Prediction: More low fee clients will migrate AWAY from traditional accountants

The traditional focus on recurring work and the associated recurring fees is likely to change in the near future.

There are an increasing number of alternative, low cost and professional alternative service providers. Those clients who perceive that all their accountants do is produce accounts and tax returns will be at risk. At the moment there is just a trickle of a move to online, cloud solutions and DIY compliance. This trickle will increase starting at the lower end but across the board as everyone looks to get more value (for which read ‘advice’) from their accountant.

Accountants who provide traditional tax return completion services and simple accounts preparation services are most at risk. Plenty of commentators have been saying this for a few years. I’ve long been of the view that the move to newer style service providers will not happen overnight. But it will happen.

Accountants who are losing more than a trickle of clients would be well advised to check out what the competition is promising and doing to win work away from them.  Then comes the hard question. How will you respond?

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Recurring fees… the death of the profession

How many accountants go into practice with the intention of operating in the same way as lawyers do?

Not many I think.

What do I mean?

Well lawyers are very much transaction focused. Property lawyers advise and help facilitate property transactions. Family lawyers advise on divorce, child custody and other one-off situations. Commercial lawyers advise on business deals – and so on. When the deal is done, when the situation is resolved, the work ends. And the lawyer moves on to a new piece of work. In most cases, other than perhaps in the largest firms, each lawyer has to constantly devote time to finding new work.

Accountants are different. Due to the obligation imposed on clients to produce annual accounts and to file tax returns every year, accountants have lots of recurring work. Clients come back year after year. In fact the clients don’t go away. They often pay annual fees by monthly instalments. Accountants can anticipate that the total annual fees they earn will remain pretty constant year on year. They may lose a few clients for whatever reason but equally they will probably pick up a few new clients and it will all balance out.

The question that is rarely asked is whether accountants or lawyers are more profitable? Another related question would be whether accountants or lawyers feel more fulfilled in terms of the work they do and the extent to which they apply their training, knowledge and expertise?

The above comments are taken from my contribution to a report, ‘GRF is killing the profession‘,  recently published by Bob Harper. He says it contains contributions from “leading thinkers, advisers and consultants to the accounting profession.”  (Ron Baker, Bob Harper, Dennis Howlett, Mark Lee, Mark Lloydbottom, Michael McKerlie, Finola McManus, Steve Pipe and Paul Shrimpling).

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Incorporation fright – a taxing horror story

Regular readers will know that Incorporation has long been one of my pet subjects. I’ve written two tax digests on the subject and numerous articles. It’s also one of the seminars I am frequently engaged to provide to audiences of accountants.

I was chatting with a business associate (‘Steve’) recently who told me that he had changed his accountants last year – 3 or 4 years after they persuaded him to incorporate. Whenever I hear that someone has changed accountants I always ask ‘why?’

Steve had been with the old firm for ten years. He’d never been especially impressed by them but he stuck with them until they messed up.  In fact at one stage he’d been almost impressed. They persuaded him to incorporate his longstanding partnership business. He wasn’t convinced this was the best thing to do but he remembered the accountants were quite insistent. They said that they would be at risk of a complaint to their professional body if they didn’t incorporate the business due to the tax that could be saved. (This is rubbish of course. Clients can choose whether or not to take advice. It’s their decision. All the accountant has to do is to give the advice AND to ensure that the client only proceeds if they are aware of all the related issues – not just any potential tax saving. But I digress…)

Expecting tax savings Steve was shocked to get a demand for £36,000 ADDITIONAL tax from HMRC some two years after filing the first year’s accounts for the new company.  How did this happen? Steve explained:

His bookkeeper used to work for the accountancy firm who knew they could rely on her work.  After incorporation he had asked the accountants what to do when money came in re invoices issued by the old partnership. They told him to bank it as usual (there had been no change of bank account). The bookkeeper annotated all such receipts in the cashbook as being ‘re partnership’. For reasons I cannot fathom it seems that the accountants ignored the green ink annotation and reflected these receipts as being company income.  The additional tax bill was for the income tax due on the income excluded from the final partnership tax return. (Hopefully the accountants secured a refund for the additional corporation tax paid in error).

This is a shocking story.  It’s no surprise Steve changed his accountants. What steps would you have taken to avoid such a situation arising?

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Seth Godin steps into the time vs value billing debate

Seth Godin is renowned for his pithy and thought provoking blog posts and books.  His most recent post is a new (to me) way of looking at the age-old ‘time vs value based’ billing argument:

“Long work is what the lawyer who bills 14 hours a day filling in forms does.

Hard work is what the insightful litigator does when she synthesizes four disparate ideas and comes up with an argument that wins the case–in less than five minutes.

Long work has a storied history. Farmers, hunters, factory workers… Always there was long work required to succeed. For generations, there was a huge benefit that came to those with the stamina and fortitude to do long work.

Hard work is frightening. We shy away from hard work because inherent in hard work is risk. Hard work is hard because you might fail. You can’t fail at long work, you merely show up. You fail at hard work when you don’t make an emotional connection, or when you don’t solve the problem or when you hesitate.

I think it’s worth noting that long work often sets the stage for hard work. If you show up enough and practice enough and learn enough, it’s more likely you will find yourself in a position to do hard work.

It seems, though that no matter how much long work you do, you won’t produce the benefits of hard work unless you are willing to leap.”

You may not record 14 hour billable days. But if you focus on how much billable time you can record on your timesheet each day you are of the same mindset.

I would suggest that Hard work, in this context, is the application of knowledge, skills and experience to solve problems and to provide valuable advice – without the need for detailed research or long advisory letters. I would stress though that it should be genuine and not guess-work or risky half baked ideas that would have benefitted from proper research.

Hard work requires discussion over the value to the client. It also means the adviser has to decide whether the agreed fee will provide sufficient reward. Sufficient to cover not just the time but also to contribute to the build up of knowledge skills and experience which put the adviser in a position to provide the advice. Thinking that all through, having the discussions and accepting the outcome is Hard work.  But it can pay very well as a result.

Do you focus on Long work or do you have a way to get paid a fair fee for doing the Hard work?

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