The Buyer’s Perspective
While these rules are universal for anyone who owns an accounting firm, we wrote them with the first-year buyer in mind. As you might imagine, buying a practice, especially the first time around, is an exciting and challenging endeavor. Thankfully we’ve seen some really smart and energetic buyers do some amazing things with their new practices. Unfortunately, we’ve seen a few mistakes as well. These rules are based on our experience on what we’ve seen work for successful accounting practice owners. We hope these will provide some valuable insight to those who are bold enough to venture into the unknown and own their own firm.
Rule # 1 – Plan
Business owners in general undervalue planning. The mindset some have is essentially, “There is no value in thinking about what you are going to do when you could be doing it. Action and action alone is how you get things done.” It’s certainly true that you have to act and focus on the work that brings in revenue, but planning in order to step back and keep your eye on the big picture is absolutely crucial. It helps make sure you are channeling that activity in the right way. That involves setting goals and creating strategies to achieve those goals.
I remember when I got involved in one of my very first business ventures, one of my business partners was a seasoned and successful business owner. He was probably in his late 50’s or early 60’s at the time. He’s a very charismatic person and always had a great way of making a point. He became one of my key mentors. One day we decided to have a partner’s meeting and I’ll never forget what he said that day. He said “Boys (and we were both probably only around 25 years old or so at the time) this is where you make your money…right here in meetings like this one. One brain is great, two are excellent and three are exponentially better than two. Planning like this is where we get ideas to take this business to the next level.” He was right. A few years later we sold that company for a very nice profit.
Rule #2 – Build a practice that serves your interests.
What are your interests? It’s important to know what you want from your business. Some CPA’s are so focused on their clients and staff that they forget why they went into business in the first place. You’ll need a certain income. You’ll also want to be able to have a certain amount of time off and freedom. Those are certainly two of the biggest ones. Beyond that, what do you need to be happy with the business in the long term? It might involve a need to have a certain office culture or to be able to find meaning in the work that you do…to have a significant impact on your clients. Maybe you are very extroverted and have a need to spend most of your time engaged with other people? Maybe you are a person who likes solving challenging problems and would enjoy complex tax planning. Whatever it is, figure that out. We spend a significant amount of time working, so you need to be enjoying it and building it so it keeps you motivated.
Rule # 3 – What size accounting practice fits you best?
I know. How can a rule be a question? Well, this one is a bit hard to nail down. Some people really enjoy “doing it all” and want to keep it small so that everything is within their control. Others are great at team building, delegation and naturally gravitate toward building a large firm. There is no right or wrong answer to this question. However, we’ve seen a lot of practice owners struggle with finding just the right work-life balance. Interestingly, what’s right for you at one point in your career may not be right at another. A few years ago, we had a client who sold his relatively small tax practice. He had almost no staff. What was interesting is that he’d previously been the managing partner of a very large regional firm. He really enjoyed the freedom and simplicity of a solo practice and small firm. The key to knowing how to follow rule # 3 is likely best found by following the other nine rules and returning to this question periodically.
Rule # 4 – Unplug often…and don’t work too much.
Wait. What? Yes, time away from the office without email and checking in with the office is how you recharge. A lot of people see time off as a luxury which it certainly is, but it’s much more than that. When we start experiencing symptoms of burnout our productivity falls off pretty dramatically. Long hours are sometimes a necessity in public accounting at certain times of the year, but if you are going to build a business, time off is essential to get back your energy and problem-solving creativity to blast through the various challenges that block your progress. What good is a day off if you spend a lot of it checking email on your phone? One email can take your mind back to the office for hours. If you’d like a deeper dive into this topic, then you might enjoy reading What would happen if you started working less?
Rule # 5 – Charge what the market thinks you are worth.
Charge what the market thinks you are worth, in contrast to what you think you are worth. If your practice is under-performing when it comes to profitability, this is likely the easiest path to meeting your profit goals. We’ve seen a great mix of practices over the years and under-pricing is quite common. It takes courage to increase fees and some clients will resist. We recommend a strategy that takes a trial and error approach. Essentially, you test price increases on a small sample of clients and also test pricing on new client work. There is an outline of this methodology in Accountant’s Flight Plan.
Rule # 6 – Focus. Focus. Focus.
Have you heard the saying… “Niches Bring Riches?” It has certainly been our experience that this holds true for accounting firms. We believe this will become even more true as new technology makes compliance work easier, more efficient and more competitively priced. Clients value deep knowledge in their industry and they are hungry for more advisory services. The other aspect of focusing is that complexity in many areas of accounting is increasing. It therefore becomes difficult and inefficient to try to offer a large variety of services without a large, specialized team. One of the most eye-opening audiobooks I have ever listened to is the 80/20 Principle by Richard Koch. There is a lot of hidden potential in applying the 80/20 principle to an accounting practice as it relates to focusing, pricing, staffing, etc.
Rule # 7 – Hire well – even if that means paying “too much.”
There are a lot of clichés about team building/hiring. Here are a few:
- Hire slow and fire fast.
- Your people will make you or break you.
- There is no ‘I’ in team.
- Lead by example.
You get the picture. The interesting thing about these is that they are actually worth heeding. Turnover is expensive (oops…maybe that’s another one?). Staffing an accounting practice is challenging and the current environment is tight for talent. Good people are expensive, but with good leadership, are completely worth it. One thing to add here, if you are growing your firm and adding team members, it is very helpful to have your pricing set at a profitable level before hiring. In many cases, a firm can add capacity by weeding out clients who are no longer a good fit for their practice.
Rule # 8 – Learn how to capture referrals.
The good news is that you can build an amazing practice through word of mouth and referrals. The hard part about that is you first must provide service that is worthy of a referral. If you are serious about getting more top clients through referrals, step one is taking a really good look at how you might improve the client experience. In fact, this needs to be a continual process. One of the best ways we do this at Poe Group Advisors is by involving our team. We ask our team – “What are the pain-points that clients have been experiencing? How can we create solutions to either prevent or mitigate those problems?” I’ve been amazed and grateful for the ideas our team has come up with. We also let our team know that our goal is “to create service worthy of a referral.” This not only helps us create a motivating standard for our team, but it drives growth. When we know a right-fit client is happy with our service and receiving value, they are happy to refer others to us. All we have to do is ask.
Rule # 9 – Have fun.
Can work be fun? Work is work and all of it won’t be fun, but a fun workplace can be more productive and experience extremely low turnover. In fact, fun is probably one of the most undervalued leadership qualities on the planet. Thinking back on my own experience of working for others, my favorite places to work were both very successful companies and had extremely fun environments. The owners knew how to have a good time and were generally just good people to be around. Check out our past fun blog post to read more.
Rule # 10 – Find out what makes you tick.
The following is excerpted from Accountant’s Flight Plan-Best Practices for Today’s Firms.
I’ve seen far too many owners take on adjunct lines of business, whether in the name of diversification or in hopes of increasing revenues, only to find themselves frustrated. In more cases than not, the secondary line of work ends up representing a small portion of fees—and an incommensurate drain on firm resources. The amount of time required to do the second area justice is often not considered in measuring the bottom line of that business segment. Most owners do not separate non-chargeable time to different service areas. My observation is that if they did, they would see that they are losing money on the add-on and hurting the core. I have participated in selling off various sub-specialty pieces of practices. One owner, intent on focusing on his audit practice, sold the tax portion of his business. Years after the sale, I learned that his firm had experienced tremendous growth. He was working fewer hours annually and achieving much higher margins than he had when he was practicing in both areas of tax and audit. Just as importantly, he was experiencing greater satisfaction in his work—an intangible gift that usually comes with knowing that you are very good at what you do. I have had numerous owners who sold their tax business to focus strictly on financial planning report similar results.
The key is to first determine what aspects of your professional practice you most enjoy. Secondly, identify what you’re particularly good at doing. Here’s a hint: the two will generally go hand-in-hand. Pick an area that you are comfortable with and stick to it.
We hope these 10 rules will help you create the practice of your dreams. To sum this all up, here is a fun quote from the singer/songwriter Reba McEntire:
“To Succeed in life, you need three things: a wishbone, a backbone and a funny bone.”
Interested in purchasing an accounting firm? Check out our accounting practices for sale page for more information.