Key predictive indicators that accountancy firms must action today

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Having great software can help business owners and accountants look ahead but if you focus just on software, then you can miss the bigger picture.

Paul Shrimpling
Managing Director of Remarkable Practice
If you’ve not owned a business it’s hard to truly grasp the importance of cashflow and KPIs. Paul rescued his family’s furniture manufacturing business when it was on the brink of collapse. KPIs were what helped him transform the results. To say Paul is passionate about KPIs is an understatement. Paul has spent the last eight years advising accountants on how to apply KPIs to their firm and help their business owner clients too.

KPIs: How high is the ladder your practice needs to climb?

“All the firms I work with use what I term the ladder of KPIs. At the top, we focus on the key results: turnover, profit and cash. These are the ultimate output measures. Behind that are the costs of the business – the primary or key costs, such as people costs and salaries as a % of the fees excluding the owners.
If salaries are going down it’s a good indicator that profits are going up. There are two ways of managing profits up, either reduce costs or increase fees, which isn’t the best predictive number, but still a good gauge as to the health of an accountancy business.”
Going deeper into the input predictive indicators, we have sales indicators, lead conversion and the market or lead generation numbers. However, the numbers that can matter the most can be those that are specific to your own business.
Paul once had an upholstery business. Delivery on time or slightly before was expected to equate to happy customers. This is a brilliant predictor and primary driver in the business because this is what mattered the most to the customer.
If your customers are happy they come back again or refer you to other people. Making on-time delivery a predictive indicator of future success or failure (if delivery is late).

Step one is always about obsession

Get obsessive about what matters to your clients. Obsess about the KPIs of your business that matter to your customers. It is essential you talk to them to get a clear understanding of what matters most to customers and to track this in your business. Use this information to drive you to create KPIs that can be measured and managed and move your business forward.

How do you find the time to move from compliance to being an advisor?

“All firms are busy but not necessarily as productive and profitable as they could and should be. Some tough choices have to be made around what to focus on.”

Does this sound familiar?

You have an ‘A’ grade client who really needs help raising their next round of funding and help with investigating a pricing strategy for a new product. However, a ‘D’ grade client doesn’t get you the information you need in plenty of time to produce their accounts and now their filing deadline is looming large.
So whose work gets priority? Discuss with your colleagues, what you would do here. You need to have clearly defined priorities to avoid difficult situations and enable you and your team to do what you’re committed to. Business advisory work often plays second fiddle to compliance work in accounting firms and this limits their profitability.
Lack of time can be used as an excuse but not having clearly defined priorities is the source of less profit. In the instance above, having less D grade clients would mean you can better serve your A grade clients and, in turn, you can charge greater fees because you are proving your value.

Case Study: Cedar & Co

Remarkable Practice has worked with Cedar & Co for several years. They have developed alongside Paul, an obsession with client referral conversations.
“Referral conversations can only take place in a client meeting. So we got them to obsess about making sure they had the right number of meetings, with the right clients, every quarter, month and week.
They recruited a brilliant Marketing Manager who insisted that a referral conversation took place at the end of every meeting. This was tracked, and the number of referral conversations increased from 2 to 13 in one month. This is a brilliant example of a predictive indicator winning over a performance indicator.
A performance indicator such as the number of new clients doesn’t drive results. Whereas this predictive indicator drives meetings, which drives conversations about referrals, which in turn drives referrals.
It’s a perfect example of a marketing leading or predictive indicator. The number one way most firms grow their number of new clients is through referrals and recommendations. Drive the quality of client meetings up and the number of client meetings up and that firm is going to get new referrals eventually and, therefore, grow their firm faster.”

Overcoming fear: How do you have referral conversations? 

“Firstly, I’m not advocating a blunt referral request (although this can work well!). I’m suggesting accountants end a meeting with the question, ‘What has been of most value to you in this meeting?’
If you ask this value question the likelihood is that the client is going to share something of profound interest and value to them. This then creates a positive emotional state in both the client and in you and tees up the next question, the Net Promoter Score (NPS) question: ‘On a scale of 1:10 what is the likelihood of you recommending me, my firm, to another business owner?’ This value question raises the tone of the conversation.”
The NPS question gives you a measurable predictive indicator that tells you how well you’re doing with existing clients. You then have a number for your Board to track and measure and predict the success of your accounting firm.

Understanding Net Promoter Scores

  • Promoters are 9s and 10s
  • Neutrals are 7s and 8s
  • And 6 and below are detractors

Therefore, you can have 3 conversations…

Question 1: ‘What has been of most value with this meeting?’
Leads into…
Question 2: ‘On a scale of 1:10 what is the likelihood of you recommending me/my firm, to another business owner?’

  • 9 or 10… brilliant who do you know that we could/should talk to?
  • 8 or 7… what do we have to do at these meetings for you to score it a 9 or a 10?
  • 6 or below……we are not happy with that, what do we have to do to increase it by 1 or 2 points next time we get together, what’s missing, what do we need to do differently?
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