by rob nixon
remember this: your accounting firm is a business that you have bought into, inherited or started.
more on strategy: 9 steps to implementing anything | getting buy-in | ‘great questions’ of a sales meeting | are your prices too low? | never charge by a time unit | put your own oxygen mask on first | define client wants vs. needs | mindset is everything | the entrepreneurial accountant: an oxymoron? | growth is all about the clients
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it is not a job where you are told what to do. it is a business where you can call the shots. it is not your clients’ business or your employees’ business – it’s your business!
and you can design your business any way that suits you. there is no right or wrong model – it’s what suits your ambition, your goals, and your lifestyle. i am going to explore four different models that you could adopt.
does solo mean bliss?
in some advisory industries, being a complete solo (no employees) is a great business model. in the accounting business, i am yet to meet a successful one who has no employees. the reason is that clients have many needs and you need the leverage of employees to help you out.
however, you can be a successful single-owner accounting business that has employees. this is often called the sole practitioner model. it can be lonely being a solo practitioner and it can have a lot of benefits as well. the biggest benefit i hear is that you have no one else (other partners) to argue with or convince. the sole practitioner model can be extremely profitable with the right leverage. i know of a sole practitioner accounting business that does $15 million in revenue with a considerable profit!
the unprofitable sole practitioners are the ones who do not have much leverage (people to partner ratio) and the majority of the workload falls on the owner. these businesses are trying to be all things to all people and they will never get anywhere.
if you are going to be a single-owner business then you need scale. if you want to have a reasonable lifestyle (time and money) then you need to have much more than $1 million in revenue. the most successful sole practitioners i know have more than 10 people and have revenue of more than $2 million.
boutique and niche
there is nothing wrong with being a boutique small business (by headcount) provided you get really focused on whom you are serving and what you are delivering to them.
you may choose an industry that you are passionate about and you can become an industry expert in that field. if you become an industry expert then you can charge higher fees and get very focused on your marketing and sales activity.
you may choose a niche service offering what you are passionate about. you can outsource many services these days to generalists if you decide to become a specialist. if you look at the medical community, the specialists are making more money than the generalists. the flip side to that is often the specialists are working very long (and sometimes odd) hours.
if you decide to be boutique and niche then stay that way. you can charge high fees for your unique expertise but you will not have a business that you can sell. other than administration support, the business will heavily rely on you.
getting bigger
most firms get bigger by osmosis. it just happens. they grow by people numbers, partner numbers, office space and the revenue certainly grows. but the profit per partner does not necessarily grow in line with the revenue percentage. it frequently goes backward – or stays around the same.
if you decide to get bigger by headcount and shareholders, then the critical thing you need to remember is leverage – specifically, leverage of people per partner. there is no point in bringing in another equity partner if you are not planning on growing your revenue and profit dramatically.
under the old practice model, once a partnership gets to around $1 million in revenue per partner they think they must get another partner. it doesn’t need to be like that. you’ll end up with too many partners and not enough profitability.
in my view, the leverage of people per partner needs to be well over 15 people before you entertain another full equity partner. you can certainly have employee shareholders who buy a small percentage of the firm but full equity partners – proceed with caution.
as you grow, one of the critical hires that you need as you get larger is a full-time business manager, someone who is running the day-to-day operations. this person will allow the leadership team to focus on client success. the right time to hire a business manager is when you are ready to grow. i have seen sole practitioners with six people have a full-time business manager. i have also seen 40-person firms who do not have one (the partners share the load) and they do not grow.
you can grow your business to whatever size you want. as you do, make sure you focus on growing the revenue per person, the profit per person and the profit per client.
roll up, roll up
the consolidation (public companies buying accounting firms) movement started in the late 1990s. there have been many spectacular failures and a few successes. by and large, the accounting profession is a cottage industry that has been run by technicians attempting to be businesspeople. in every jurisdiction, there are thousands of accounting firms with a limited future for the partners.
as your firm gets larger, who are you going to sell it to? a consolidator is certainly a viable choice. they have scale, people to support you, a broad range of services already developed, cash now, the ability to raise cash through the public sector and they provide a future for your team through employee share schemes and proper hr management. if you sell to a consolidator you will get a healthy price for your firm. many consolidators will pay four and sometimes even up to six times ebit after partners’ salaries. ideally, your consideration will be in cash but even if it is in cash and tradable shares (and ideally you ride the share price) then that can work in your favor.
it sounds very attractive, so what’s the downside? other than the obvious of not getting a return on your shares or losing your firm because the consolidator mismanaged the business and went broke, i see only one potential disadvantage that will not suit everyone.
you will be an employee of a large corporation.
if you are okay with not being the master of your own destiny and not being an entrepreneur (you can still be an intrapreneur – an internal entrepreneur) then go for it. if you are planning on retiring (or getting out of the industry altogether) from your firm over the next few years then go for it.
of course like any sale or purchase of a business, do thorough due diligence and negotiate good terms for yourself.
the consolidation of accounting firms is here to stay. in fact, i think it will escalate. the value of an accounting business client base is increased with scale.
your ideal business life
spend some quality time working out what you want your ideal business life to look like. your business is not your entire life so don’t let it consume you. as my friend alan says, “your business is fuel for your life, not the other way round.”
if you decide to work three days per week then do that. if you decide to work remotely then do that. if you decide to have 10 weeks per year off then do that. if you decide to only come into your office on mondays and fridays then do that. if you decide to work on saturdays and have wednesdays off then do that. if you decide to only work with certain types of clients then do that. if you decide to do only certain types of work then do that. if you decide to non-run your businesses then do that. if you decide to have 100 people and three locations then do that. if you decide to incorporate business with pleasure by working on holidays then do that. if you decide to travel first class and five-star then do that. if you decide to give money and time to charitable causes then do that. if you decide to earn over $1 million per partner then do that.
there is no right or wrong model. it’s what works best for you.
whatever result you are looking for, then make the appropriate decisions, work out what actions need to happen – and just go and do that!