With a global recession well and truly arrived, we asked Heather Townsend, founder of The Accountants Millionaires’ Club for her best tips on how to recession-proof your practice.
Recession proofing all starts with you the owner
If you are going to recession-proof your accountancy practice, you will need to take some decisions quickly. Unlike the recession caused by the 2008 credit crunch, this recession has landed on us quickly. The speed of change we are experiencing – and the need to step up and lead your business – is nothing like I have experienced before in business, (and hope to never again!) With a radically and rapidly changing business landscape around us, there has never been a more important time to “sniff what sells” and be decisive with your actions and plans. Sadly, I’ve seen the practices who have been slow to make decisions with what needs to happen, in response to COVID-19, to be the practices that clients have been leaving in droves.
To take the right decisions quickly, you will need to (in leadership terms) take the right ROAD and avoid the DEAD END. In other words:
- Take Responsibility for your actions and situation, and focus on what you can control
- Take Ownership for what needs to be done in your practice
- Take Action
- Be Decisive
As well as this you also want to avoid these behaviours:
- Being in Denial about the unfolding situation around you.
- Making Excuses. Remember it’s your practice.
- Attacking the messenger or bearer of bad news rather than taking ownership for your situation.
- Running a Dictatorship in your practice. Now more than ever your team needs to take the initiative and be helping you to recession proof the practice.
- Letting your Ego take decisions. For example adding on unprofitable turnover just to say you are a £1m+ practice is a foolhardy business practice even in the good times.
- No Control. Particularly the workload and who does what, and in which way.
- Distracted. Shoring up the core business should be your number one priority, not getting involved in side ventures which takes your eye off the ball.
Put a plan in place
It’s really easy to go into a place of fear when the word recession is mentioned. If you go into that place it’s also really hard to be at your best and most productive. When business gets tough, you need to be on top form to find ways around any difficulties, like bad debt, which may come your way in the next 6 – 12 months.
It may sound boring, it may sound cliched, but there really is no substitute for planning and looking at different scenarios and contingency plans. For example, what would you do if 20% of your clients stopped their monthly direct debit payments or closed their business down? These plans and planning for different scenarios are a great way to help you and your team face the brutal realities of what could be happening. Knowing that you have a plan to mitigate future risks is a great way to get into a place of acceptance rather than a place of fear.
Over communicate to your team
You and your team are in this together. Just as you are scared about the future, so are they. They are worried about their job security, their clients’ businesses and also the future of your firm. If you’re not honest with them, they will come to their own conclusions, and these may not be the conclusions you want them to come to. Your team doesn’t want you to sugar coat anything or deny the obvious: they just want to know you are aware of the challenges and have a plan to get the whole team and business through to the other side. The more open your communication and the more you communicate to the team, the more confidence you will distill in them going forward.
Get on top of your credit control
It’s really easy to slip into a habit of thinking that a client is going to pay. After all, haven’t they always paid… just eventually? As we head into a period of difficult trading decisions, your firm, if it is to become recession proof, needs to be on top of any outstanding debtors. You are not a line of credit for your clients, and deserve to be paid promptly.
Build a cash reserve
Everything is always easier when you have a buffer of cash in the bank. When a large amount of your clients pay monthly by Direct Debit it can be tempting to reduce the amount of cash reserves you keep in the business. After all, why do you need 3 months of money in the bank if your clients pay regularly by Direct Debit each month and your debtors are nearly zero? But, just as easily as clients pay by Direct Debit they can switch them off. It only takes a small number of your clients to do this and then your small cash reserves don’t seem to be large enough. If you want to be able to sleep easily at night going forward, I truly recommend building up your war chest of cash so you can survive for 3 months without any money coming in. The rainy day may come sooner than expected!.
Move your clients to fixed monthly payments via direct debit
If you haven’t already done so, now is the time to get your clients onto fixed monthly payments via Direct Debit . This will help you and your clients in many ways, e.g.
- Decrease the likelihood of bad debts as clients are paying for their compliance work in small increments rather than in one go.
- Software like GoCardless or Practice Ignition’s inbuilt Direct Debit solution, as long as the mandate is still in place, gives you the opportunity to go in and retake any payments which have bounced.
- It preserves your clients’ cash flow, but also helps even out the lumpy nature of your own cash flow.
- It normally reduces your WIP and lock up drastically.
Reduce your fixed overheads
When things are going well and new clients are seemingly effortless to attract, it is easy to lose sight of the bottom line versus the top line. As a result your revenue may grow at a much faster rate than your net profitability. It only then takes a small amount of client churn, as clients’ businesses go under due to adverse trading conditions, or a few client Direct Debit not to be paid for a couple of months, and before you know it your practice is trading at a loss.
If you haven’t already done this exercise, it’s time to get the red pen out to your cost base. For example:
- What software licences are you not using that you can cancel? Particularly your Xero, Quickbooks or Freeagen client licences.
- Where are you paying out money for services or products you are not using? For example do you really need that ‘all you can eat’ subscription with a software provider?
- If your firm is likely to be virtual for the next 6-12 months, do you need the serviced offices? Or can you reduce the number of desks you are paying out for?
- What marketing are you doing where you can’t justify the return on investment?
Look to decrease your wage bill
Most practices’ biggest cost is their wage bill. So it makes sense to look at this one first. It’s time to see how you can reduce this cost. For example:
Better control of the workflow to reduce overtime?
Replacing some expensive UK based headcount with offshore or outsourced headcount? (GI can help you with this)
Putting in place performance management measures to help your underperforming staff raise their game?
Up your spending on ‘targeted’ marketing
As the traditional wisdom goes, you need to spend your way out of a recession. However, what you do spend on marketing has to be done with purpose. This really isn’t the time to throw jelly at the wall and hope that some of it sticks. Before you agree any more or new spend on your marketing, complete these tasks:
- What marketing activity isn’t producing the right level of results? Unless this is because it is too soon to judge, then put this on the list to stop or change.
- Who do we really want to attract as a new client? (‘Small business owners’ is too broad a category.) What of our marketing is focused on attracting these ideal clients? What needs to change to our marketing to attract these new clients?
Very often the difference between those practices who grow during a recession and those who contract is the attitude and leadership of the firm owner. Which one will you be?