Building a profitable practice is the first objective for accounting and bookkeeping practitioners; the problem is many practitioners are treating the practice as a ‘job’ and not a business that is bigger than themselves – even if they have ‘rock star’ status. Apart from limiting revenue and therefore income, it also closes the doors to the possibility of a sale of the business.
Bookkeepers can be both practitioners and business owners but the value of the business will not grow unless the owner(s) actually commit to growing the value. After all, building a sustainable, profitable practice which has significant capital value is, surely, better than a practice which is stagnant or wholly reliant on the practitioner-owner and their billable hours?
Business basics
If a firm has sufficient revenue to cover its costs and produce a ‘decent’ income for the operator then all is fine. Right? Well, no because a practice is not necessarily valuable just because it produces an income for the owner.
While producing a decent income from the practice each financial year is okay for many bookkeepers and accounting technicians, the value of the business lies in the leverage that can be applied to the core assets of the firm: the skills and competencies, the systems in place and the positioning in the marketplace.
The elements of business value
Long term capital value relies on for the practitioner unless it can be shown to be sustainable as a business, that is, with as little churn as possible in the client base, a growth in client acquisition and revenue. Integral to the growth in value is that the growth becomes increasingly less dependent on the founding owner. Business value, and that there is leverage in the business.
Service businesses have inherent value when they:
- Can continue to be profitable without the efforts of the owner-founder(s)
- Have systems in place which enable the business to scale
- Have defensible strategies in place.
The founder’s vision
What the end game is lies in the founder’s vision. Many founder-owners will struggle to allocate to strategy and to ongoing revenue generation. Getting the balance of time use – or management attention – right is a critical area in the development of the firm and its long term value.
Time is the obvious challenge but so too is a commitment to invest in the development and capability of practitioners. If there is vision to develop of a special niche in the market, it needs to be supported by a reliable prospecting system that delivers a sufficient quantity of ongoing opportunities of the right sort for the business to accelerate its revenue growth. This is where leverage really comes into play.
It is sustainable, superior financial performance – with a defensible strategy in place – which triggers the greater capital value for a firm.
Read our guide here.