Firms with other specialist services, such as insurance or financial planning, have a raft of advantages if they get it right, says consultant.
Adding a service ‘multiplies the value of a practice’
Adding the right specialist services to an accounting firm has a multiplier effect on its value, grows revenue and helps retain clients, says Elixir Consulting strategist Graham Burnard.
But Mr Burnard, who has 30 years experience in the finance industry, said accountants should go into diversification with their eyes open because there were plenty of ways it could go wrong.
“We get see an awful lot of what happens around the marketplace and what works and what doesn't,” Mr Burnard said at the recent Accountants Daily Strategy Day.
“In particular, we see the traps for people who have tried to do too much or not doing it effectively, or running certain services at a loss.”
“This is about finding specialty areas you want to focus on and delivering a best-of-breed service to your clients. So it's not dabbling and adding in some additional services because it's convenient.”
He said there were plenty of options – such as outsourced CFO, financial planning, insurance, SMSF administration, bookkeeping – but deciding what worked best could be complex.
“One of the key things is whatever specialties you have, they somehow link together and tie together to make sense in a broader proposition,” he said.
“Look at each area as an individual value stream. What is it you do that people are going to be prepared to pay for? And how do you stack up in the marketplace?”
It was important to understand the target market because if different specialties aimed for different clients, then the move would make little sense. It was worth asking a question: what’s the ideal client and what do they need? Referrals across from one division of the business could be awkward if clients for each were not a good fit.
Other aspects to consider included the commercial model and business structure.
Different strands of a business might charge in different ways, from fixed fees to variable, asset-based fees or a combination or both.
With business structures, at one end adding a specialty might involve nothing more than a loose referrals arrangement with another firm.
Joint ventures between accounting practices and, say, a financial planning business could work but Mr Burnard said they sometimes struggled to justify the effort and also tended to fracture over time.
Employing a specialist within the firm was another option although it could lack the benefits of a fully integrated offer.
If the goal was a fully dedicated business unit for the speciality, then it had to become a core part of the firm with a leader at partner level.
At the most integrated end of the spectrum, Mr Burnard said he knew of one business where there was little differentiation between the various services, such as accountancy, planning and bookkeeping, but it required a very focused client base.
Whatever the approach or the specialty, it had to be aligned with the firm’s DNA.
“There needs to be an overarching culture for the professional services firm and all the individual divisions that fit into that in their own way,” he said.
“Spend time understanding the purpose and values of the organisation, what it means to live the values, creating this whole persona of the business, and then making sure all the different parts fit into that. Because too often silos are created.”
One type of silo came about due to different technology used by different specialties, so it was vital to have “a single client view”.
But fit all the pieces together correctly and the practice would become more valuable, he said.
“An accounting firm would typically sell for 1.2, maybe 1.5 times revenue, financial planning firms are currently selling for 2.5 or 3.0 times recurring revenue. So a well run financial planning division can be extremely attractive and add a lot of value to your business.”
It also helped stop clients drifting away.
“Adding more services to an existing client is a great way of making them more loyal and sticky.
“People are looking for more one-stop shopping, looking for simplicity, they're looking for people that understand their total life. If you can provide that, you'll find very loyal clients who are happy to pay a premium for the service.”
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