After you pass the £500k turnover mark in your small accountancy firm, growing, leading and managing your firm gets easier. Not easy, but easier. After all, to get your firm to this point, you have had to master many of the skills required by an accountancy firm owner, i.e. business development, leadership, management, workflow control etc. The next stage of growth for your firm (that is, how to grow your firm from £500k to £1m) is to get the firm to truly run without you. This article explores what shifts need to happen to get to this much-wanted state.
How to grow your firm from £500k to £1m
You need to make sure that the practice is delivering for you
As your practice grows, it becomes far too easy to become a busy fool. I.e. your revenue line may look really healthy, but your profit line is anything but healthy. Putting on top-line growth is, for an accountancy firm owner, comparatively easy. But servicing this business profitability is not always a given.
At this point, you may still be ‘investing’ in your business by adding in extra people and software. But at some point, this investment needs to pay off. And, it’s your role to make sure that this investment does pay off! Typically, profitability in a growing practice is often at its lowest at around £250k. By the time you get to £500k, your profitability should be increasing from this low.
When you get your firm to £500k+, the reality is that there should be enough profit margin to make the shape of the practice fit your personal goals and aspirations. For example, this could be bringing in a practice manager to run the practice and free you up to spend time with clients. Some of our members when they have got to £500k+ have realised that they have a segment of their client portfolio that no longer fits with the business they want to be. As a result, they sell part of their client portfolio to reshape their practice so it fits with their vision.
How will you make your extra profit work harder for you?
When you get your practice to £500k, you will (ideally) have the benefit of more profit and cash. If you have grown your firm sustainably by £500k, the days of worrying about making any money or scrambling for cash should be over. Many firm owners will use this extra cash to help them benefit their firm going forward. For example:
- Buy their office building
- Acquire another practice or book of business
- Invest in other businesses
- Invest in property, e.g. holiday lets, buy to let.
There is no one right answer or way to make your money go further. But if you have the luxury of cash reserves, it’s a shame to stick in a bank account and get diddly-squat in interest.
The firm’s culture is now top of your priority list
If getting your firm to £250k was all about building out a team, then getting the firm to £500k would have been all about growing that team and sorting out profitability. To make the next jump (how to grow your firm from £500k to £1m), you now need to focus on creating the right culture.
Your firm’s culture is about what is acceptable ways to behave or work. Or another way of looking at it, the worse behaviour you will tolerate! As you probably have 10+ people in your accountancy business, it isn’t possible to drive every aspect of your firm by the force of your personality. This is why your firm culture is so essential. Don’t get the right behaviours happening automatically in your firm and you will find this will come back to haunt you as you grow further.
Here are some real examples of where our £500k+ members are trying to sort out their firm’s culture:
- Client managers not taking control of their workflow, i.e. the work that "needs to be done" tends to be driven by regulatory deadlines. The result is that work is being done for those who shout the loudest rather than delivering excellent client service.
- Timesheets were not being completed regularly or accurately, so it became difficult to see where there were efficiency issues or where clients needed a pay rise.
- Client managers did not see the urgency to complete jobs and bill promptly so large amounts of WIP built up and the firm dipped more and more into its overdraft.
- Staff deferred to the practice owner to answer client queries which lead to the practice owner working long hours and continually being on the phone with clients.
You will need to get ‘hot’ on performance management
When you have just a handful of staff, it is fairly easy to see who is not pulling their weight. But when you get above 10 people with not everyone reporting to you, it’s much easier for low performance to get hidden. This means:
- You need to be able to measure how people are performing.
- Setting up regular (weekly, monthly and quarterly) conversations with your direct reports to see how they are doing and what you can help them with. If your team members’ commitment or competence is low, these meetings will need to be longer and potentially more frequent. Ensuring that the people in your team who have direct reports are also doing this with their team members.
- Feedback - both positive and developmental - needs to be given regularly to your team.
At this stage of your growth underperforming team members are often the biggest drain on your firm’s efficiency and bottom line. Most underperformance issues can be nipped in the bud or rectified easily if picked up quickly, but often, these performance issues are allowed to fester. Or they are just not noticed. The reality is that staff performance issues normally:
- Get worse.
- Cause you increasing amounts of stress the longer you ignore them.
- Impact others’ work ethics and standards, i.e. damage the culture of your firm.
- Trigger client or employee churn.
It’s not uncommon to find you have dysfunctional stars within your firm. In other words, really high performers, but not in all areas. These can be staff members who:
- Are excellent at some stuff but cause you problems with other stuff, such as not working within the values of your business. They often tend to have a reasonable sized client portfolio!
- Decide to cherry-pick which parts of the role they want to do. For example, do they want the title and status but not want to do the whole demands of the role that come with the job title? (We’ve had this!)
- Could be normally excellent and all-around great performers but are burning out, burnt out or handling large issues outside of their work lives.
Dysfunctional stars are a nightmare! An easy way to identify a dysfunctional star is where the team members say, “[name of star] they are really good/brilliant, but….” or “I know [name of star] is good/brilliant but why are they allowed to get away with….”, or “oh that’s just [name of star], we let them get on with stuff.”
On the one hand, particularly if they manage a large client portfolio, you don’t want to upset them so they leave. But you also need to tackle their areas of non-compliance or poor behaviours. If you leave them alone and don’t get to grips with their problems, you will signal to other members of the team that you are approving of their behaviour. This tends to lead to a downward spiral of other team members’ behaviours too.
Stop any upwards delegation
If you are going to have a business that runs without you, your staff and leadership team need to be self-sufficient. What can often happen is the owner of a small accountancy firm keeps on getting drawn back into the business. This is often because of something called upwards delegation. I.e. where team members come to you with their problems and you train them to expect that you will solve their problems for you.
What I am NOT saying here is for you to adopt old-school leadership theory where you tell staff “don’t bring me problems, bring me solutions”. This is because your staff will learn to not speak up when they notice a problem. The answer here is to adopt a coaching approach when your staff members come to you with a problem or query! (Learn how to get your employees to take initiative)
Thank you so much for raising this and bringing it to my attention. I’m going to ask you a series of questions to see if we can both work together to find a solution. e.g:
If you were in my position what would you do?
If I wasn’t here, what decision would you come to?
What do you think the first action you would take would be?
This IS how to grow your firm from £500k t £1m!
Identify who is going to review the work before it goes out to clients
Yes, it’s your name on the Practicing Certificate and professional indemnity insurance. But if you are the only one who can review and sign off work, then the growth of your practice will plateau! This means that over time, you need to develop a ‘technical’ expert in your team who has the capability and temperament to review the work before it goes out the door to a client.
Capacity and resource planning is vital
When we start our practice, it’s easy to get into the mindset that when a person joins your firm they are going to be there forever. But that’s just not realistic! If you want to know how to grow your firm from £500k to £1m, you need to foster the mindset that when you hire a person, they will leave at some point.
When your headcount gets over 10, there will always be starters and leavers in your business. It could be the apprentice who, when they qualify, get lured away by the bright lights of a bigger firm. Or the member of staff who gives up work to care for an elderly relative or young family. This means part of your role now involves considering who needs to be your next hire, what they will do and when you need them up to speed.
At the time of writing, there is a severe shortage of accountancy talent. This means that firms are seeing higher than normal staff turnover plus a longer lead time to recruit new staff members. It also means that you may need to consider other resourcing routes, such as offshoring or outsourcing.
In fact, one of our members had nearly all of the accounts team leave within a 3-6 month period. This left a massive backlog of year-end accounts which just couldn’t be finalised with the remaining members of staff. As a result, this firm turned to an outsourcing company to help them fulfil their client obligations. Although it was a temporary fix, it worked so well for them that they have now radically re-engineered their practice to take advantage of offshoring and outsourcing on a regular basis.
Grow your accountancy firm to £1m
If you're really wanting to grow your firm from £500k to £1m, you will need to get these 7 areas down. If you don't, it will be impossible to make this jump and sustain this growth for the long term.
Struggling with any of these key areas? Join us in our Amplify Your Growth week!