Two big things would prompt SMB owners to dump their accountant or bookkeeper and to change firms: poor service and lack of value for money. No surprises here; price and quality don’t really need to be a trade-off. Most decision makers would be mindful of both and make a decision accordingly. When asked, most business owners would pay a premium for someone (or firm) who demonstrates that they understand the business and can deliver a real outcome that can add value. Yet we know that some bookkeepers are prepared to offer services at $40 an hour and less!
So why is it that in a burgeoning SME sector where demand is greater than supply, that bookkeepers are satisfied with a fee that is half the rate of even the lowest paid tradesperson? The answer lies, in part, in the fact that many bookkeepers simply fall prey to two factors; one being scope creep, where more hours are put into the work than are actually billed; the second being a reluctance to face off bargain hunters.
Where are the 2.1 million SME buyers?
Figures provided by IBIS World (see pie chart) show that the SME sector of more than 2.1 million businesses is the biggest business sector in the Australian economy. Moreover, the ATO has estimated that the figure rises to around 3 mil when contractors are factored in. The ATO figures for the period to 2015 show a “survival rate” of about 60% for small business. It is a tough sector to survive in.
We have a dynamic situation, however one thing is certain. There are too few bookkeepers to adequately service the existing numbers.
Here’s why
We do know the exact number of BAS agents and we have an estimate of the number of practicing bookkeepers (not all qualified) but let’s assume 50,000. That equates to 60 SMBs per bookkeeper and much higher per BAS agent/bookkeeper. It is clear that a great majority of SME operators are DIY. At a stretch (see benchmark data at www.bookkeepershub.com.au/boc) if a bookkeepers has a capacity for 10 clients, it means that less than 10% of small business is using a BAS tax agent!
Presumably small business is watching its pennies. This is aided by the barrage of accounting software vendors claiming business owners can do it themselves. The stakes are high however for business owners as any bookkeepers will attest to; many reporting that the DIY returns are riddled with errors and that is despite the fact that the GST system has been around for 13 years.
Money left ‘on the table’
The IBISWorld data tells us that the average SME is in a service industry, has a revenue of $2.3 million, employs six people. It seems that those businesses with revenue over $2 million have the best prospects for surviving.
SME owners do not buy a bookkeeper’s time; they buy their services. Paradoxically, only a minority of bookkeeping firms offer services on a packaged-solution basis, partly explained by the fact that most bookkeepers still rely on compliance work. It does appear that a great deal of money is being left on the table.
Billable hours and value pricing
Value pricing requires understanding what the client’s needs are. Which probably explains why despite the fact that value pricing is targeted at higher value services, it still remains a foreign shore as far as many bookkeeping firms.
For many, selling higher value services requires learning how to market, sell and deliver these services in a scalable way. But the rewards that can come to the progressive firm are manifold. If productivity gains arising from automation and the integration of add-ons that enhance efficiencies in data gathering and processing are put to work, there is massive upside potential for the firm in a SME environment screaming for sound advice.