In the past few episodes of "Building Your Multi Million Dollar Practice" we've been breaking down the different sectors of businesses and what accountants and advisors need to know to help them grow. Today, we are discussing services as a business, something that accountants and advisors hold near to their heart. The service sector can be broken into either value-added service or goods/products as a service. In this podcast, we will tackle some of the common hurdles many entrepreneurs and their advisors have when building and creating succession planning for service-based businesses.
First off, let's start with some examples of the two different types of services: value-added and goods/products. The service companies that have goods/products will have more defined pricing (think of a dry cleaner or a restaurant.) The service companies that have value-added services are going to be harder to define their pricing as they are based on frequency/services provided (think of your role, as an advisor for clients.)
As you know, accountants and bookkeepers' main clients are service-based companies. This is usually due to the complicated taxes. Service businesses are many times started by entrepreneurs and these owners frequently own more than one company, creating complex tax strategies to save them the most money. To even more complicate taxes, spouses can be involved in the companies and employees can be partial owners, along with many other situations.
When looking at the two main differentiators, one of the first things accountants and advisors can help with is creating more cashflow. A fixed-price business' profitability is affected by 3 things: cost of goods sold (labor, raw material, etc.), efficiency in getting the product out, and the client experience (brand awareness and loyalty.) When you're in a commoditized business, there's a lot of choices, so make sure the company is considering these top things. In order for profitability to grow with a company, you much make sure brand awareness is high, since that will carry the merit if people use the service again and again. With tools like ProfitSee, you can build promotions that deal with sales, marketing, and hiring needs, and see how those all affect the net income of the company.
Perception of value is one of the biggest factors when you're dealing with value-added service companies. Depending on the dynamics, pricing will change; if you offer more services, price will increase. The value must be there in what your clients do, and branding is everything. IF you're in a non-fixed revenue, the whole service needs to be about the guest experience/perception. They have to love you, and also see your value. Service-based businesses that have a great reputation that follows them typically charge more, because their value is already well-established. With this bit of information, remind the clients that offer value-added service that referrals and new opportunities are a great way to continue to grow their business.
As far as succession planning is concerned, any closely help company will know that the future planning is critical. When clients spend their time and money creating a commodity, there's two main factors they need to remember. Based on the current market, is their service survivable? And is it sellable? If there are skills involved, the owners must pass on their roles and train up their teams to continue offering the same level of service. Growth in service-based businesses is very possible, if the service stays relevant, and doesn't get automated or outdated with technology changes.
Start your complimentary trial of ProfitSee today to increase cashflow for your service based clients today: myprofitsee.com/trial.