plus three guidelines for setting financial targets.
by anthony glomski and russ alan prince
your $5-million high-net-worth practice
the accounting business was changing even before the onset of the covid-19 crisis.
more: 6 steps to maximize referrals | it’s all about your wealthy clients | conviction + process + expertise = your next $5 million | a high-net-worth practice in four steps | don’t ignore life insurance | adultery and other messy situations | how to attract the super-rich
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three of the factors that are possibly impinging on your ability to be as successful as you want include:
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- significantly increased competition: from more accountants to other professionals encroaching on some of the expertise accountants provide, there is greater competition for the better clients.
- the increasing commoditization of expertise: more than ever before, professionals and their deliverables are fungible. this does not mean that there are not professionals who are more competent and more capable than others, which is certainly the case. it is just that there are not any truly unique products and services, and most everyone is replaceable. while you might be in the top 10 percent of all accountants who have high-net-worth practices, we are confident you know other accountants who are also in the top 10 percent.
- fee compression: a pervasive problem for many accountants is fee compression. to win business, for example, some accountants compete on price. by competing on value instead of cost, you will likely be able to charge substantially more. however, relatively few accountants approach their engagements this way.
the world is engulfed in a pandemic that is transforming business on many levels. this new world is strongly evident in the accounting profession. it is very likely a transformation of the zeitgeist and a tremendous opportunity for capable, forward-thinking accountants. it all starts with what you want to achieve. while we are centered on a $5 million high-net-worth practice, let us think more expansively for the moment.
your financial end-goal
let us begin by addressing your goals. you likely have several different goals for yourself and your practice. some of them might deal with the quality of life you want or the impact you are aiming to achieve in society.
we are going to concentrate on the financial aspect of your practice and your personal financial objectives. they are easy to measure, and your financial accomplishments likely impact all aspects of your life.
a commitment to personally building wealth is regularly the core driver of success. now you need to operationalize that commitment. your first steps to “good” or “great” or “greatest” personal wealth are specifying how much is enough. what do you want to be worth? this is your financial end-goal. to reach your end-goal, you will need to take many smaller steps along the way. consider the practice of world-class goal setting …
- step #1: state your financial end-goal: how much wealth do you want? decide on the number you are aiming to hit. what is helpful is that it should be reasonable to you. keep in mind that if you want to be a billionaire, for example, being a partner in an accounting firm is unlikely to get you there. quixotic objectives are all well and good, but in this context, you need to be singularly interested in money.
- step #2: identify critical milestones: you need to brainstorm the intermediary goals and accomplishments that will incrementally get you closer to your financial end-goal. these are the milestones. what is essential is that you can draw a direct line between your milestones and your financial end-goal. thus, your milestones will keep you on track and result in stepwise and consistent progress. whatever your financial end-goal, we surmise that having a $5 million high-net-worth practice will go a long way to helping you reach it.
- step #3: go to work: for the self-made super-rich, more often than not, the fact that they made an effort is what made them their fortunes. there is a mammoth gap between a brilliant strategy and astounding success. for many people, the hard work that is required is an abomination. their preference is for simple answers, easily realized. to become wealthy requires being motivated.
- step #4: always keep your goals top-of-mind: all too often, people lose sight of their objectives and their attention wanes. the super-rich, just like you, face a slew of “distractions.” with respect to their milestones, however, especially their financial end-goal, they are laser-focused and do not let themselves get sidetracked.
three guidelines for setting financial end-goals
you need to be flexible about your financial end-goals, including the way you think about money and the process of setting milestones. the world has a way of making quick turns, and you need to be adaptable as the covid-19 crisis has shown us. even so, you must remember what you are ultimately trying to achieve. flexibility is necessary, but it is critical to understand that you must not lose sight of your financial end-goal.
the plateau theory of financial unhappiness: as you get closer to reaching your end-goal, there’s more than a good chance you are going to want more. maybe you will want a little bit more, perhaps a lot. most people end up wanting more. it is as if you are climbing to the top of the mountain and you catch sight of the top of the mountain. as you get closer, you find it is only a plateau, and when you look up, you see a new peak. it is to the real peak you now want to go.
if you reach a plateau, what should you do? following the super-rich’s footsteps, you will reset your financial end-goal and establish a new and improved set of milestones. however, this time you will likely need to set the bar considerably higher.
you may need to readjust milestones: if you want a net worth of $10 million or more, that need not change. on the other hand, the intermediary objectives and accomplishments you need to achieve that goal are likely to change. you will likely have to make hard decisions at times and adjust objectives as appropriate.
getting wedded – emotionally attached – to milestones when circumstances change can be monetarily fatal, or at least result in severe wounds. on the path to greater personal wealth, you will have to make changes when it comes to your milestones, so be open and as versatile as possible. you might find, as some accountants have, that the milestone of a $5 million high-net-worth practice is not enough. the answer can be a high-net-worth practice producing greater revenues.
keep your eyes on the prize: it is amazingly easy to become distracted by life. even restricting the matter to the business world, it is oh so easy to get wrapped up in the day-to-day minutiae of dealing with clients and your partners so that you lose sight of what you have to do to achieve your milestones. as you confront the setbacks and uncertainties, you may very well forget about reaching your financial end-goal. like you, the super-rich face their own array of setbacks and uncertainties. yet they persevere.
perseverance is essential to significant financial success. becoming personally wealthy requires knowing your financial end-goal and continuously taking action to reach it. do not get sidetracked by the small stuff or even by failures. you need to hold onto your dream and keep moving forward.
16 questions for your practice and your goals for your practice
to begin …
- what’s your financial end-goal?
- where are you now?
if there is not a gap, stop reading. on the other hand, if there is a gap, you need to determine the ways you are going to close it.
one way to help potentially close the gap is to have a much more successful high-net-worth practice. we titled our book, “your $5 million high-net-worth practice.” why? because the “average” accounting practice of a partner in a medium or larger-sized firm is about $2 million in annual revenues. therefore, having a $5 million practice is a considerable increase. we also know that it is quite possible for you to generate significantly more practice revenues, potentially $5 million or more.
while it very much depends on the compensation model and other factors at your firm, there is still a strong correlation between significant increases in practice revenues and major increases in income. at many accounting firms, such increases go hand in hand with the opportunity for more equity in the accounting firm. we conclude that building a $5 million high-net-worth practice will meaningfully contribute to your reaching your financial end-goal.
moving to your practice …
- what are your annual practice revenues?
- what is your annual income?
now, placing a stake in the ground …
- in two years, where do you want to be?
- in two years, what are your annual practice revenues?
- in two years, what is your annual income?
again, we expect a gap between where you are and where you want to be. we trust you want to be generating more revenue than you are today. you want to be pocketing more money than you are today. you want your increased production to translate into a larger share of your firm’s profits.
with the intent of building a high-net-worth practice and making more money, the questions become …
- how does the increase in your practice revenues convert into increased income and more equity in the accounting firm?
- how does this increase help you get closer to your financial end-goal?
the math is probably very straightforward. doing this kind of math is easy. the hard part is …
- how are you going to close the gap?
- how are you going to increase your practice revenues meaningfully?
an excellent way to think about it is by determining what wealthy clients you’ll need to hit your numbers. specifically …
- in your high-net-worth practice, how many clients paying what amount will get you to $5 million in annual revenues?
- in your revamped high-net-worth practice, how many clients paying “x” amount in fees will get you to $5 million in annual revenues?
when we have conducted this exercise with accountants, we tend to find that their current high-net-worth practice will not produce the desired revenues. however, when considering their revamped high-net-worth practices, we have heard a range of possibilities from five clients averaging $1 million apiece to 50 clients paying about $100,000 each. it is possible to have more than 50 clients, but rarely less than five.
after determining the number of wealthy clients and what they are paying, you can specify what you are doing for them. we are talking about the range of services and the way you are being compensated.
generally speaking, we have found that most accountants presently are not doing as much as they can with their existing wealthy clients and do not have enough of them to hit the $5 million mark. so, two more questions …
- how can you generate more revenues with your existing clients?
- how can you source more wealthy clients who will pay you what you need to build a $5 million high-net-worth practice?”
a related question that impacts your answers is …
- what are you doing for the wealthy that they will pay very well to get?
our purpose is to give you actionable guidelines to help you answer these last three questions and bring in a lot more revenue.
conclusion
as part of helping professionals, driven entrepreneurs, and even some of the super-rich become ever wealthier, the exercise you just went through is very useful in helping people gain perspective. it is an effective way to drill down on connecting your financial end goals with concrete actions. with your answers in hand, you have a good idea of what it is going to take to achieve your personal economic objectives.