Using Compliance Work to Uncover Business Improvement Opportunities

1. Using Compliance Work to Uncover Business Improvement Opportunities Ric Payne Principa www.principa.net + 1 775 830 1925

2. This is really about defining your business model

3. Why do people use CPAs • They are required to meet compliance obligations • Keep more money • Make more money Which of these three reasons are likely to represent the highest value?

4. If YOU want to make more money You must become more valuable …. and this has more to do with massaging perception than anything else.

5. 1 The Challenge How do your clients and prospects perceive you?

6. Number Cruncher? Key business advisor Form Filler? Bean Counter? Scorekeeper?

7. COLLECTION & CLASSIFICATION OF FINANCIAL DATA PREPARATION AND FILING STATUTORY RETURNS ANALYSIS & INTERPRETATION OF RESULTS ORCHESTRATION OF OUTCOMES RELIANCE An important shift in positioning Clients’ perception of value COACH/ TRUSTED ADVISOR SCOREKEEPER COMPLIANCE Start here Transformational Transactional

8. A Quick Poll # 1 Do you routinely offer your business clients an opportunity to formally review the financial performance of their business at least once each year? Yes / No

9. % 2 The Opportunity SME’s who believe their accountant should be doing more for them.

10. % 2 The Opportunity Accountants routinely undertake a formal annual financial statement review.

11. 2 The Opportunity We have an extraordinary opportunity to do more. %

12. Business owners welcome help from their accountants • But … we’re not providing all the help they need and deserve • Because … we’re too busy with compliance matters 2 The Opportunity: Conclusion

13. THE INDUSTRY VALUE CHAIN Price Insensitive External CFO Value Added Services Commodity Services Valuations, M&A Niche services - vertical or horizontal niches Relative Value Added Estate planning Retirement / succession planning Business guidance Financial projections Tax planning Tax problem resolution Audit & review Tax preparation Compilations Payroll processing Bookkeeping Price Sensitive COMPLIANCE RELIANCE

14. Choose the point you want to be on the value chain and design your service offering to match Where do you want to be on the value chain? If you don’t add more value, the only way to grow revenue is to add more clients … and THAT is hard.

15. The popular but wrong strategy Strategies for growing your firm … New Clients Existing Existing New Services

16. Client selection Service offering Firm positioningCommunicating value Differentiation is about …

17. Not all clients offer the same opportunity for you to add value so don’t view them as being the same. Client Selection is Critical A major success key

18. A Typical Client Cumulative Profitability Graph

19. If your graph look like this … 100% It means you’re uniformly adding the same value to all clients with little or no differentiation. It’s a commodity business. % of Total Net profit % of Clients 100%

20. Identify your Prospects Overarching Principle You’re looking for clients in respect of whom you are able to add value, who understand and appreciate that value and who are willing to share it. That is, people . . . Who are likely to be successful over the long term Because of the value you create for them And are therefore likely to be loyal advocates

21. Client Selection High Profitability (to service) and Growth Potential Low Low High Interpersonal Resonance & Receptivity

22. Client Selection Criteria What’s the Profit Improvement Potential? Apply the 5/10x rule For Example: Fee - $2,000 per month over a 24 month period – look for $480,000 total value added in business value and be self-funding Increase in NPBIT target (year 1) $120,000 Increase in Business Value @ 3 times earnings $360,000

23. Client Selection Criteria

24. The service needs of a business are driven by where it is on its life cycle

25. Traditional Growth Senior Management, Systems Planning Leadership, Management Systems, Cash flow Leadership, Systems, Cash Flow Price decline Little differentiation Lack of innovation Turnaround Entrepreneurial Entrepreneurial A Typical Business Life Cycle Revenue Innovation and Renewal Management Style Frustrations Phases of growth Start-up Growth Maturity Decline / Renew TIME

26. There are needs at every point Where your client wants to be Succession planning & exit strategy Key process identification, re-engineering and systematization Management control plan Performance measurement metrics Operational processes This is where most accountants focus their energy and skill Organization structure Leadership Team building Team skills development Customer service system Business value planning Financial reporting system & compliance The starting point Time

27. Moving From Compliance to Reliance: Your Game Plan • Identify your prospect – run the numbers • Be a problem solver not a prophet of doom • Don’t ad lib - if something’s worth saying learn to say it well • Develop trust by empathizing with your client • Get attention by revealing hidden opportunities • Explain your action plan for the three possible outcomes

28. Be a Problem Solver What a business manager should know but rarely does What are your major product or service profit contributors Who are your most profitable customers What are your expense drivers How to manage cash flow What are your Critical Success Factors (CSFs) What Key Performance Indicators relate directly to the CSFs How to use a Management Control Plan as a management tool

29. Your Game Plan • Identify your prospect – run the numbers • Be a problem solver not a prophet of doom • Don’t ad lib - if something’s worth saying learn to say it well • Develop trust by empathizing with your client • Get attention by revealing hidden opportunities • Explain your action plan for the three possible outcomes • Find your fee

30. Do’s and Don’ts of Business Performance Reviews • Do NOT talk about the obvious • Do NOT focus on expenses (reduction) The Don’ts

31. Do’s and Dont’s of Business Reviews The Do’s • Look at the components of profit change • Discuss the 4-ways to grow your business • Discuss the business model from the perspective of profit drivers • Make expense analysis interesting & relevant • Discuss the relationship between profit and business value • Discuss the role of a CFO • Explain the concept of a MCP

32. It all starts with a conversation

33. Empathize with your prospect – 5 Killer Questions How is your business helping your realise your dreams? If one burden could be removed from you today what would that be and what impact would that have on your life? What is the one thing you would like to change in your life? If you had a magic wand, what one thing would you change about your company …. Why did you choose that? In your present role, what brings you most happiness and what brings you most stress?

34. Your Game Plan • Identify your prospect – run the numbers • Be a problem solver not a prophet of doom • Don’t ad lib - if something’s worth saying learn to say it well • Develop trust by empathizing with your client • Get attention by revealing hidden opportunities • Explain your action plan for the three possible outcomes

35. An analytical tool makes life easy

36. One of our most important roles is to bring your financials to life

37. Sure .. We’ll give you columns of numbers

38. But .. We’ll always be looking for your opportunities

39. We’ll show you what contributed to your year-on-year profit change?

40. And we’ll tell you what’s happening to your financial condition

41. We’ll even let you know what you should do next This is what we’ve noticed We recommend …

42. And we’ll be very precise in our analysis. After all we are numbers people!

43. We’ll help you view your business through an interesting lens that you can relate to because we believe in simplicity

44. And we’ll work with you every month to let you know what you need to achieve going forward to reach your financial targets

45. And we’ll help you strategize your business because we understand the impact of its key profit drivers

46. We understand there are just 4 ways to grow any business

47. … and we’ll always give you a forward looking perspective

48. Poll question # 2 Would you be willing to use the Profit Improvement Performance software as a discussion catalyst with at least one business client? Yes or No

49. The Two Key Expense Review Questions… What are we getting for what we’re investing? and Is there a better way to deploy these resources?

50. Make Expense Analysis Interesting Sales ……….. Less COGS = Gross Profit Less Expenses Net profit Less the cost of resources used to generate your gross profit