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Tuesday, February 28, 2012

IFACs useful insights for aspiring financial services entrepreneurs

Recently, I read the IFAC SMP Practice Management guide aimed at small and medium size accounting practitioners. But due to the explosion of the field, it is relevant even for non audit services like valuation, management accounting, SAP consultancy, merchant banking etc. I would urge you to read the entire version here(http://www.ifac.org/sites/default/files/publications/files/SMP_Practice_Mgmt_Guide.pdf) but otherwise I give below a few salient points which I found insightful
  1. A realistic self-assessment checklist:-Appendix 1.1A gives an interesting checklist which asks you to assess your technical skills,managerial or people skills, financial resources, marketing skills, support networks and personality. Also, how does this tie in with your financial and other goals? Appendix 1.6- Strategic planning diagram is also very interesting.
  2. To specialize or to generalize? Your competitive strategy:-The three possible “market strategies” are Overall cost leadership(low price is easy, its low cost that is difficult!),Differentiation(but in services this can be copied with ease..) and Focus(while expertise may win you legitimacy and clients, make sure that market segment must be able to afford your services; otherwise you risk targeting the firm’s efforts into low-yielding work which your competitors would gladly see you do). Pricing Policy varies accordingly.
  3. But eventually cover the full range of commercial issues:-As per current trends, be prepared to progressively expand your range of services to get higher share of wallet of clients, else risk losing them to a full service provider/other networks. This is where firm networks help.
  4. Good promotion does not need to be expensive:-Subject to professional ethics rules, low cost are anonymous case studies to demonstrate the practical benefit from each service; newsletters or other media as an attachment to your engagement letters, engagement concluding discussions etc.
  5. Partnership agreement checklist:- Appendix 2.2 Items to be included in a partnership agreement or shareholder agreement checklist, covers this. Interesting aspects are management, dispute resolution, exit provisions, valuation formula, and capital investment,decision-making process(including that on managing partner), partners’ access to profits/remuneration/loans etc.
  6. The “devaluing” of information by the Internet:-Accountants charge a fee to provide advice to clients: the advice is based on information (which some clients might find free of charge via the Internet) and it is applied to the client’s specific situation. Accountants must consequently
    focus on value-adding for the client (delivering benefits, not just information) and continually resell the savings, security or the confidence that their services represent. This is true even for Certified Financial Planners who compete with magazines and stock tips!
  7. Service delivery plan:-Mobile technology—especially telephones and Internet-based wireless communications—enables a “virtual office” to be operated
  8. Sample staff office manual:-They actually enclose an entire sample manual including SOPs, office forms and guidelines on customizing it!
  9. Beyond Revenues/profits:- Controlling debtors/work in progress(thereby better billing and liquidity) finally grows revenues, cash flows and profits. So it is the small things which matter. 
  10. Minimizing potential problems in service delivery:-assess client expectations/intended use of reports; objective report, or does the client require subjective judgment; Is the service provided high risk?(like assurance services); Have any other professionals rejected the potential client?;Are there any concerns about a client’s viability, reputation, or management
  11. Professional Indemnity Insurance:-Have you declared all services offered to the underwriter?How are you engaging subcontractors/agents/consultants, and how are you indemnified in respect to their work? Are you or is your advertising/promotional material deceptive or misleading as to your skill, qualifications, etc.?
  12. Communicate outcomes:-Clients rarely see or know the full extent of the work you do. Therefore, the presentation of the final outcome assumes great importance in ensuring that clients are satisfied with your work or advice. Make sure that the client understands not only the cost of your service, but also the net benefit they have gained: in this way, you continually resell the importance of your work.
  13. Rising levels of regulation and professional knowledge:-The combination of re-regulation plus higher professional standards will place enormous demands on accountants and their employees. Heavy investment will be required in ongoing training and on subscriptions to a wider array of information services, just to maintain current knowledge. In turn, this level of training and investment will also place substantial pressure, both financial and emotional, on the principal or partners of small firms
  14. Information and resource management:-Where do you obtain your information and resources that you rely on? Are your information sources reliable? Do they support your obligation to take
    reasonable care? What about continuing professional development?
  15. Client documentation:-have operational notes in client files (e.g. software, postal preferences),checklists,documented procedures such as manuals, standard letters, ISO needs.
  16. Continuity of business: the second generation
  17. Value drivers during exit:-A larger firm is unlikely to seek your infrastructure or systems. It is more likely they want your client base and recurring income stream. They will probably also be interested in your staff who have client relationships and institutional knowledge and history

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