Profits in the accounting profession are far too low. Based on our 2011 survey of accounting firms, only 2.5% of the profession are making over $1 million profit per partner. Most earn much less. For all of the risk assumed in being in business, why bother?
There are many and varied reasons cited as to why such low profitability exists. For example, ‘our clients can’t afford to pay more’, or ‘we can’t find good people’, or ‘there is too much compliance work to do, meaning we don’t have time to do any high value work with our clients.’ Again, most of the reasons cited are merely excuses. It’s your business and you choose how you run that business. In my opinion, the major reason why profitability is low is a lack of self esteem.
The first realization is that you must believe in what you are worth. I believe the profession in Australia has been sent into a negative spiral as a result of the introduction of the GST is 2000. (For international readers, think of the impact of any major tax reform or significant new tax legislation). What was expected to be the golden goose for accountants actually proved quite the opposite, with many firms becoming more and more engaged in low value, transactional, commoditised work for clients. Sadly, the upshot of this has been that client contact has reduced, as has the time available to engage in higher value projects on behalf of clients. This increased focus on low value work for, in many instances, clients with limited potential to enhance the skills of the accountant inevitably results in accountants feeling that the work they are doing has little, if any, inherent value.
Here is a classic example. Recently, I was talking with a partner in a firm that is the only firm in their state to undertake valuation work for a particular industry. They have valuations coming out of their ears, many of them referred from the major banks. They do each valuation at a fixed fee of $2,500. A cursory analysis of their numbers shows that the average hourly rate recovered on these valuations was lower than that for basic tax compliance work. This despite the fact that they are acknowledged experts in the field, they have no competition and every valuation they are asked to do is urgent! I asked when they last increased their prices and the answer was three years ago. My next question was how much have your salaries increased in the past three years – the answer – at least 30% and probably more. It makes no sense.
This particularly affliction is not unique to the accounting profession. Just last weekend my family and I ventured to Sunshine Plaza at Maroochydore, Queensland (Australia) for the annual Christmas shop. It was noticeable that the crowds were thinner than usual. However, what was even more noticeable was every store had massive sales happening. Even the premium department store, Myer, was offering 50% off many lines.
Why would they do this? Two weeks before Christmas; competing against Target and KMart where surely the price sensitive shoppers would go? One would think that people choosing to shop at Myer are not price shoppers. In my view, they are throwing money down the drain.
How many of your clients are offering discounts to the 90% of customers who never ask for them? If you want to lead your clients – and let’s face it, many of them need serious advice – you need to sort out your own backyard first.
About the Author
Colin DunnDirector & Co-founder at PANALITIX
Colin is a Chartered Accountant who, having spent almost 10 years with one of the fastest growing and most innovative firms in the UK, has spent the last 19 years working exclusively with the Accounting profession with a focus on helping them implement business advisory services with their clients.