughly one out of three, i.e. if an accountant had three meetings with prospective clients, one would become a client.

Personal and/or relational marketing can be time intensive and you are balancing lost time you could be billing against the up-side opportunity you are pursuing. If you improve your conversion rate it can dramatically alter this equation. Either you can derive more revenue from the number of hours of marketing you currently allocate, or you can maintain the same level of revenue and invest fewer hours to do so.

The second half of the survey was to determine if the conversion rate was meaningfully improved after the accountants were given appropriate training.

Yes, it was. From approximately one out of three to one out of two. A dramatic improvement!

For a given level of marketing, improving your conversion rate is the most effective thing you can do to immediately improve your financial picture.

Since the ‘50s, the business and academic communities have spent countless hours and hundreds of millions of dollars to figure out how industry can “sell” products and services. Not surprisingly after this much effort, what works and what doesn’t is almost universally agreed upon.

The techniques I write about in this blog and that are contained in the ProfitCents business development manual (and the generic manual I’m writing that will be completed in July) have been specifically adapted for use by accounting service providers and are exactly the things that will improve your conversion rate.

If you are already good at it, then hopefully I can provide a few ideas that will drive your success to new heights. If you are new to business development, please take advantage of these techniques and hit the ground running.

Tuesday, June 2, 2009

Consider Firing Some Of Your Clients (Yes - Seriously)

I’ve lightly touched this topic in the past, but considering the general trajectory of the economy this is a good time to revisit it in more detail.

You are uniquely equipped by both knowledge and experience to examine a set of numbers or data points and then organize them into a spread sheet that can be analyzed with the goal of acquiring a “real” understanding of the situation.

I encourage you to analyze your own practice with the goal of determining the relative profitability of the individual accounts populating your client base .

To explain: You would advise a client who is a retailer to look at turnover and margins and thereby gain an understanding about which of the products they sell are the most profitable. Then (with some obvious caveats) you would tell them to give more shelf space to those items, or ones like them, and less to the items that have low margins and/or slow turnover.

The same thing applies to your accounting practice. Do you know which of your clients are the most profitable? There are a number of things that can contribute to a client’s low (or no) profitability, but typical causes can include:

— no pay/partial pay/slow pay/billing write offs
— a client requiring significant hand-holding; excessive phone calls, etc.
— a “legacy” hourly or job rate that has not been raised in a long time
— clients whose work was suitable at the time but really no longer fit with the workflow or subsequent direction of your practice
— work taken on for cash flow that never has been especially profitable
— client work that is just too small and/or inefficient for your practice (a classic example are the smaller 1040 clients from when your practice began)

Profitability, as a stand alone criteria, is often insufficient to make a decision about the value of an individual client. Many accountants have clients who are relatively small and unprofitable but are centers of influence and for that reason are valuable as sources of referrals, social conduits, etc. Also, you may take on a small client because you believe they have an upside – it just may take a few years before their organization grows to the point where they are a major contributor to your revenue base.

At the bottom line, every practice has a spectrum of clients that range from the least desirable accounts at one end to the premier clients at the other end. The idea – at the risk of stating the painfully obvious – is to have more of the good clients and fewer of the bad.

So, how do you do this? The accountants I’ve had who have undertaken the process of optimizing their client mix have taken steps to ensure the clients who they jettison have a soft landing. The first thing is to consider how you might place them with a suitable alternative service. One way is to prepare in advance a list of accountants, tax services or EAs who can do their work. Or, you could do a hand off to, e.g. a relatively new accountant in town. If you do so, you might consider discussing a quid pro quo, where the recipient accountant would in turn refer any larger and/or more complex opportunities to you they don’t feel comfortable taking on yet.

When you “fire” the clients it is always preferable to let them down easily. You can tell them the nature of your practice has changed, e.g. “Tom, my practice has evolved so that almost all my clients are non-profit organizations and the underlying procedures and due dates are very different from what’s needed to process regular 1040s like yours. I think you will get better service from an outfit that does lots of 1040s. They will be less expensive, have their internal systems optimized for your type of work and be absolutely up to the minute on any new developments that touch your situation. Here’s a list of suitable alternatives you can contact.”

Or, you’ve grown too big, e.g. “Tom, we’ve evolved into a business-only practice and just don’t do individual tax work anymore. I’m concerned your work will not get the attention it deserves with all the demands related to the complexity of our business client’s work. I’d like to refer you to an accountant whose work I think is good and whose practice is really aligned with your needs. Please understand this has nothing to do with the size or fees for the work I do for you. It’s just that in accounting everything tends to become specialized and our organization is focused in another area.”

After completing the analysis of your book of business, you will typically find that approximately a fifth of your clients will fall into the could-be-or-should-be-fired group.

What will happen to your practice if you actually get rid of these clients? Your gross income will go down, but remember we are talking about profit. Their revenue has helped absorb overhead, but you’ve already factored that in your Excel spread sheet analysis. Various costs will go down and some of your hours can reallocated to clients that will pay for additive services such as advice, consulting and planning. When you net it all out, the reality is that you are going to have some more free time but only a slight (if any) loss of pretax income.

Which means you now have the time to undertake a campaign to find more of the good clients. With a focused and sophisticated business development effort you will be able to accomplish that. And that’s what this blog is all about.

I hope you will begin your analysis immediately. Make goals to, e.g. cull the client list by the end of June; have one new “major” client by the end of August, and two more before the end of the year. Optimize your practice one client at a time.