I have always been interested in how things work so sixteen years ago I was delighted when my managing partner at Moores Rowland invited me to join a small evaluation group looking at a Business Improvement Process. We adopted the process and I ended up being responsible for Business Improvement throughoutthe firm. The most frightening part was teaching eighty Managers over a two day conference when at the time I knew only a little more than they did.
Initially I developed my new skills by working on the firms issues such as job turnaround time and lockup before moving on to helping clients with their issues. One of my favorite success stories involves a table top manufacturer. He employed twelve production staff and two girls in the office apart from himself. He wanted to do the employee workshop on his premises and the only space large enough was his production floor. So it was that we closed production early one Friday afternoon and assembled his entire workforce. At the end of a two hour workshop we had found £50,000 of additional production that yielded a contribution of £30,000 not just that year but every year going forward.
My approach to improving productivity comes from those experiences and is based on the continuous improvement ideas originally from manufacturing but substituting professional services language for manufacturing language.
At this stage of the current economic cycle and with most SME Accounting firms having survived the disruption caused by the recession in far better shape than professional colleagues such as lawyers and property professionals. The UK economy is now starting to improve but clients are still very cost conscious and there is more competition than ever. It is vitally important to explain the value of what you do for a client and ensure that they understand. Do you remind them how much tax they are saving or how easily they got the last tranche of finance because of your help? If not they may choose another supplier based on price alone.
Most practices have taken the opportunity to adopt flexible working practices and remove the obvious costs by reviewing their profit and loss account. But this only takes them so far. Where do they look next?
Productivity is traditionally defined as being recovery, which is work billed and paid, or expected to be paid, divided by capacity, which is standard chargeable hours multiplied by standard hourly rates. This is typically in the range of 75% to 95% depending on your policy of setting hourly rates. The average for the ten firms taking part in this survey was 83% with a low of 68% and a high of 93%.
Many of the factors contributing to this formula are hidden because they do not have a specific line in the profit & loss account. In my experience almost all professional practices have failed to leverage process improvement to its fullest extent. To do this you need to seek out any activity that does not add value to your client. This is done by looking at the whole of your business process from acquiring the client through delivery to collecting the cheque at the end of the job.
My approach to lean process is just as applicable to a professional service firm as manufacturing. It’s all about doing more with less. I use a continuous improvement approach by harnessing your team’s knowledge through project teams operating on an eight week cycle. After all the people who know where the inefficiencies lie are the people at the coal face. Imagine what your business would look like in twelve months’ time if a new problem was even partially solved every eight weeks. At the same time engagement and morale are improved because senior management are listening to the project team’s recommendations.
As the economy starts to grow again the working capital needed to support additional work in progress, debtors and people can be released from your business cycle by improving your business processes. Profit and cash need to be locked in because banks are still concentrating on building up their balance sheets and continue to be risk averse.
An independent review of process, overheads and operating costs is essential before the growth of the economy accelerates as we progress through to the end of 2014 and on into 2015.
I have recently completed a Productivity survey of ten SME Accounting Firms in the North West. The fieldwork was carried out from July to October 2014.The results that follow are anonymized but I would like to thank all the participants. The firms varied in size from seven chargeable staff to seventy three chargeable staff and operate in diverse sectors of the SME market place including providing services such as Annual Accounts, Management Accounting, Book Keeping, VAT, Personal Taxation and Corporate Taxation and covering sectors such as Building Industry, Technology, Healthcare, Education and Not for Profit.
The survey showed that the average lost profit per fee earner per year was £10,000 and ranged from a low of £2,900 to high of £19,300.
The top ten issues arising from the survey are:
- Doing too much work on an assignment – Most firms are giving a Rolls Royce service for the price of a Mini. There needs to better feedback from over runs to improve scoping the assignment and pricing the job and we need to stop giving away advice.
- Rectification of Errors and Mistakes – Too much senior management time is taken up with investigating and then putting right errors and mistakes. The rectification work should be delegated back to the person who did the work.
- Under delegation – Work is not always passed down to the lowest capable person. Senior personnel often have the attitude that it is quicker to do it myself than explain what I need, however the investment in training will pay dividends over time as well as releasing valuable senior time.
- Cost of poor technology – Many firms are using off the shelf software but this approach is restricting the way they would like to do things. The biggest headache in my sample of firms is lack of integration between their Accounts Production software and their Client Management system.
- Quality Assurance – Some partners feel that their firms approach to quality assurance is too heavy handed, especially for new clients. Is yours restricting the work that you are able to carry out for a new client?
- Waiting for information – Professionals often wait for information because they are governed by other people’s priorities. What incentive can we give to the other party to hurry them along?
- The financing cost of excess work in progress and debtors – By reducing the level of lockup we reduce the financing cost of the practice and also release valuable cash to invest on growth or draw for personal expenditure
- Soft and key skills training – Technical staff often find it difficult to communicate both internally and with clients. In my opinion the answer lies in group role play exercises.
- Accessibility of chargeable staff to clients – Balancing accessibility with having the time to do the work is a problem for all professional service firms. Try the twenty minute rule. Work uninterrupted for twenty minutes and then take five minutes to return emails or calls before another twenty minute session.
- Training of staff to properly use the practice software – Users often use less than 5% of the capability of standard software but there are some people in our offices who understand more than we do. One idea when you have identified them is to appoint them as Super users so that they can promote best practice.
Henry Ford had a saying about his advertising spend. He said that half was wasted and if he knew which half he would cut it. I have the same thought about productivity in professional service firms. My rule of thumb is that half cannot be touched but the other half can be addressed with the help of process review and using internal project teams to drive the changes. According to the findings of this survey, if you are the average SME Accounting firm in practice in the North West, then you could generate £8,000 of additional profit for each chargeable staff member per annum, recurring every year. What would the impact be on your firm of addressing these areas?
At the end of the day we are talking about changing the way we do things. We start from the position that only 30% of change programs deliver the required results. So how do we improve our chances of success?
Recent research suggests that successful change is a function of Capability – how capable is your firm and how capable are your people? Readiness – Leadership support, understanding the need for the change as well as being confident and having a change process. Beliefs – Do we have a positive attitude to the changes, do our work colleagues have a positive attitude to the change and how hard do we think making the changes will be?
Very few people like change. Human beings are governed by loss aversion. We cling on to what we know even if there is a better way. This is what makes change so painful.
A project team approach to proposing new innovative ways of delivering and implementing the changes harnesses these positive attributes to ensure successful change outcomes.
Bearing in mind that Accountants are the one remaining trusted advisor to the SME marketplace the growth of the economy means more work, more value added services will be requested by our clients and there will be more challenges in recruiting and retaining the right people. Your management team may not be able to spend the necessary time this project needs. Their role is to make decisions, establish consequences, and deliver on your projections. There is a clear cost benefit to your firm and remember the savings you make will be there year after year.
The question to ask yourself is “What barriers are there stopping me from making a start on a productivity improvement programme?” If you don’t start soon you probably won’t start at all. If you do, more profit, increased cash flow, reduced risk, and the ability to fund your future growth will be your rewards.
Productivity in SME Accounting Firms – Published in Economia January 2015