Resources and Results - The Keys to Success in Practice
Author:
Sean Kilemade
Many practitioners are considering joining with other practices. Mergers provide a means to growing profitability at a faster rate. They also create enhanced succession opportunities for senior partners in the enlarged practice allowing them to retire with enhanced exit payments. Every practitioner would benefit if he or she managed the business as if the intention was to merge or sell in the short to medium term. Intention is a powerful mental state. It leads to action. A practitioner intending to merge or sell, wants to be in a position of strength in advance of negotiations to agree the best terms. The business focused accountant therefore works continuously to enhance the practice in order to maximise its market value. What is the big difference that this frame of mind makes? The difference is commitment – commitment at an early stage to maximise the value of the business. The purpose of an accountancy practice is to create and keep clients at a profit and thereby earn income and create a saleable asset. Technical expertise is a necessary but not a sufficient requirement for achieving this objective. Effective business management is what makes the real difference.
Successful practice management is all about Resources and Results. It is about getting the best out of scarce resources to achieve predetermined results. Resources are nearly always scarce relative to needs. But that does not stop proactive managers from engaging with the challenges facing them and striving to maximise results. Let’s look at the key resources in your business. Think of them as links in a chain. Bear in mind that a chain is only as strong as its weakest link Therefore we get the greatest leverage when we identify the weakest link and strengthen that link first. This is often called the “theory of constraints”. Resource constraints are a challenge facing all managers. As you read below consider your firm’s resources to see if you can identify your weakest link (or key constraint)?
The first resource is the money resource. If the business is managed effectively this resource will allow the practitioner sufficient annual drawings to meet income needs including proper provision for personal financial protection for the long term. This aim needs to be achieved while at the same time leaving a healthy balance sheet that supports practice growth. The health of the money resource is critical. But that health is achieved by managing all the other six resources in an excellent manner. So let’s turn to them now.
The second resource is range of services you offer. Your offering to clients dictates the future of the practice. You choose basis on which you wish to compete in the marketplace. This is a strategic decision. The challenge is to solve the question about the correct balance between compliance work and value added services. Practitioners need to find the right blend. Compliance work provides a base for developing other services that people are more willing to pay for. With a limited range of services your client may need to approach competitors for advice. This can be the slippery slope to losing all of your client’s business. For smaller firms there is a delicate balance to be negotiated between being a generalist and being a specialist. Specialisation is a strategy that leads to premium fees. In the end perceived value is the route to client loyalty and referrals. When optimised, the service resource leads to highly competitive advantage.
The third resource is the tangibles. These include premises, location, technology, and the general practice infrastructure. The tangibles are the enablers for service delivery. The question for you is whether the tangibles are supporting or undermining your ambitions to grow the practice. Take for example your premises. What statement is it making to the business community? Young ambitious trainees and accountants wish to associate themselves with a “cool” place to work. Are your tangibles making a statement about you that you wish to project to prospective employees and clients?
The fourth resource is the intangibles. These include two aspects – external and internal. A prospective client wants to hire an accountant. He throws his eyes down a list of accountants and pauses – “Joe Blogs, hmm, will I phone him? Hmm … no, who is next on the list”. That split second of reflection, may be a moment of truth for a practitioner. It’s got to do with the public identity of a practice. Your identity is either working for you or against you. It is seldom neutral. Your public identity is cultivated without you even knowing it. This happens in conversations between your clients and other business people in the golf club and elsewhere. It happens when staff talk about work at home or in the pub. You need to manage the public identity of your practice. The second aspect is culture. Culture is the internal manifestation of your firm’s identity. Culture has been described as - “how we do things around here”. It is about attitudes, habits and practices. It includes typical reactions people see when things go wrong. When a partner or manager walks into a room, all of a sudden conversation comes to an end. “What’s going on here?” one wonders. Your public identity and your firm’s culture are either working for you or against you. They are never neutral.
The fifth resource is the time resource. It includes at least two aspects. The first is professional time. What is the amount and duration of time that it takes for you to deliver the promised service, starting when the job is first presented by the client to when the service is delivered to the client’s total satisfaction? Do you know? Is it satisfactory to you and the client? Are the appropriate levels of professional time being charged to the job? Is the production and delivery process streamlined to expedite completion of the job? The second aspect of time is personal time. To what extent is the personal time of practitioners being used to subsidise the business. Has overtime become a rooted habit? If so what are the risks, in terms of burn out, disenchantment, quality of life, etc. Enlightened firms see persistent overtime as an indicator of a problem that needs to be addressed. The future of the practice needs the people to be working at peak performance while they are at work. In general this should happen within regular hours.
The sixth resource is the people resource. The challenge here is about hiring, developing, deploying, directing and motivating people. It is also about dealing effectively with underperformance, saving and retaining people for the business or helping the unsuited to move on. It is about structure and designing roles that support the development of the business. It is about the right person in the right role it is about effective people management from principals down to the senior managing the junior. Current research now confirms that 80% per cent of superior performance in the managerial role is attributable to people skills, not technical skills. Yet it is technical ability that accounts mainly for promotion to managerial roles. This phenomenon, of technically minded managers without management skills, can be a key constraint in the progress of a whole department or firm. Managers set the cultural tone for their teams. I have seen poor performing employees develop and blossom after being transferred to another manager. The Institute’s student training contract now requires that the firm develops the personal and interpersonal competencies of students as part of their education. People are the difference that counts when it comes to excellence in business. Almost everything else can be copied.
The seventh resource is the communication resource. Effective communication is the lubricant for effective and efficient utilisation of the other six resources. The key interactions happen at interpersonal, team and client levels. The medium can be verbal or written. Conducting emotionally sensitive messages by email can lead to disastrous unintended consequences for a relationship. It is always better to be courageous and talk face to face where you can get instant feedback and tailor your response to meet the needs of the situation. Meetings are intended for efficient communication and decision making. Yet the majority of meetings are said to be a huge waste of valuable time. This time when priced at charge out rates, can make financial controllers weep. Presenting to clients and others is another key communication competency and one which should be developed to a high level in every growth oriented firm.
The seven resources are a rough and ready template for reviewing the present state of your business. Look at the seven resources as falling into two distinct groups. Take the first three “hard” resources money, services and tangibles and compare them to the remaining four “soft” resources, intangibles, time, people and communication. Reflect a little on their relevance to your practice. Do you see a difference between the two resource groups? What strikes you? Which of the two groups usually gets most management attention? Which group is most neglected? Which group if given more attention will contribute more to a successful practice? What insights have you gained from your reflections? Have you identified your key constraint, ie your weakest resource? Begin working on your key constraint immediately, and then the next, and keep going until you are maximising all your resources. This approach will maximise efficiency and results within your current framework of operations. Efficiency of operations is one thing. Effectiveness is another.
Effectiveness is about achieving desired results. Desired results presuppose reflection on what is that we desire. It is a waste of time being efficient and going in the wrong direction. This is why we need a strategy and that moves from us from operational domain to the strategic domain. Most firms neglect strategy. However, strategy development provides a range of future options for consideration. Key questions must be answered. What business are we in? What business could we be in? What business should we be in? What is most important going forward? Where do we want to go? How will we get there? When will we get there? What are the business, professional and personal benefits and sacrifices? Only the enlightened few seriously ask and seek the answers to these questions.
If you wish to realise your potential in practice, choose a clear strategic direction. Manage your seven resources efficiently and effectively as you pursue your strategy. Keep in touch with the developments in the market place. Monitor feedback and progress. Evaluate, learn and adjust as necessary. This is the process by which you will put your business in a prime position to maximise the benefits of practice mergers or sales opportunities when they come your way.