Accounting is a tight-margin industry. New laws and tighter regulations quickly reduce a firm’s profitability.
To increase profitability in our industry, one must either:
- Drastically improve efficiency
- Reduce costs
How to improve efficiency in an accounting firm could easily fill a book.
In this article, we will give you an overview of how to cut costs in both respects.
1. Invest in effective and worthwhile software
There is no lack of software offerings for businesses these days. The sheer enormity of offerings makes the task daunting.
But there is no doubt that the way to improve efficiency is to invest in software which:
- Streamlines mundane tasks
- Shaves minutes off every hour, and hours off every week
- Reduces confusion (and, hence, wasted time)
- Keeps the business secure (cyber attacks waste time and can lead to expensive legal repercussions)
- Improves client service
- Guarantees that the company can keep working entirely remotely should they ever need to
The solution to knowing which software to invest in is simple: Don’t try to invest in it all at once.
I’ve spent nearly a decade learning about software and which cloud tools work best to increase an accountancy firm’s profitability.
There is a lot to know.
The trick is to start somewhere.
In a recession, it’s challenging to stay calm when the need for efficiency becomes almost like the need for oxygen.
Calm or not, it’s simply impossible to implement everything overnight.
So, dedicate a few minutes a day to learning one new tool, one new piece of software. Sign up for a trial and test each software one-by-one.
Slowly, your firm’s efficiency will increase, and so will your profit margin.
2. Increase prices
If prices are increased for existing clients, they might feel betrayed and go elsewhere for their services.
If they are increased for new clients, they might consider you too expensive and go to your competition.
Still, increasing prices is a tried-and-tested way to increase profit margins.
One way to go about it is to offer services in “packages”. You could have a Basic Package and a Premium Package.
The Premium Package would contain more services. You could propose this to existing clients and keep them on the Basic Package if they refuse, and you could offer both packages to new potential clients.
3. Reduce fixed overheads (rent)
The mindset regarding office space has changed. A recent PwC survey revealed that 25 per cent of CFOs were looking to cut back on real estate costs since COVID-19.
Cutting the office rental fee is a surefire way to quickly knock out substantial expenses immediately.
Still, there is a certain prestige to writing Canary Wharf on your letterhead. If you deal with top-level clients, an expensive office might be necessary to keep up appearances and so keep those clients.
This matter of fixed overheads is something each business owner must decide for themselves.
4. Obtain recurring clients vs one-off
Recurring services at lower prices start paying off after several months. If you’re able to take a cut on immediate income and really serve your clients well for the long haul, the recurring fee will slowly and steadily inch up your margins.
There is always the risk that new clients leave you in the first few months, forcing you to operate at a loss for those clients. So, start off slowly to reduce risk.
5. Increase the value of your clients
Big firms pay big bucks. But they also demand six-star service.
Assuming you’ve overcome the initial setup required to even get those big clients (superb marketing, astounding service, top-notch staff, possibly even an address at Canary Wharf), keeping them thereafter is a full-time job.
Small mistakes on large firms’ accounts can lead to massive costs (for them), and lost business for you — possibly even legal difficulties.
Pulling this off requires exceptionally competent staff who have extensive experience with large accounts.
Start small. Don’t go for the biggest fish. Try get in a few mid-level ones while you build up all the necessary elements to both attract and keep larger clients in future.
6. Suppliers’ terms
Although this isn’t the easiest to effect, one way to improve margins is to try and negotiate suppliers’ terms with landlord and software providers.
This would be more difficult with software providers because software is usually provided at a fixed rate, with only minimal discounts possible.
Still, you could also look at other suppliers with whom this might be possible.
In its current paradigm, outsourcing all of one’s accounting duties is a risky investment for an accountancy firm.
And yet the use of outsourcing firms continues to grow.
What is needed, really, is an entirely new type of outsourcing; one which is:
If an outsourcing firm fits all those criteria, it is worth looking into to increase margins.
What not to do
Dropping wages is one option that is not recommended. It leads to a sense of betrayal on the part of employees, which in turn could bring about lower quality work and high staff turnover.
Staff who are pleased with their working environment are more willing to go the extra mile. This itself is a way to increase profit margins — by improving the quality of service on an immediate basis, leading to more referrals from satisfied clients.
As with everything in business, the solution lies in the long haul. None of the above can be achieved overnight.
But if you still have your head above water, the above 7 steps will put you well on your way to increasing margins if you work on them regularly and with patience.