Does discounting help the accounting profession?

Recently I was in a coffee meeting with a friend of mine who is a partner in a top 10 firm chatting about the accounting market.  Roger (not his real name) was relaying to me an experience his firm had in a tender with a prospective client late last year. The tender was for a specific project around the need for the client organisation to restructure their tax affairs and as such it had some complexity – certainly not a straightforward compliance project.

Three accounting firms were involved in the tender: 2 “Big 4” firms and my friends top 10 firm.  My friend’s firm put their bid in at say $90k and one of the big 4 firms pitched at $140k. Now I have changed these price points to protect the innocent, but the relativities are the same. The other big 4 firm, for apparently the same scope, put their bid in at $40k. My initial reaction when my friend shared this with me was how incredibly foolish and desperate.  Unless there are specific strategic reasons to go in at such a low level or there is an excess of staff capacity that is not being utilised and needs to be “got working” why pitch at such a low price which is clearly (at least in the short term) unprofitable and unsustainable?

In the days since the coffee chat my thinking has turned to the much more fundamental issue that the above big 4 firm is not only doing themselves a disservice but also the entire accounting profession. By default, rather than by design, the firm, has in the mind of the market, devalued what they do for clients. This is incredibly dangerous since it has introduced the unsophisticated device of price as the key differentiator. Unchecked, widespread discounting will simply commoditise the profession and set in train a chain of events that will reduce the availability of high quality and tailored advice to only those who can afford to pay the top end firms.

For the sake of your own firm’s viability and the health/strength of the overall profession please think carefully before you discount!

All my best,

James

How do clients want to pay their accountants?

The honest answer to the above question is … it depends. Clients differ on the method of payment. Here is what just none CFO of a $200m revenue privately-owned company thinks …

I think it’s a horses for courses situation. An audit engagement is normally done as a fixed fee so you know what you’re dealing with. The accounting firms tend to do the same thing year in and year out, so they should be able to quote a fixed cost without too much trouble. Clearly, if they come up with any unusual circumstances or anything out of the norm, you expect that will be an add-on to the base fee that you pay them. I don’t have any issues with that.

However, for other services, I would normally expect to pay on a time basis. It’s usually very difficult up-front to understand how much time and effort is going to be required in the assignment and to put a fixed amount on it. Often any figure is incorrect and either underestimates or overestimates the work that’s required. I’d just as soon rather they came in, did what was required, and billed me for it as long as they were efficient in the way that they went about it.

In regards to a retainer, I’ve never been in a position where I’ve actually engaged an accounting fi rm on that basis; I just don’t see the value in it. I can’t think of any circumstances where a retainer would be warranted.

See you next post,

James E

 

Gun for hire

Thomas Taylor is a “CFO at large” He runs a boutique consultancycalled T2 and works with many organisations, both big & small, as a gun for hire. He goes into the business and acts as an interim CFO – to either help them out of a mess or help them grow to the next stage. Consequently he works with many accounting firms and is uniquely placed to answer the question of what accounting clients really want. I asked Thomas “Is price and quality a trade off? Does it need to be? ” Here is his answer:

I think we’d have to define quality first. Let’s say in this context that quality refers to good and sound, consistent advice. I suspect it is probably is a trade off. My gut feel is that the smaller firms as a generic group probably provide lower quality than the large firms, given the large firms’ resources and the ability to peer review.  I’m sure the variance within the large firms is very low whereas I expect the variance within the small firms is very high.  It depends on what level of technical expertise you’re looking for.  If you’re looking for someone to do consult on international tax or things like that you would go for a bigger firm. The simple rule of thumb I suppose is the higher the complexity, the great need for a bigger firm and the higher the resultant price. Very much a case of you pay for what you get.  I think people believe that.  That’s been my experience, although I have found smaller providers who have provided excellent service.  In my experience they usually are people who are refugees from the larger firms because they don’t like the culture of the large firms for one reason or another.

Until next time,

James E

Much ado about fees (part 3 of 3)

Last post we left the story at the critical point when John the CEO was understandably underwhelmed by the senior consultant’s revolutionary advice of a “to do list”.

The senior consultant replied, “Well, it’s not just a to-do list, John.  It’s more about the relationship that you have with your executives around that list.  It’s really important that you do it on a weekly basis and for the things that they don’t get done, they put it on the list for the folloing week, and so on.”

So John said, “Okay, I’ll try it.”  And John asked, “Well …what do I owe you?”

Now, given that this guy was only really speaking to John for about thirty or so minutes (not even an hour)  the senior consultant said, “Give it a go for three months, okay?  You do it for three months and you send me a cheque with what you think it’s worth.”

The three months came and went and this consultant checked the mail one day and he got a check fromJjohn.  What do you think he was paid for a 30 minute chat?  $500, $1,000? The CEO sent him a check for $200,000!  The moral of this story is that this guy had asked the CEO to pay him on the basis of the worth or put another way the value.  The simple advice had indeed revolutionised his executive team and it was worth $200,000 to him.  The $200,000 wasn’t reflective of the time or even the advice that the consultant had provided this chap.  What it was, was a recognition and an indicator of value that was generated by that advice, especially when the advice was exceuted.

It’s an extreme example, but a great example of changing one’s mindset around fees.  It’s not so much about the time you put in or even the advice you give.  It’s more about the value and the contribution that has been generated by that advice or by that piece of work. Don’t forget that. Your help is often more valuable than you think!

Until next time,

James E

Much ado about fees (part 2 of 3)

Moving to the other side of the fee type spectrum we have time-based fees which is traditionally how about accountants and lawyers charge their clients.  They have a charge out rate per hour, so if you engage them for ten hours, then of course they pay ten hours times the rate per hour.  That’s all well and good, but by definition, the professional advisor in this case, has put a cap on what they could potentially earn – because there’s only so many hours in a day, days in a week, weeks in a month, months in a year – if they’re purely charging on the basis of time.  The advantages and disadvantages have been well documented in lots of places for a long, long time. No need to waster our time here.

Much more interesting is the school of thought where an advisor charges, not just on the basis of success or time, but  on the basis of the value that you deliver to the client.  An extreme example here will help. There’s a very famous management consultant author by the name of Alan Weiss who has written a whole stack of books.  He gives some really good examples of, perhaps, the foolishness of advisors like accountants and lawyers charging on the basis of time purely because of that reason, that their potential earnings are capped by the availability of time.  His approach is, to  work out with your client from the get go what value they really need from the project that the advisor has been asked to deliver or the advice on.

There’s a wonderful example, which may fall into the realms of urban myth, of a CEO calling in a consultant – (it’s not Alan Weiss in this case, just some other guy) to help him. This CEO lead a very large firm and he was having problems getting his executive team of seve people to really achieve the things that they needed to achieve on a daily, weekly and monthly basis.  So he called in his friend, who was (I think) a senior partner with one of the big consultancies, and he explained his dilemma to the consultant.  The CEO went into lots of details and he shared his frustration that he just couldn’t get these people in his executive team, who were all talented, skilled, experienced senior executives to do the tasks and deliver the outcomes in the right time frame.  Things just took too long and would drag out from week to week, month to month, and so on.

The senior consulting partner, after pausing for a moment, shared the following with the CEO (let’s call him John)

“John, I hear your problem and I can sense your frustration, disappointment, and anger.  Please be assured that you are not the only CEO on earth to feel these things.  What I’m about to share with you will revolutionise the way that your executive team will work and how they relate with you.  It will change their world and your world.  The CEO, of course, leant forward and whispered, “Tell me the secret.  Tell me the secret.  This is fantastic.  I can’t wait.”

The partner took out a blank sheet of paper and started drawing a table.  The table had two columns. The left hand side, was labelled task; the right hand side, labelled task completed yes or no?.  I think in this case he had a tick for the yes or a cross for the no.  And he said, “Look, John, this is really simple.  In week one you get your executive team to write down the ten things that they want to achieve that week.  Some of them will be small things which will be achieved in five minutes.  Some will be quite long and they will be done over several weeks.  What I want you to do in week one is put the ten things that you want your executives to achieve, but also not just what you want them to achieve but what they want to achieve, and they get sign-off from you and they show you the blended list.  So that’s week one.  Every get together you have with them in week two, week three, week four and so on, you go through that one list.  You go through the things that are done and the things that are not done.”  This consultant said, “I guarantee that within a three months they will be transformed.  They will be focused on achieving those things on the list.”

The CEO said, “Is that it!?  A to-do list?”

Tune into the next post to read what happens next!

All my best,

James

Much ado about fees (part 1 of 3)

This week we are taking a slight departure from the client side and looking more closely at the advisor’s side (accountant, lawyer, management consultant, engineer etc …) when it comes to the wonderful topic of fees.

As we all know there are few different types of fee regimes.

1. Success -based

There are lots of clients out there who, for whatever reason, would prefer to pay out of their gain rather than pay fees up front for a project or a certain outcome.  The problem with that is that clients would probably do more with their advisors if there could be some element of the fees being charged based on a success basis.

Many advisers don’t like doing that purely because of the fact that they increase their risk.  However, consider some of the advantages of charging clients a success fee only:

Advantages

a.  Getting more work.

b. Building confidence and trust with the client, because of the fact that the advisor has been prepared to back themselves, or take skin in the game, or have a stake.  Clients like that because in effect the advisor is sharing the pain with the client.

c. Fees can be actually higher than normally charged, since if a project is successful then the client is prepared to pay more because it’s out of their gain. For example, if the project is a sale of an asset and the success fee is based upon that asset reaching a certain price and the advisor is able to exceed that price expectation, then of course the client is prepared – and has the capacity – to pay more.  Of course the size of the premium depends upon a range of factors: the agreement that you have with your client and the quality/strength of the relationship.

Disadvantages

a. Sometimes you may not get paid.  If the fee for the project is success only, then you can put in a lot of time, effort and resources and not have anything to show for it. Not a good outcome.

b. Even though a success fee is charged and you’ve delivered the client a great outcome, sometimes clients want to balk on agreements. Although the project was so incredibly well-delivered and the client has made a huge gain, they may backtrack and not want to pay that big fee.  This can sometimes happen when expectations of both parties and the client-advisor relationship is not strong.

c. In some respects a success fee only regime may lower the quality of the work that the advisor actually delivers to the client.  This is especially the case when the usual mode for the advisor is to charge fees for time or to charge their fees on a retainer basis.  Now, if the advisor has other clients that are paying him/her up front or on a part basis when stage one of a project is delivered, then stage two and so on, then depending on the mindset of the advisor, he/she may lean towards those clients that are prepared to part with cash up front as opposed to the success only piece.  So, sometimes from a client’s point of view, they’re not getting the best from the advisor.  It really depends upon the type of advice, the area of specialty, and the relationship between the client and the advisor.

We’ll visit another fee type next post.

All my best,

James E

Show me the money … NOT

I was in a meeting just the other day with a couple of senior partners with a big accounting firm (think top 10).

We were discussing with a marketing consultant I introduced to the firm what do people operating their own businesses really need and want from their advisers – in this case accountants.

The conversation went the usual way regarding client compliance needs, opportunity to value add, be proactive and the like. I’ve been in lots of discussions like this over the years and I’m sure you have too. Too often these conversations revert to motherhood statements, platitudes and the bleeding obvious.

However, towards the end of the meeting, something interesting happened. One of the senior partners, leaned forward and said the following (paraphrased):

We have to be upfront and completely honest with people that we meet who may or may not become a client. If we can help them improve their business and grow then we need to show them how we can do that. If we can’t help them then we need to tell them and step away.

I really like that statement. So often accounting professionals have so much pressure on them to meet their budgets, keep their write offs to a minimum and use everything in their power to make sure productivity is kept at a high level. Rightly or wrongly their is a (over)focus on fees.

The sad fact is that if you, as an accounting professional, are preoccupied with fees and the paraphernalia that comes with that, then clients will feel, see and smell it. No amount of soothing words, gifts, seminars/workshops, and invitations to the corporate box at the Rugby or Cricket will or can change a clients view that you and your firm is only interested in the money.

Wouldn’t clients prefer and want advisers (be they accountants, lawyers, management consultants etc…) to focus on them and their business, personal wealth and wellbeing and view their fees as a byproduct of a committed and strong relationship?

This is the sole reason I have stayed with my own accountant for more than 10 years now. He takes care of me and he knows the fees will take care of themselves.

What do you think.

All my best,

James E.