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Your accounting firm isn't worth squat - An open letter to a Senior Partner
Dear Bob,
I started working with your accounting firm when I was a graduate, wide eyed and fresh out of university. I spent the first 12 months of my career learning the basics of ‘tax’ which included how to complete a form on horribly clunky software, learning not to misspell my clients’ names and building a habitual practice to back up my work every 60minutes in case Citrix or whatever that virtual server was called crashed again, losing hours of work.
I learned how to dress in a ‘professional environment’ including a mandatory tie and suit - an uncomfortable ask in a Queensland summer.
After building my experience completing forms for individuals, you gave me the opportunity to learn how to apply DR = CR – the foundations of number crunching. I quickly learnt how to review a set of financial statements and identify when the accounts were in a mess, then how to ‘reconcile’ them, or essentially “fix them up”.
Bank statement at 30 June = balance on balance sheet. Tick
Accounts payable ledger = balance on balance sheet. Tick
Accounts receivable ledger = balance on balance sheet. Tick
June QTR BAS = GST payable balance. No. Spend 10 hours trying to reconcile GST with confusing template workpaper. Finally work it out – there’s a $100 GST benefit to the client. Manager is stoked we have ‘added value’ by picking up an error made by the bookkeeper.
10hours @$180 an hour to calculate a $100 benefit – wow, such value we’ve added.
Give this package to manager for review.
It would return with a few pages of review points, the number depending on how anal your manager was. As you worked more closely with your managers you started to understand how they personally liked things. Michael, the OCD perfectionist wanted the P&L structured always in alphabetical order. Sandra’s tick was Every Account Name Must Start With A Capital Letter. Bob on the other hand didn’t give a crap and focused on telling stories to his clients with the numbers instead of worrying about ‘minor details that add no value’.
I don’t remember the 3 years of my life during CA. The 60 hour work week coupled with insane amount of study after hours. I was lucky to do a traineeship so I was used to the study/work thing through University, but for those souls who spent their university life at toga parties were in for a rude shock. No wonder the failure rate is so high.
I’ve been with the firm for 6 years now, which is no small feat given the average career span of an accountant is about 2.5 years (talk about loyalty). I’m now a CA, have several years of experience under my belt and a “senior” title to my name. The peers in my cohort have left to a 6 figure salary in commerce, while I am still on much less and still working longer hours.
A few years later after a life epiphany triggered by a long adventurous holiday or an Alan Watts YouTube video, I came to realise that I’ve spent the last 8 years of my adult life being groomed to be a widget of this big machine.
Finders, Minders and Grinders you called it. Your system works.
You stepped onto the career ladder as a Grinder, be promoted to a Minder. If you were a bit street smart, had a bit of personality (rare in this profession) and had some element of technical competency, you had a shot at becoming Partner.
But becoming Partner is no easy feat they tell you. You need to find your own clients, manage an existent portfolio of clients, then pay 4x profits just for the privilege of joining a jaded bunch of old blokes (and perhaps a few women) in a stale firm that is still operating as it was in the 90s.
But being in the profession for this long has made me skeptical, and I start to see things in a different light.
I quickly realise that the Partners of this firm are not business owners at all. They are a ‘practice’ full of technicians and freelancers that have been bunched together into a partnership because that’s how it was done in the 90s. You work hard, you buy into a practice, you make Partner. You take long lunches because you ‘earned it’ then you’ll sell your share to a junior partner and retire in Italy.
This was an era when you had to fork out a few gorillas in working capital to support a waterfront office, a server, silky oak boardroom table and all the gadgets that come with starting a professional services firm.
I’m sorry to tell you Bob, but the game has changed. Let me explain how:
1. Barriers to entry are lower than ever
In 2016 it costs as little as $800 a month to start and run an accounting business:
· Xero Practice Management software - free
· PI Insurance - $250pm
· Shared office - $400pm
· Registrations - $100pm
Yes I might need to be less ‘precious’ and do work of the nature I wouldn’t ordinarily do – for example, an individual tax return here and there to pay the bills. But at least I'm doing it for myself.
2. Your business model is old and clunky
Let me again list the things that really annoy me about your practice:
a. You Billing by the hour – clients expect cost certainty. Do you expect to pay hourly rates to your dentist?
b. You still send fees by snail mail – I mean wtf.
c. That WIP balance is not real - Accounting 2.0 business models don’t record WIP because they recognize it means nothing. Fees = revenue, not imaginary time.
d. You claim to be a business advisor - why don't you practice what you preach?
3. I am a key man
I question whether there is any goodwill in your body shop business model. The “Goodwill” is my relationships with your clients. I am one of the key men. What would happen if I setup my own practice tomorrow? I’m confident a few of your clients would follow me – why would I pay for 4x profits for them?
If you really want to continue your legacy of “XX and Partners” you need to invest in the future of this firm and your staff.
The economics for you to think about is are you willing to invest money in your practice with the hope of achieving a higher exit valuation? Or is your plan to just continue “Business as Usual” for the next 5 years until you’re ready to pass on the reins and hope that I’ll buy you out. That's assuming you've got anything left of a practice.
Who knows what the space will look like even 18 months from now. But whatever it is, you need to act quickly because the alternative of doing all of this myself is significantly cheaper and more logical in my mind.
Best,
Gen Y - Senior Manager
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