This is part 2 of our discussion on independence. Here are my thoughts on what it takes to stay competitive in today’s market.
Leaders who want their firms to remain independent and competitive face many critical questions, but a key consideration is whether the firm’s structure allows for adequate profitability to support growth and investments.
In my experience, it takes two to three years to get there if the fundamentals aren’t in place. Here are some issues to consider.
Determine Appetite for Hard Work and Risk
Achieving financial independence requires a tough look at firm operations, an agreement to make difficult decisions, and an all-partner commitment to do the painstaking work necessary. Saying and doing are two different things. I often ask firm leaders, “Is the stated desire for independence in any way related to a hesitancy to do the hard things to create resources?” Avoidance will upend your ability to remain independent.
Once partners have arrived at a common long-term vision, the conversation can center on priorities that support the vision, the cost of those priorities, and where to get the resources to achieve those goals.
The No. 1 question is whether the firm can rely on owner capital. Understandably, holding back earnings from partners is an unpopular suggestion, as partners have already taken on considerable risk in capital investments and unfunded buyouts. Partners must ask themselves if additional investment can generate a return that is worth the extra risk. I’ve found that firms can be reluctant to invest in themselves, even when private equity firms show interest in doing exactly that.
It’s about being open to adapting, even when the changes might not seem to benefit you directly.
Embrace Outsourcing and Automation
Many firms are finding efficiencies through outsourcing and automation, which is much more affordable and accessible than it used to be, with more tools available than ever.
Some partners balk at outsourcing, thinking their clients won’t accept sending their work overseas, but clients don’t value mundane work; they value expert advice. It’s natural to fear de-personalizing these relationships, but most clients readily agree to outsourcing if their advisor explains that it will unlock time for the guidance they crave.
Price Your Services Appropriately
I admire our profession for its empathy and caring customer service, but sometimes firm leaders set prices based on assumptions of what their clients can afford. Understand what the market bears, nationally and regionally, but also consider ditching hourly rates and implementing value pricing.
One way to approach this is to charge a set amount for a bundle of services upfront so the client, in effect, is paying for a holistic relationship with the firm. A side benefit is eliminating some of the administrative nightmare surrounding billing.
Attract and Nurture Ideal Clients and Cull Others
Ideal clients are those who value your services, are willing to pay what you’re worth, offer challenging work in your area of expertise, and provide opportunities to serve them at the right time of the year. Identify the characteristics of your firm’s ideal client and be selective about who you’re onboarding.
At the same time, firms should annually refer out their standalone 1040 clients and others who are less profitable. Blindly standing by the “once a client, always a client” attitude will hurt profitability. Also, don’t make culling clients an infrequent “episode” that makes everyone nervous. Make it a regular part of doing business.
How I Can Help
Achieving financial independence to avoid merging up or seeking private equity—the goal of many firms today—is a multi-year process, but it doesn’t have to be overwhelming. I can assist in planning, implementation, or keeping partners accountable for progress. Entrepreneurial leaders today adopt an optimistic view of the future. Let’s figure out a plan to create the future you envision.
