What does it really take to grow your accounting firm from £50k to £250k in turnover? What happens when your firm grows or what changes?
So many ‘experts’ in helping small accountancy firms grow focus purely on sales and marketing. While it's important, sustainable growth for a small accountancy firm is so much more than just winning new clients. To go from £50k to £250k means changing your practice from (largely) being just you to you plus a team. In this article, Heather Townsend explores the mindset shifts, leadership priority changes and also the practical stuff you need to do in order to successfully make this leap.
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What happens when your firm grows from £50k to £250k?
1. You need to re-think where you spend your time as you have run out of time.
One of the models we like to use with our members to show them what changes when you grow your accounting firm is the Red/Black/Blue model. Each of the colours represents what you spend your time on (see below).
The Blue area is ‘blue sky thinking’ or what we will often call 'working on the business'. It’s where you do strategic type activities or stuff which will help your business in the long term, such as:
- business planning
- rethinking your marketing strategy
- going on a course to build a new skill to allow you to offer more services to clients
- process mapping or optimising your processes and systems.
The Black area is front-office type activities. This is where you are earning money to service your clients. Some of your short-term business development-type activities will also come into this area.
Your Red area is back-office type activities. This is the cost of being in business and every business owner needs to do this. For example, bookkeeping, taking the time to renew your insurance, measuring and monitoring your KPIs.
When you get much beyond £50k in turnover as a small accounting firm, you run out of time. The Black area has typically consumed all of your time set aside for the Blue stuff. This is when you find yourself wondering why you gave up your demanding day job and its long hours for another demanding day job, much longer hours, and a non-guaranteed salary at the end of the month.
Typically, what happens around about £50k (or sometimes earlier), accounting firm owners start to bring in team members to reduce the amount of Red stuff the owner is doing. But also take over the lower value ‘Black’ activities needed to service the client workload. For example, calling them to ask them to bring in their records, doing personal tax returns, bookkeeping type tasks etc. These team members can be trainees, apprentices, virtual assistants. These team members could be part of an accounts outsourcing company, off-shored in a place like India, Philippines, Romania or Pakistan, or a freelancer working for you. By reducing the amount of ‘Red’ and lower value ‘Black’ activities the accounting firm owner is personally doing, this frees up the firm owner to take on more clients, i.e. more revenue, and/or work fewer hours.
We encourage our members to hand over as much of their compliance work as possible to the team. But some members take a little longer to stop doing personal tax returns. In our experience, they can often feel guilty for not doing the tax returns when their team are flat out in the busy season. Of course, the mix of work you do or don’t do is up to you. But the sooner you can move the lower value ‘Black’ activities onto a team member, the more time you will have to focus on what you need to do to move your practice forward. This is the KEY if you want to grow your accounting firm.
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2. You are now responsible for a team.
By the very nature of having people to manage, you suddenly have more demands on your time. One of the key leadership shifts, when you have a team, is to now recognise that your first priority is to help your team members perform to the standard you require from them. This takes time - and often time you don’t have - particularly if you are struggling to afford more resources in your business. This is often why small accounting firm owners will take on an apprentice first or opt to go the outsourcing route.
Outsourcing your compliance work, such as year-end accounts and personal tax returns is a great way to increase your capacity without the costs of a full or part-time member of staff. In our experience, you can actually grow your business to ~£300k with just you, an outsourced team and admin support.
Many small accountancy firm owners have a strongly held desire to not offshore or outsource their work. It’s not for this article to say whether this is right or wrong. Instead of outsourcing, many firms will look to find cheap labour by employing an apprentice. Taking on an apprentice as your first employee if you have run out of time is often the wrong decision. Just because their wages are cheap, doesn’t mean to say that they are a cost-effective hire!
Most of our members agree that apprentices only start to deliver real value into the business when they have between 6-12 months of experience. Until then, you are going to be spending a large amount of the time you don’t have training and developing your apprentice.
Read: The promises and pitfalls of hiring an apprentice
You’ve now got to find the time to recruit, develop and retain your team. This means that there is a major shift in what you spend your time on. For example:
- Communicating regularly with your team
- Ensuring that team members are communicating with you and each other
- Setting the culture and how people are expected to behave in your business
- Performance reviews and 1:2:1 time with your team
Fail to prioritise your time with the team and you will sadly find one or all of these things will happen:
- You have a revolving door of staff members and struggle to retain good members of staff (or have to exit lots of poor performers)
- You get frustrated that your staff won’t take initiative
- It feels like you are running a holiday camp for staff where they do as little or as much work as they like
- Staff will become your biggest headache and frustration
- You will find you become very unlucky and keep hiring ‘duds’
If you want to find out more about your responsibilities to lead a high performing team, read: Master leading a high performing virtual team with just 7 simple ingredients
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3. You have to learn to trust your team to get things done.
Going to doing all the client work by yourself to your team doing a large amount of work is not easy. (But like the other points in this article, it's necessary if you want to grow your accounting firm). Some accounting firm owners never quite make this transition. Add to that the fact that it’s much easier to trust your team if they are sitting in the same office as you (but this isn't happening now). Sadly, post-Covid-19 pandemic, more and more accounting firm employees are opting to work from home for some part of their week.
To find this level of trust often requires time, communication and the right technology. Here are some practical tips, taken from 5 tips that will help you trust work gets done with a virtual team:
- Use workflow management tools, i.e. your practice management software for accountants, to update each other on progress with your firm’s workload.
- Insist that your team members update the practice management software at the end of the day. In particular, what has been completed and can now be billed, plus any notes from client calls or meetings they have had.
- Set up dashboards and reports so you can see at a glance what stuff is falling behind.
- Remind yourself that it is about deliverables and outcomes, not time spent at the desk. (This is difficult if you are used to a culture where time spent at the desk was what mattered.)
- Run the daily, weekly and monthly Rhythm Team meetings. (See this article for more details about these meetings)
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4. Your profit margin gets painfully squeezed.
When your cost base was limited to software, insurance and what you needed to fund your lifestyle, you could afford to keep your prices low. In fact, these low prices may have been what helped you attract your first clients. As with most small accounting firms, however, over time, these low prices will be slowly choking your business growth.
By adding in staff members to do work on your behalf, your fixed costs and cost of sales increases. For example, deciding to take an office or a bigger office to house you and your team. If you don’t actively change your practice efficiency by raising your prices or doing things differently, you will find that as your firm revenue grows your net profit margin reduces. (See graph below).
It will often reduce to the point where, you the owner, are the lowest-paid member of the practice. Or even worse, you are, what feels like, working day and night to pay your team rather than pay yourself. From personal experience, this is often the point where you look at the cashiers at your local supermarket and ponder whether you would be better off having their job.
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5. You will often need to price your existing clients’ fees.
One of the quickest ways to increase your firm’s revenue so you can pay yourself enough to live on is to increase your existing clients’ fees. Even though this move makes fiscal sense, it can be incredibly daunting. Yes, the clients who really need a fee increase are often your first clients -the ones who supported you in the early days of your practice. BUT, you will find that the loud voice of fear in your head will be yelling at you to not commit commercial suicide by putting your fees up.
If you are still pricing at the same level as when you started your practice, now is the time to revisit those fees. We often find with our members that most wish they had repriced much earlier… and they only lost, at most, a couple of clients. Not surprisingly, these were the clients they wanted to lose too so it was a worthwhile exercise.
To grow your accounting firm, you need to increase your fees. Read:
- Our collection of articles on how to increase your client fees
- How can I increase my prices? 8 ideas to help your fee increase go more smoothly
- How to use neuroscience to increase client fees with minimal push back from clients
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6. You will invest in additional software to increase your practice efficiency.
As you can see from the graph above, if you are to increase your profit margin to have enough to live on, increasing your practice efficiency is now a leading priority for you. Most of our members will introduce practice management software for accountants but it may not just be practice management software you introduce. It could be different accounts prep or tax computation software to help reduce the amount of manual input and time to produce accounts and tax returns.
Many of our members have invested in the new breed of cloud-based practice management software for accountants such as Karbon, Senta and the new kid on the block Pixie. They are using their practice management software to:
- Automatically notify their clients when to send in information
- Allocate tasks to team members and check on progress
- See where there are bottlenecks in the workflow
- Check on the state of the workflow and any accumulated backlog of work
- Get staff to use best practice workflows and checklists to make sure that everything is being done and nothing is missed
- Plan and allocate work
- Understand their available capacity moving forward
A good practice management software stack can often save your firm the cost of an admin person.
Read:
- What is practice management software and why your small accountancy firm needs it ASAP
- 6 things you must consider before deciding on what practice management software to invest in
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Marketing and sales are still important: But the focus is more on keeping existing clients happy
In the early stages of your accountancy firm, it was all about how you were going to win more clients. To go from £50-250k in turnover, however, you are going to have to go beyond winning more work. For example, you'll need to look after your current clients well as this will generate a reasonable amount of new business from your existing clients. This could be your existing clients wanting more services from your firm or recommending your firm to others in their network.
We find that many of our members when they get to the £200k level will often change the mix of their business development plan. For example, they may leave a networking group, such as BNI, and outsource elements of their marketing to external professionals.
To grow your accounting firm from £50-250k, consider making some or all of these changes. We're not saying it's going to be easy but it will pay dividends to both you and your firm!