An Outlier is defined as ‘a person or thing that lies an abnormal distance from others in a population.’ You’re probably familiar with Malcolm Gladwell’s book ‘Outliers’ which talks about the things that makes high achievers different. Gladwell focuses on the value of practice in achieving great results. Apparently, 10,000 hours of practice can make you an expert in your field.
What does this have to do with accounting firms? Can a more detailed look at the highest performing firms tell us anything about what it takes to be exceptional?
The most recently published Good Bad and Ugly benchmark report of Australian Firms has identified the results being achieved by the top 25% of firms in a range of focus areas.
For example, did you know that the top 25% of firms report the following average results:
- Net profit % (BPS) – 45%
- Revenue per full time equivalent – $182,281
- Productivity – all FTE – 57%
- Average hourly rate – $218
- Net write-offs – 0%
- Work in progress days – 15
- Debtor days – 42
It’s possible that your firm may very well be an ‘outlier’ in relation to at least one of these KPIs. What is different about your firm that gives you this result?
Sometimes, the outliers result from a significant variation from the norm in relation to the firm’s mix of client services and industry focus. Often, the reason simply comes down to differences in the way firms manage their people and communicate with their clients. And it’s these characteristics that appear to be the most difficult to change.
For example, benchmark data suggests that the key factors differentiating the most profitable firms from others are the level of leverage achieved and the ability of their staff to manage client expectations (rather than having clients dictate terms).
Likewise, firms experiencing net positive write-ups are clearly able to charge appropriately for the service delivered. More often than not, this also comes back to good leverage and effective client communication.
Of course, there are plenty of specific actions that firms can take to improve their key performance indicators.
For example, steps firms should take to reduce write-offs include:
- Inform the client up front what the job is likely to cost based on agreed scope of work. Provide fee range if appropriate.
- Review the fee and scope of work agreed with the client. Get back to the client with revised scope of work and/or fee in a timely manner.
- Tell the client up front if it is likely that the fee will differ from their expectations. Explain the reasons and give alternatives.
- Manage WIP to job budget in a disciplined manner.
- If work is not provided in a timely and appropriate manner, tell the client that this may affect the fee for service.
- Do not start the job until the work is in. Use checklists if required to check completeness of work received.
- Manage delegated jobs more closely. Ensure job budget is in place and that the person doing the work understands their time cost budget.
- Ensure that staff doing the work understand ‘scope of work’ and what is outside scope of work. Training may be required.
I’ve spent the past 15 years helping accounting and advisory firms change the way they do things to achieve great results. Specific actions like those outlined above certainly work over time. However, the one thing that really differentiates the outlier firms is simply the courage they show in changing the way they do things. For example,
- The courage to change the way the firm explains mutual expectations
- The courage to go directly to the client, up front, when scope of work changes
- The courage to delegate client relationship responsibility to staff
- The courage to tell clients you want to learn more about them
Do you have the courage to change the way you do things?
In October 2015, Training Beyond Accounting is running a special 2 part online program ‘Focus on KPIs to improve profit – How high performing firms achieve great results.’
In this program,
- We’ll review a range of KPIs, including those mentioned in this article
- We’ll identifying what high performing firms are doing to achieve great results.
- With each KPI, you’ll be given a step by step process to improve your results.
We’ll also discuss how the leaders and managers of firms can summon the courage to change the way they do things.
Director, Training Beyond Accounting and Business Aptitude
- What does 2021 have in store for ATO audit activity? - 26 November 2020
- Over 30,000 people have invested in crowd sourced funding equity raising - 13 August 2019
- The 7 things your SMSF clients are judging you on - 13 June 2019