I recently received a very strongly worded email from a practitioner who complained that my views as to the demise of compliance work in accounting firms was completely wrong! I replied explaining that I have never held or expressed that view.
So long as we have politicians there will always be compliance work and we have reason to get excited every time they use the word ‘reform’ of the tax system because inevitably it means more work for us and of course more tax being paid!
HOWEVER, what I have been writing about is the need for change in fully adapting to a fast changing world where there is no ‘business as usual’. The evidence is in and in this last year especially many signs have emerged of practitioners facing some very big decisions …now…not sometime in the future. This is definitely not a time to be complacent, procrastinate or be a laggard – refer Diffusion of Innovation Theory and graph below:
As you can see from this graph 50% of businesses and practitioners tend to be ‘late’ or ‘laggards’ when it comes to innovation and change. All too often we are just too busy being busy to notice change!
One practitioner phoned me just before the Christmas break and expressed surprise that this year he expected he would have his tax lodgement program finalised by Christmas for the very first time. He was stressed though as to what to do with his staff for the next six months. A recent national survey has revealed for the first time a downturn in a number of KPI’s including revenue and has concluded that greater efficiency is now apparent in the processing of compliance work and this has created capacity. I agree completely and this is a trend that can only continue and compound.
For decades I have been ‘preaching’ about the huge opportunities and potential for accounting firms and I have been referring to these as a ‘field of diamonds’, i.e., at least 20 support services that practitioners can and should be providing to clients. A recent survey carried out by ourselves discovered that many, if not most, firms have a list of services highlighted on their website but ALL of the surveyed firms agreed that they were not actually providing these services in any significant way. By far and away the bulk of revenue is earned through compliance activity (including tax, audit, super funds, etc.) with about 10% described as ‘consulting’ or ‘special’ but arising from existing compliance activity. One firm did point out that it was just part of their service to provide inter-generational asset transfer support and advice but simply viewed this as part of their ongoing year-to-year support…without any specific processes or check lists.
Over a period now of around 30 years I have specialised in providing ‘future directions and solutions’ to accounting firms’, facilitation ‘practice makeover’ workshops, acting in a role of part-time chairman of many firms and generally supporting firms in practical ways. Prior to that I was for many years a practitioner, a senior equity partner, in Australia’s largest accounting firm. With this experience I have had the opportunity to make a number of important observations and one is that simply adding on or tagging on a new service to your practice rarely works. I have personally made this mistake in my own practice. I believed strongly (and still do!) that we need to constantly reinvent ourselves and look to new possibilities. I loved succession planning so in my practice I began to develop this as a service for the firm, rolling out processes, templates, etc. and before long referrals were coming in from banks especially for large assignments – let’s face it even today very few practitioners offer this service and I suspect I was the only practitioner in my region, at the time, actually doing something about it! Subsequently I left the practice to start what was known for many years as ‘ANZAN Professionals’. As I understand matters this succession planning service was dropped by my old firm because they either didn’t want to provide it or didn’t understand it! I have heard versions of this story in many firms many times over. It is now apparent to me that unless a new service is fully embraced by the entire firm with complete processes ready to go you may well be wasting your time.
So, what to do? “When circumstances change, leaders must themselves be able to see things in new ways”. They must move beyond having their two feet stuck on the ground and lift themselves above the ground to see what is unknown. This is an easy statement to make but it is psychologically very difficult to do…Steven Segal. Many accounting firms have been established in an era of stability and growth and now they find it impossible to adjust to an era of disruption and destruction.
We need only consider the current changes to providing investment advice and the time limit placed upon practitioners of 30thJune next to comply with RG146 or face a very challenging time in servicing their superannuation funds for example. Accountants also have a professional and legal duty to provide their client with all necessary information on managing business risks. This will inevitably lead to the accountant informing the client of the need for various forms of insurance, such as Director’s and Officer’s insurance. Accountants are still obligated to advise what insurance is required to mitigate those risks and why but not what specific insurance products. I suspect that there is much confusion among practitioners in this area.
WHAT NOT TO DO!
Financial Planning is an area where pressure has been applied for change and urgent change by accounting practitioners and I fear that many have missed the opportunity already.
Strategic Planning, Succession Planning, DuPont Analysis and forecasting, Advisory Boards, Outsourced (insourced!) CFO services, Waste Audits, Balanced Scorecard, Coaching and Mentoring, Human Resources (HR), Business Turnaround, Due Diligence, Purchase and Sale of Business, Mergers and Acquisitions, Valuations and much more, are all services with much potential but the biggest. Most difficult decision would be what NOT to do!
Over many years I have completed countless independent valuations for practices and overall I would suggest that returns are not as good as many practitioners believe. When ‘commercial’ adjustments are made for salaries (currently considered to be around $200,000), interest on current accounts, ROI (allowing for realistic valuations of Goodwill, etc.) ‘profit’ is reduced significantly and often does not exceed 5%. Investors in listed ASX companies have an expectation of a return of between 15-20% or the share value is marked down.
So this raises an important question in my mind – should practitioners, and I refer to ‘general’ practitioners or ‘compliance’ practitioners take on these new services at all? I refer again to my observation above re rolling out an all-of-firm supported service with fully established check lists and processes in place. One of the very positive developments in the last 2-3 decades has been the growth of specialist support services for accounting firms. As a further observation, in current times an 80/20 share of revenue seems to be a reasonably accepted share of revenue with these specialists (there are many variations of course). They get 80% for rolling out the service for your client and your keep 20% (including capital gain) effectively for the referral and you don’t have to stress about keeping up to date in yet another area of expertise, developing processes, training of staff and so on. Medical GP’s have been doing this for decades perhaps it is time for the accounting profession to fully embrace the concept.
Many practitioners are currently anchored in everyday experience and cannot see new possibilities emerging and are taken off guard by change. Few are willing to leave their comfort zones and thus to stay in tune with the way circumstances are constantly changing. Leaving one’s comfort zone is an act of choice – a choice many practitioners are reluctant to make.
We have established Practitioner Networks across Australia and New Zealand as a means of enabling practitioners to keep up to date with change, for peer review, and for assistance in implementing change. Go to 2016 Advisory Thought Leadership Program.
The more we resist the changes that are constantly occurring, the more we marginalise ourselves, paradoxically leaving us outside of the main-stream in which change is occurring. It is no longer possible to defer change in your practice – decisions must be made now – 2016 – and we have the systems and processes at the ready to assist you in determining your firm’s future.
I would love to receive your feedback – either leave your comments here below or email or phone me direct. Let me have your thoughts? Do you agree or disagree?
David Connell, Co-Founder, ATL Network
Mobile: +61 428 00 2010 | Office: 02 69 22 6565