4 key areas to consider for commercial success
When you are starting up in practice it is important that you are aware of the options to consider. Often the first steps are the most difficult ones. Our Setting up in practice pages will help by pointing you in the direction of answers to some key questions.
Your clients: expectations and management
First, manage expectations. For instance, make sure that the client doesn’t expect you to do something for free when you expect it will be chargeable. If you have quoted a fee make sure it is very clear that it is not all-inclusive (unless you are happy to offer that as your USP).
Second, manage your client. Ensure that your clients are aware, from the outset, that your expectation is that they will bring in their records when asked to and to a pre-agreed set of standards. In that way there is no misunderstanding that the fee quoted can be met.
But client management is wider than this. It extends to clients paying fees on a timely basis, listening to the advice you give and taking it. Well-managed clients are more likely to return for more advice, particularly in the higher chargeable consultancy areas than the more basic compliance services.
If you are starting with no clients purchasing a block of fees can be a useful way to kick-start your practice. You will typically find that blocks are advertised in the back pages of the accountancy press by merger consultants.
This is a complex subject and there are many things to consider.
- What is the quality of the clients you are purchasing?
- What is the age of the clients you are purchasing?
- What is your appreciation of the longer-term impact of the block you are buying?
- Is your block is of fees of clients approaching retirement and will they be selling their businesses soon, leaving you with tax return clients in the near future?
- What are the vendor’s level of fees? If they are lower than yours it is unlikely you will increase the fees easily so you may be buying a fee block with lower contribution than your business plan would expect.
It is typical for the vendor to enter into a consultancy agreement to introduce the clients to you at face-to-face meetings. It is also normal for the purchase agreement to include a ‘clawback’ provision so that any clients who leave are not paid for by you (unless you have already provided them with professional services).
Your personal involvement with your newly acquired clients is key to retaining them and maximising the new income source, which may impact on your available time in the first year of acquisition to undertake accounts and tax work.
Don’t look to expansion at the cost of looking after your existing clients. Often firms focus on gaining new clients without realising that the existing client bank is even more important. It is far easier to lose current clients than gain new ones.
It is easy to say goodbye when relations sour with little said and less asked. However, if you do not know why the client left you can’t repair the potential damage in relations with other clients. It’s vital to spend time ensuring that you give current clients a good reason to stay.
There are some common ways to provide good service.
- Retain good relationships and explore client dissatisfaction promptly.
- Provide a client feedback form – this should give you sufficient information about what is good and less good to manage any issues appropriately.
- Review fee levels regularly.
- Don’t ‘stockpile’ client books to ensure there is no delay in moving from one job to another.
- Make sure that client expectations are reasonable and that they know what work you need to do. If clients don’t understand how long work takes they will assume quicker turnaround and cheaper fees. So tell them.
- Provide regular newsletters.
- Ensure that your website accommodates the needs of new clients.
Client engagement letters
From the perspective of risk management client engagement letters are vital. They should set out what you are going to do (and what you are not going to do where there is possible doubt), what it will cost (or what the basis of the fees is going to be) and other required information. ICAEW has a helpsheet on client engagement letters which is regularly updated.
Limitation of liability
Some firms agree limitation of liability with clients to set a maximum amount on contractual liability. This would be contained in their terms of business.
It is necessary to ensure that if you enter liability limitations, you communicate this effectively to clients to ensure that the provisions of the Unfair Contract Terms legislation is complied with in the unlikely event you will have to rely on it.
This is a complex area and you may wish to take legal advice about the best method to make limitation of liability in contracts effective.
ICAEW has a helpsheet on managing the professional liability of accountants.
Client indemnities on fees
More rarely (although in some cases done as a matter of routine) firms will ask directors to sign an indemnity to pay fees in the event that their company goes into liquidation.
An important point to make at the outset is not to be embarrassed about the level of your fees or raising a fee note. Your clients should have a good idea of your likely fee and if you manage relations with a client well, tell them when you first meet them that you expect your fees to be paid swiftly (as you are sure they expect their customers to do).
Commercially, you should expect to be paid for the work as soon as possible after you have done it in order to ensure you are not funding ‘lock-up’ (debtors and work-in-progress) at an unacceptable level.
From the client’s perspective, one large bill tends to be something which they do not look forward to. Therefore, some of the methods below will ensure smoothing the payment or reducing it to smaller chunks. In that way, you may help the client regard your fee as less burdensome.
End of service
End-of-service billing is, as its name implies, a bill raised after completion of the professional service. Therefore, a fee will be raised for the accounts, the corporation tax, and the personal tax as discreet bills. The attraction can be that the billing separates the amount payable into less chunky amounts and is identifiable by the client with the service you have provided.
Sometimes the fee ledger is cleared annually. While this may appear at first sight to be the same as end-of-service billing, it is different because all of the above services will be billed at one time. This is not an uncommon process but does delay your recovery of fees to the end of the larger, more tangible service – and therefore does not help your cash flow.
Some firms will raise the fee note on a monthly basis. They will bill whatever is on the time ledger at the end of the month. This is the same process as solicitors tend to use but is uncommon in accountancy practices but, if clients are happy, it works. The disadvantage is that sometimes they will be billed for something they do not perceive to have led to a tangible output. It will also create a lot of different bills and therefore, administratively, could be onerous.
Here, a direct debit is set up for an agreed monthly amount. Often, but not always, this links with fixed fee. Sometimes firms will charge, say, £100 per month on direct debit and then bill the difference at the end of the service (say another £200).
The real advantage of direct debit is that it tends to be very positively regarded by clients because the annual ‘lump’ of the accountancy fee is smoothed, as is the rates bill, for example. It also provides good cash flow for the accountant.
Another reason to advocate direct debit billing is that if it is started at the right point (say eight months prior to commencement of the professional service) you will receive income to cover your costs before undertaking the work. Should the direct debit be cancelled you will have lost only profit.
If the direct debit ceases before the service is undertaken clearly you will return the money and not do any work. So bad debts should be nil and cash flow improved for you and cash-flow benefits for the client.
A fixed-fee arrangement is an agreed fee for the provision of agreed services. It is simple in principle. The services should be clearly laid out in the engagement letter to ensure that any additional services are separable and billed on the basis of a separate engagement letter. The fee for additional services should be clearly agreed before the work is done to ensure there are no surprises.
Often this billing arrangement is collected by monthly payments.
Stage payments are less typical but sometimes an element, for example, 50% of the final bill, is raised for payment before the work commences with the balance due on completion of, say, the audit report. This ensures professional costs are covered before completion of the work and can be effective.
When to bill
When should you bill your client? The commercial answer is that for low fees, end of service is probably easier and gives you better cash flow than annual (as with the latter, you will wait to bill until all the services have been completed).
Make sure that you bill immediately you have completed your work, as at that point the client will be happier with the service they have been provided (even if it is notification of an unexpected tax bill) than at any later point. Do not defer raising the fee note as the longer you leave it, the less important paying it will appear to your client.
Otherwise, the best cash-flow position is with direct debit and additional fees billable for ad hoc services. Be careful that your direct debit commences sufficiently early so that ideally you have the full payment in your bank account by the time you have completed the work.
As you are starting out in practice you have a tremendous advantage in agreeing the basis of the fee with clients to optimise cash flow.
And don’t forget that you need to set the good practice to your clients by being commercial and doing things on time.
Additional billing from ad hoc services and client inefficiencies
Clearly if the client asks you to provide a cash flow for the bank, that is easily identifiable as an ad hoc service. But what about when the books and records you contracted to translate into a set of accounts appears, not as you had expected and been led to believe, as a neat computerised package with pre-numbered invoices, but as a brown paper bag job, no cash book and incomplete records?
Ad hoc services are fairly easy to identify. Client inefficiencies can be more difficult especially where staff or subcontractors are involved. If they don’t say quickly and certainly before they’ve done the work what is wrong, you cannot contact the client to ask for an additional fee.
How to bill for additional services
Tell staff and subcontractors to contact you immediately so you can contact the client and ask for an additional fee to undertake the additional work. When the client has agreed, send them an email detailing the agreement the additional fee for the additional work, for the record.
Some firms will take the view that, as a matter of goodwill, they will not bill the first year this happens. That is clearly your decision but make sure the client is aware of the amount of the fee you’ve written off. And next year make sure you reiterate to the client what you expect, when you expect it, that the previous year you wrote off time as a matter of goodwill and that this year you will be unable to do so.
How to convince clients they are valuable services
Communication is key. Many clients won’t understand the complexities of the professional work you are doing and may assume it’s all a lot simpler than it is, particularly in a computerised age. They may assume they’re doing a lot of the work you are actually relying on. To some extent they may be. But it then becomes more important to explain what you’re doing, what added value you are providing and how they are benefiting from it.
Systemise your process
The more you can systemise your processes, to simplify and replicate what is being done more easily, you will find your profitability increases, especially where you provide a niche service.
For this and other reasons, using IT solutions may improve your efficiency and enable you to better systemise your process. Equally, moving into a niche service is very profitable.
Annual increase to cover inflation
Adopt a clear policy of increasing your fees in line with inflation. Make this clear to clients. And make it clear to them that the bulk of your costs are staff costs (including your own costs) and that you need to increase fees by inflation to cover the increases you (and the client) face when covering normal living expenses. Other costs you incur will also rise by inflation so it is reasonable for your fees to do so, too.
A key message here is not to undervalue your time or the value of the work you provide to clients.
What is a niche market?
The traditional niche was regarded as being the doctors and dentists sector. Clearly there are specialisms in areas supported by ICAEW’s Communities (farming, entertainment, solicitors etc) but some firms have carved out niches in fairly esoteric specialist areas.
You may have experience or an interest in a particular business. If you make this a niche you can very easily become the ‘go to’ firm not only in your specialist area but, if you are creative and market well, across the country.
If your business plan focuses on a true niche make sure it is flexible and provides for expansion in the short term. You need to have sufficient resources to provide the service, manage the process and undertake the ‘back-office’ work.
A niche is a marketing dream. It can simplify procedures and make sure you take advantage of efficiencies. However, it does bring with it a possible risk of being subject to a market shift for regulatory, political or other reasons. This was most apparent years ago when firms used to specialise in dealing with subcontractors in the building market. Changes in the tax laws had a significant effect.
However, a niche firm has a significant advantage. It could even be located in a distant part of the country (taking advantage of working in a rural idyll, where possibly staff costs are cheaper) if IT is a solution which can be relied on to deliver the work and output to clients.
Marketing is key, particularly to a new firm. It may appear daunting but the reality is that there are businesses which can help you market, for a fee, and you could approach them for help. You may know another accountant who will provide you with a recommendation of a marketing agency, website designer, etc. who they have used successfully.
- Measure your success rate. You need to know whether your efforts are well directed, whether you are concentrating efforts in the right direction, could put more into one particular area or use less time in another area. These decisions will become more important when you are busier.
- Be wary of using too many marketing tools and ending up in a position where you can’t manage any of them well. It is better to focus on some and apply them well.
- Marketing is vital to the expansion of your practice. So if you are a ‘rain-maker’ you are in a very good position to attract new clients. If you are not – and most people are not – then you have to adopt other methods.
Our website has more suggestions on how to make a difference with your marketing.Website and SEO
It is really important to have a presence on the web and your competitors are highly likely to have a website. Consider your website from the perspective of your current clients as well as from potential clients and don’t forget how it appears to people who refer business to you.
What do you want to say? Where do you want to say it? Remember that many people now access websites from smartphones so ensure yours is optimised for smartphone access and looks professional.
Your website is the opportunity to make a really good impression on new clients so ensure that the messages are carefully thought out. Attributed client testimonials are very powerful.
Put a good, professional photo of yourself on your website. It gives a personal feel to who you are.
And if you have a specialism, make it clear. Other ways to increase your website traffic can be found here: How to increase website traffic.Measure access to your site with a search engine optimisation tool (SEO). Google outlines some analysis techniques for Google Organic Search and SEO.
You may find that referrals to and from other professional firms are mutually advantageous. You may, for example, be approached by a client who is too large or has complicated issues where you consider referral is important. Equally you may find that a larger firm is willing to refer to you simpler clients who they cannot or choose not to act for, due to the relative simplicity and uncommercial fee they would have to charge those clients.
Referrals can occur for other reasons – technical specialisms (referring complex tax work) or financial services or legal referrals may lead to referrals back.
Client newsletters serve a number of purposes. They will be used primarily by your current clients but may be referred to by people who you give them to – possible new clients, visitors to reception area – or people to whom they are given by your current clients.
So it is important that they pass the message about your firm you are happy with. Do not assume the reader knows you or your firm, your location or the services you provide. Make sure you review the newsletter from the perspective of someone who does not know you at all.
Your newsletter should communicate relevant technical issues. Some of the best include personal comments (about staff matters) which bring a level of personalisation to the newsletter and a good ‘feel’.
Networking is valuable. Attend relevant functions. Accept appointments which fit with your desired client market. Be selective and in your strategic plan identify possible events as early as you can. When you are there make sure you are seen to be representing your firm and ‘work the room’ to ensure your attendance maximises the potential to your firm. Most networking events will have an attendance list. Work out who you want to meet and make sure you meet them.
Telemarketing is effective for some firms and less so for others. It is often carried out on a subcontracted basis, whereby the marketing firm contacts clients who you instruct them to. They may be clients who are companies, with a specific turnover, in a particular location (postcode or sub-postcode) and possibly in a particular industry. The marketer will contact the potential client and typically speak as though they are from your firm. You need therefore to be comfortable with what is going to be said and how the approach will be made.
Sometimes the marketer will make the appointment for you and at other times they will pass details of the interested party to you for you to make contact. There are pros and cons of either process. The first option gives you little ability to refuse to meet a potential client who, on reflection, you would rather not proceed with. The second may mean that the client becomes less interested by the time you phone them.
Direct marketing is you identifying your client leads and contacting them directly. You must remember that many potential clients either do not wish to be contacted directly or will prevent you contacting them by using secretaries to filter calls. At the start of your practice this may utilise spare time but may not be feasible going forward.
Generally the conversion rate can be low and we are all familiar with our reaction to yet another piece of ‘junk mail’. Some firms take the view that they do not wish to be associated with direct marketing for that reason but if it is effective for your firm, all to the good.
Are you someone who is willing to be on local radio or who will write something for the local press? If so, you may find a willing recipient in the radio station or newspaper. It doesn’t suit everyone but is effective in advertising you as an individual and your firm too. You need to be willing and able to answer technical questions live on the radio or write something relevant (perhaps for the weekly ‘business’ page).
These tend to be regarded as less effective as the web has taken over.
Social marketing is an increasingly important tool. While originally introduced for social purposes, it is now more important in business too.
A key message, however, is to ensure that the time you spend on social marketing does not take over. It is one of a number of marketing tools and needs to be viewed in that context.
Twitter is a useful tool to interact with your potential audience. If you write business-related articles, linking to them from your Twitter feed can be a good introduction to potential new clients or Twitter contacts who may refer work to you. It is important to consider having a work-related Twitter feed.
It’s prudent to have two Twitter accounts, one for personal and the other for business use.
Have you considered a Facebook page for your business? It is becoming more common although not all firms have one.