Understanding the Business of Accounting

Transcription

1 Understanding the Business of Accounting Building Better Business Ric Payne Principa Today s Agenda Business model defined The 5 elements of a business model The unique characteristics of the PSF model How to design a business model that fits your market Does your current model need to change? Six initiatives to re-jig your current model Something to think about 2009 Principa. 1

2 Quiz 1 What do you consider to be the purpose of a business? 1.To make a profit 2.To provide a product or service for customers 3.To create and retain customers What is the purpose of a business? Create Customer Value by meeting a need or want The purpose of a business is to create (and keep) a customer which means an enterprise really has only two basic functions: innovation and marketing ~ Peter Drucker What is the purpose of a business? The purpose of a business is to create (and keep) a customer which means an enterprise really has only two basic functions: innovation and marketing ~ Peter Drucker Create Customer Value by meeting a need or want Product innovation Process innovation Business model innovation 2009 Principa. 2

3 Examples of game changing BMIs Examples of BMI An non-example of BMI 2009 Principa. 3

4 An non-example of BMI it gets worse! What is a business model? A business model describes the rationale of how an organization creates, delivers, and captures value. A business model = The Theory of The Business Peter Drucker (1994) What is a business model? Create Value Deliver Capture 2009 Principa. 4

5 The 5 elements of a business model? 1 Leadership & Management Costs 5 Profit Model Revenue 3 4 Resources 2 Customer Value Proposition Processes Relationship Channel Customers The 5 elements of a business model? Customer Value Proposition An offering that solves a customer problem more effectively, reliably, conveniently or affordably at a given price The job to be done Source: Seizing the White Space: Business Model Innovation for Growth and Renewal, Mark W. Johnson How important is this to the customer? How satisfied are customers with the current solution? How well does the new offering get the job done relative to other options? Customer Value Proposition Customer Value Proposition It s not just what is sold but also how it is sold Exceeded At risk Loyal Advocate Outcome Met Searching At risk Loyal Not Met Gone Searching At risk Dissatisfied Satisfied Delighted Process 2009 Principa. 5

6 Customer Value Proposition Customer Value Proposition Before you can develop a CVP you need to know who you want your customer to be Customer Value Proposition Customer Value Proposition To find out what your customers want i.e. the job they are trying to get done observe them and ask them The customer rarely buys what the business thinks it is selling. ~ Peter Drucker Resources & Processes Resources People Technology Facilities Equipment Information Alliances Finance Brand Processes Processes are the source of value creation Operational and managerial systems Service definition & design Marketing & sales Training & development 2009 Principa. 6

7 Profit & Funding Model Revenue Price x Volume Costs Cost structure fixed & variable Profit target Scale Capital Requirements Resource utilization Traditional CPA Business Model Customer Value Proposition All things to all comers Revenue Costs Capital Requirements Resources & Processes Rate x Hours Labor Scalability WIP AR Infrastructure Same people Same systems Same business rules Same performance metrics Quiz 2 Do you see scope for a different business model for your CPA firm? 1.Yes 2.No 3.Possibly 2009 Principa. 7

8 An Alternative CPA Business Model Customer Value Proposition Targeted Revenue Costs Capital Requirements Resources & Processes Value priced Labor Scalability WIP AR Infrastructure Same people Different systems Different business rules Different performance metrics My own experience $3.3m 40+% margin <30% margin $1m Clearly articulated business vision 10 in 10 Targeted business clients Small client practice Focused marketing & sales Bundled CFO services Fixed price agreement Training investment to develop saleable skills & capacity to delegate Systemized processes Examine your own competitive landscape Pricing Client selection Service offering Core competencies Process design - systemization Your assumptions about your environment, your mission and your core competencies must fit reality. Relationship management Organization structure - CSMs 2009 Principa. 8

9 When do you need to think about changing your current model When your revenue growth has stalled When your margin is shrinking When you lose clients you want to keep When you are attracting clients you don t particularly want When you are losing talented people When you are losing interest in your business Most CPA firms have a flawed business model Net Profit Per Partner 95% Poor Good / OK Great 2.5% 2.5% Most CPA firms have a flawed business model 1% 2009 Principa. 9

10 Most CPA firms have a flawed business model 100% Source: Bob Kaplan published in the Balanced Scorecard Report (August 2005) called Add a Customer Profitability Metric to Your Balanced Scorecard" Most CPA firms have a flawed business model 54:140 Most CPA firms have a flawed business model Ideal Pattern 2009 Principa. 10

11 Six keys for re-jigging your business model Key 1: New client growth of the type you want Target your market Design a referral system Conduct CABs with non-clients Conduct CABs with clients Design services that get the job done for the type of clients you want Firm visits the 20% rule Public profile Reject unsuited clients Six keys for re-jigging your business model Key 2: Improve team member productivity Undertake a client profitability analysis re-price or replace loss contributors Put the right person on the job Is the job valuable to the client & can the value be captured Is there sufficient work in the pipeline Has the job been properly scoped and time budgets put in place Is all information required to complete the job available before it is started Is a lower cost team member being used for all admin and highly systemized tasks Is an After Action Review undertaken at the end of the job Is the right performance metric in place revenue generated not hours charged Six keys for re-jigging your business model Key 3: Increase Average Realization rate Price the job up front based on value to the client as well as the time required to complete the task most firms are pricing 10-20% below the value of their services Effective Hourly Yield From a Price Increase and/or an Efficiency Gain Price Increase Efficiency Improvement 0% 5% 10% 15% 20% 25% 0% % % % % % Principa. 11

12 Six keys for re-jigging your business model Key 4: Reduce Write offs In addition to the initiatives relating to productivity Ban write-offs unless they are due to your errors or they are strategically justified Price up front and implement Change Orders to accommodate scope creep Do not pass efficiency gains on to the client unless this is a key element of your strategy Do not allow partners to price the job or do the billing Six keys for re-jigging your business model Key 5: Reduce WIP In addition to the initiatives relating to productivity will result in faster work flow Bill the job immediately it is completed and interim bill monthly Key 6: Reduce AR Require payment before starting the job (full or part) Get monthly payment schedule in place Bill jobs immediately after completion Payment terms to be payment on receipt Do not send statements out with ageing analysis shown Implement a firm debt collection process Oh. I. see R = O x O x I 2 x S x E x A Our achievements YTD Completed planning goals Revenue 83% over budget Profit - 105% over budget Operating Cash Flow - 165% over budget. It never ceases to amaze us how the process of strategic planning and goal setting, combined with accountability to a Principa Mastermind coach and your peers, becomes such a powerful formula for success 2009 Principa. 12

13 Quiz 3 What do you consider to be the factor that will have the greatest impact on future opportunities facing your firm? 1. Compliance (tax & audit) regulation 2. Demographic changes in your region 3. Firm leadership 4. Technology 5. Competition from other CPAs It s not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change ~ Charles Darwin A Typical Business Life Cycle Revenue Innovation and Renewal Management Style Entrepreneurial Traditional Growth Turnaround Entrepreneurial Frustrations Leadership, Management Systems, Cash flow Leadership, Systems, Cash Flow Senior Management, Systems Planning Margin erosion Little differentiation Lack of innovation Phases of growth Start-up Growth Maturity Decline / Renew TIME 2009 Principa. 13

14 Key process identification, re-engineering and systematization Operational processes Succession planning & exit strategy Where you want to be Management control plan Performance measurement metrics Customer service system Business value planning Organization structure Leadership Team building Team skills development Financial reporting system & compliance The starting point Time 2009 Principa. 14

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