Staying alert to the metrics that really matter
Richard Brewin
Mentor to accountants who deserve more. Helping accountants to drive change for themselves, their firms and their clients
Too much water of the wrong kind was the misfortune of the Ancient Mariner, quite literally the albatross hung around his neck, but, to paraphrase Samuel Taylor Coleridge’s rime about the cursed sailor, the modern day accountant will feel the frustration of ‘data, data everywhere nor any time to think’.
Historically, the challenge of our profession has been the time it has taken to produce meaningful data, either on a client’s business or on the accounting firm itself. Incomplete records and the difficulty of extracting information has always held back our decision-making and actions.
Digitalisation has fixed the issue, at least where the humans involved have committed to change. Our challenge today is potentially too much data rather than not enough.? We can find data in all the nooks and crannies of our firms, to the extent that data overload stops us looking or, at the very least, makes it hard for us to focus on the most significant areas.
So, what data really matters?
I’m going to stick my neck out now and talk about numbers to accountants. Given that I have always acknowledged that I’m not even the best accountant in my own household, let alone in any wider collective, this feels like a reckless thing to do but what are these posts for if not to express opinion!
There are so many aspects to running an accounting firm, related to financial performance, workflow, team members, clients, projects, growth and so on and, of course, each needs to be monitored, so this isn’t a conversation around the regular KPIs and metrics required to manage your firm.? Instead, I want to highlight the three financials that can get lost in the detail but actually are the three that, in my opinion, ultimately matter the most:
1.??? Gross margin
2.??? Retained profit
3.??? Capital value on exit
Why these three?
Gross margin because an accounting firm is a business and therefore should measure the work that it does in commercial terms. I talk a lot about the values of a firm and the core drivers behind its leadership but, unless your goals are entirely altruistic, the fact that you have chosen a commercial entity through which to achieve them means that you take onboard the legal, moral and financial obligations of running a business. If your outputs are not delivering sufficient margin to meet these as well as your personal goals then you fail, simple as that. It’s a core metric and tracking gross margin tells you a great deal about your commercial decision making and required actions.
Retained profit because this measures the health of your firm. Net profit will track your performance but retained profit tells you how much you have left in the tank to continue to reach your goals. Again, a core metric and tracking it is a crucial check on your firm’s wellbeing.
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Capital value on exit because, at some point, you will move onto the next chapter in your life.? You may need your firm to be worth a sum at that time to fund your retirement or next venture. You may have a figure in mind that defines success to you. You may need to deliver a specific ROI on your firm. Whatever your reason, knowing your capital target and then tracking your value as you head towards that target will increase your chances of success. Building to an architect’s drawing is very different to building to a customer’s wish list. A core metric and tracking your capital values brings a different ?and longer term perspective to your decision making.
To recap:
1.??? Gross margin
2.??? retained profit
3.??? value on exit
or, to put it another way…
1.??? Commercial performance
2.??? Security and Stability
3.??? Return and reward
Remember to keep the big picture in mind when deciding on your data needs.
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1 年Richard, I know, see & meet many accountants - the two things I regularly hear is “I’m really busy/too much to do” and too much time chasing up behind people - whether clients, staff or partners/providers. As a leader in services businesses previously, albeit BPO/ITO, the one things I relied upon to keep me sane and effective was having key metrics. Your point about having the right metrics is spot on…I’d also add here that in the face of ever increasing data, going back to basics and simplicity is crucial. If accountants, as with any other business and dare I say it - the business advice they give (or wish they had more time to do with their clients) is focused on know your business, how’s it doing & knowing what levers to adjust - is something they should perhaps apply to themselves ??
Running an accountancy firm as a business is so often overlooked by many that head up accountancy firms. It is usual for a firm's client's to only focus in on a single measure when determining business performance. It's usually one that makes them feel good, whilst ignoring any other measures that paint a less positive, or even negative picture. Why is the same also true of many accountancy firms ? Performance measurement is multi faceted. For me the core combination is ensuring the fee obtained per client is what you expect it to be, making sure you end your trading year with more clients than you started with, whilst making sure you can measure and track the margin achieved from each client/client job. If you have the systems or processes that can measure and validate fee income, client addition/attrition, and margin by client / client job you have the basis of being able to grow a business profitably and also data that supports your desired value on exit. A practice management system should provide and deliver the right business metrics across your accountancy firm. Without it danger lurks in pursuing and focusing on limited measures providing no insight or measurable gain.?
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1 年As an outsider looking in to the accounting profession with some understanding of financial tools designed to automate process and "do the numbers", having sold financial accounting systems to help businesses better manage their businesses for many year's, I am finding as I explore the profession that a significant number of accounting businesses /practices seem to neglect this facet of their world. Whilst it is noble to focus on others , delivering a prompt and valauble service to your clients , if you don't look after yourself and those that depend on you , your staff, family etc you do them a significant disservice. Richard is right to point this out delievering a return and reward for you and those who depend on you is a duty not an optional extra.