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Would the real modern firm please stand up

And that was possibly the most ridiculous blog title I’ve ever written.

There is no such thing as the modern accounting firm, any more than there is the modern store or the modern plumbing company.

Real time reporting, less paper and no server are all outcomes of technology shift; they don't of themselves create the modern firm. They're now a given.

What does create the true modern firm is a business model that is focused on creating value for clients and will outlast compliance simplification and automation in a pared down tax world.

But many roads lead to Rome and there is no one 'right model'. There are however five models that are emerging. Each has their own value drivers and challenges.

1. HVC (High Volume Compliance)

Key business drivers include fixed, low prices and high volumes of unsophisticated clients, with little or no client contact. Processing is outsourced and maintaining margins requires huge focus on process standardisation and automation.

Visit these firms' websites and you'll be hard-pressed to find evidence of a human being; no names and certainly no faces.

This model requires volume and ongoing growth to replace low margins, with a big marketing price tag that ensures being found online. With a cookie cutter appearance and only price as a differentiator, this model becomes a race to the bottom.

Even traditional firms are applying these lean production strategies to lower the cost of production across the board and will continue to compete with this model on relationship and service.

2. HVCA (High Volume Compliance, with Advisory)

Key drivers include high volume at fixed, low prices, outsourced production, ultra automation, and most importantly, a wrap around support service.

A smart adaptation of the HVC model, a simple advisory layer has been added (call us whenever you want, that's in the price), with a dedicated advisor for each client and a highly personable online presence. This is an emerging model, and it's intelligent. There's a perception of high relationship, yet all advisory meetings are virtual. That's crucial as margins are low and there is no fat to sustain face to face interaction.

The key challenges to this model are scope creep and managing client expectations, process investment in 'super automation' and low margins that demand high growth. In fact, this model requires lots of cash burn in its early days and the volume required to get to break even is surprisingly high. For all these reasons, this model is not widespread.

3. NCC (Niche Consulting, with Compliance on the side)

Drivers are customised process and high price, with client value either being delivered in the front room (specialist consulting, high degree of client contact), or the back room (audit, specialist tax).

Compliance is delivered on the side, but is not the main event.

Not surprisingly, a less common model. It's hard to leverage, processes aren't standardised so there's no scale. Succession is problematic.

4. CBD (Compliance, with Business Development)

Drivers are the automation and 'leaning up' of compliance delivery, with new resources focused on highly personalised yet standardised recurring Business Development services. Services and pricing may be bundled.

In fact, given time, compliance assumes secondary importance to Business Development - would you like tax with that? The model will become BDC (Business Development, with Compliance). The key focus is to create consistent marketing, sales and delivery processes.

This is an emerging model, and one with a future. Simple BD services are not specialist in nature. It's a wide, horizontal play across the SMB market.

There's a key distinction between the words 'Advisory' and 'Business Development'. Advisory tends to be reactive and focuses on telling clients what to do. It doesn't build recurring revenue. Business Development is proactive, with focus on future planning and accountability coaching; it's repeatable and leverageable.

There are two key challenges with this model.

Firstly, compliance delivery needs to be pared back and delegated (I did not say that quality must diminish, but I know what you're thinking). Legacy mindset and systems need a rethink, to focus on what really matters and adds value. This is not easy for accountants to get their heads around!

The second challenge is for accountants to understand how to sell BD services. It's a new skill and a learned one, so an investment (time, money) is required. I'm less concerned about learning delivery skills. BD delivery isn't technical, it's not that hard.

This is a smart model. Lock clients into your real purpose (help them achieve their business and personal goals) and bring down the cost of compliance enough so they won't seek a cut price alternative. Do that ahead of simplification, not as a reaction to it.

5. SAYA (Stay As You Are)

Hang on to core compliance and keep charging 6 minute units until we run out of work.

There is no particular model. We do everything. We charge lots of clients on a charge up basis and they mostly pay (although we're getting more price queries). We have a few clients on fixed bundles, but we've never really systemised that or figured out how to make money from those clients.

When we do run out of work we have nowhere to go. There's no incentive to lean up our compliance process and get rid of legacy thinking. We can't meet the future market on price. We know that, but we're not investing in a new model any time soon.

Houston, we have a problem.

Of course there are plenty of variations of these models...

And some firms have developed more than one brand to enable different product sets to co-exist, but where does an honest appraisal of your business model start?

It starts with your core purpose

Simon Sinek said it best when he said 'People don't buy what you do, they buy why you do it'. Why does your business exist? What difference do you want to make to your clients? Why do you even get out of bed in the morning? Figure that out and you'll live into a model that delivers your 'why'.

For example, www.beany.com. Their model? High Volume Compliance, with Advisory. What do they deliver? A finance team. What's their why? Unlimited support for a fixed (and much lower) price. They exist to help small businesses save costs and make more money. And they're achieving it.

What’s your why and is your model delivering that?

Can you express your core purpose, your why? Next, define what you're delivering, how you're delivering it and who you're delivering it to. Once you've determined these things you're on your way to redesigning a business model that will work for you now and into the future.

And if you can't define your current model, you're simply in the SAYA (Stay As You Are) bucket. That's fine for now, but at some point it won't be. Don't wait to figure out who you are. If you do, clients will find an alternative firm that already figured that out and quietly go to work to deliver on their core purpose to your clients.

By Viv Brownrigg, FCA

Looking for more detail? Great news!

We're hosting a 90 minute webinar around Modern Firm Models.
Two sessions only. 100 firms each session. NO RECORDINGS.
Select the corresponding date to register for the session that suits you best.
Thursday, 8th June, 2.00 - 3.30pm NZT.
Thursday, 15 June, 10.30am - 12:00pm NZT.

About the author

Viv is a Fellow Chartered Accountant with years of experience growing and selling a significant accounting firm. She then developed Business Fitness NZ, providing compliance processes to 400 NZ firms. Bored with tax, she joined forces with CA Mark Jenkins to establish The Gap.