By David Clatworthy, Macquarie Bank
There’s a transformational shift taking place in the accounting and financial advice industries, requiring partners to move away from traditional thinking and evolve their business models.
The changing needs of clients, along with well-known regulatory and technology shifts, are the main catalysts of this transformation. This has important implications for business models, as well as the skills staff will need beyond technical knowledge to effectively service clients. To succeed and grow, it’s essential to respond effectively to these challenges. Let’s explore some of these trends, and how practices can best respond to them.
Clients driving change
Today, clients want more than ever before from their accountants. They are demanding more value, transparency, real-time data and forward-looking advice. They are becoming increasingly savvy when it comes to their options, less loyal over time and are willing to explore other providers’ offerings.
With growth a key issue for many in the industry, it’s crucial to meet the changing needs of your clients because highly satisfied clients are the key to more referrals. If you can deliver a truly exceptional experience to your existing clients, they are much more likely to refer you to their family and friends.
In July last year, Macquarie surveyed 1,500 clients of financial services professionals across Australia to understand the drivers of client satisfaction. According to the research, the top three attributes that matter most to clients are:
– Financial solutions that meet their needs
– Being kept informed
– Proactive management of their financial affairs.
The research clearly showed that providing exceptional and thoughtful client service, and being proactive and responsive, inspires confidence, which helps to increase the number of referrals from your client base. So how can you provide the highest levels of service possible?
The changing landscape
Forward-thinking accountants need to evolve their offering and seek opportunities to move from a transaction-based relationship to one with more frequent touch points and value-add services.
Therefore, business services and consulting should be areas of focus for growth-oriented practices. An example is firms that engage with their small-to-medium-sized enterprise clients on a monthly basis, in some cases as an outsourced CFO service. A monthly fixed fee is usually charged for this service, creating cash flow certainty for practices.
For practices to thrive, it’s also important staff members are able to identify cross-sell or up-sell opportunities. For example, while someone might start as a simple individual tax return client, by asking the right questions and building a relationship, that client could turn into a self-managed super fund client, or potentially a financial planning client.
However, to successfully identify these opportunities, far greater presence is required in the front office to help manage client relationships. This means interpersonal skills need to become a much higher priority in recruitment decisions than in the past, when technical knowledge may have ranked higher. This has implications for how training time is spent. To date, most practices have focused on technical training, providing very little interpersonal or soft skills guidance. It is clear firms need to invest more into training and development in this area to get results.
In fact, the top firms are using psychometric testing and role-playing during the recruitment process to see how candidates interact. Some firms also ask candidates to video themselves prior to being interviewed, so they can see how the candidate presents and talks.
For existing staff, external consultants can provide training to staff at all levels, including front desk staff. Some firms have also hired either full-time or part-time learning and development managers to help educate staff.
Benefits of technology
Technology has been a genuine game-changer for the industry. In recent years the emergence of cloud-based software has especially helped drive back office efficiencies. This has also changed the nature of client relationships.
Specialist advice and accounting applications for practices that are now located in the cloud enable a proactive, forward-looking relationship with clients. They mean partners now have access to real-time data and dashboards, which not only act as prompts to have more frequent conversations with clients, but also help to facilitate conversations with clients about where they want to go in their business and lives.
In addition, technology helps to bring down the costs of doing business. The firms that are realising true value from new systems are taking the benefits of the technology beyond the ability to implement efficiencies in their business. These firms are leveraging technology to increase client engagement, by providing clients with regular updates and insights based on real-time data.
The power of outsourcing
With top-line growth an ongoing challenge, freeing up time to focus on the acquisition of new clients is more crucial than ever. To that end, outsourcing has become increasingly common in the industry in an effort to enable staff to spend time on value-adding activities, including business development.
In addition, outsourcing is being used in some cases to help eliminate key person risk. For example, for firms relying on a key person to perform a specialist role such as SMSF administration, it may be worth considering outsourcing that function until the business hits a critical mass or achieves scale in that service.
Looking to the future
Succession planning is a hot topic in the industry and firms that explore their options when it comes to succession planning and take the time to plan early put themselves in a position of power. Importantly, well thought-out succession strategies help partners attract a premium for the business. They also mean young staff are more likely to remain engaged with the enterprise. Early planning also goes a long way to reducing the anxiety many partners feel about selling their business.
There is a range of options when it comes to funding a succession strategy for your business. It’s worth understanding what the alternatives are before you commit to any one path. Above all, it’s essential to start planning early because successfully transitioning new partners into the business can take many years.
There are a number of routes firms can take when it comes to financing an entry strategy for new partners. Increasingly, financiers are being asked to fund partner entry by taking a view on the goodwill value of the firm as a whole. Funding for partner entry is often provided in conjunction with core debt and overdraft funding to the firm.
The benefit of this approach is that it gives the incoming partners a meaningful way to buy into the business, regardless of their own situation. So, for instance, if an incoming partner does not have enough equity in his or her home against which to secure the loan, the transaction can often still be funded.
An alternative is for a financier to lend specifically against the incoming partner’s share in the firm. The bank’s exposure is secured by the incoming partner’s interest in the firm rather than the firm itself.
One funding method that used to be commonplace, but has now become less popular, is vendor finance. In this scenario, there’s no involvement by a bank in the transaction. Instead, the partners selling down equity in the practice to the incoming partners effectively fund the incoming partners, who receive payment for the practice over time.
Of course, there are also alternatives to bringing in new partners when it comes to selling a practice. It’s possible to sell the business to a larger firm. An option is also to merge with another practice.
Whichever path to succession the business chooses, it’s essential to start planning as soon as possible, because succession rarely takes the path the partners expect.
The way forward
Now is the time to re-evaluate your business strategy to maximise the opportunities of the evolving industry and client needs. Have you considered:
Who your ideal client is? What makes them tick? What frustrates them? What is it that they are they looking for that your company can provide?
What are your strategic objectives during the next twelve months, three and five years? Do your objectives need to evolve?
Which strategies will best help you achieve your objectives? Consider developing a strategic roadmap by business area, for example, HR or marketing, to provide as much clarity as possible on where you want to head.
What resources you need to meet your objectives?
For driven accounting firms, everything comes down to the client. These firms are evolving their business models and processes, investing in technology and developing their staff to facilitate proactive, forward-looking relationships with clients. The firms outstripping the others also have niche markets and are focused on who they are targeting, but are also clear about who falls outside their service model.
Accounting and advice practices are complex by nature. Although there’s a lot to think about, the idea is to have a structure in place in the business so management is considering opportunities and challenges on an ongoing basis, which is the best way to ensure the practice grows over time.