Adding Value through Benchmarking

Historically, compliance work has been the “Bread and Butter” of most accountancy practices, this is changing.

Industry transformation is not new, one only has to look at what is happening to the UK car manufacturing industry to see this.

The lessons leant from previous transformations are that in any change some companies succeed, many fail but most remain “in doubt”.

Many accountancy practices are currently “in doubt” which means they are working longer hours for less reward, often as a result of the compliance burden placed upon them over the last ten years.

One of the key determinates of success is the ability to think ‘Outside the Box’ and identify opportunities for consulting with clients e.g. Helping them to grow, improve profit, reduce costs and save tax. Many accountants do this ‘informally’ as part of their work, but doing it in a more formal manner is now essential if a firm wants to move away from compliance and towards consulting.

Have you ever had a client ask:

“How am I doing?”

“Am I making enough money?”

“How do I stack up compared to my competitors?”

Being able to benchmark a client is probably the most valuable new skill an accountant can possess.

If you can show a business owner how they compare, both financially and non-financially against their peers, you can identify strengths and more importantly weaknesses that can lead to significant improvements in business performance.

In their 1997 report “Added-Value Professionals – Chartered Accountants in 2005” The Institute of Chartered Accountants of England and Wales identified that small and medium sized firms should specialise in the areas of added value products, services, consultancy and giving strategic business advice. Benchmarking can be a starting point to this.

So how do you benchmark a client? There are two key areas:

1. Financial Performance e.g. Liquidity, return on capital and profitability; and
2. No financial areas e.g. Human resources, marketing, production, customer care, business planning, business risk and management information.

The first thing any practice should do is to purchase a benchmarking tool. There are several good products on the market. The ones aimed at the small and medium sized practices generally cost £500 or less.

Having such a tool is essential. For example if your clients key statistics were:

Pre tax profit 4.3%
Return on capital 21.0%
Return on total assets 7.0%
Current ratios 1.0%

And you were able to compare their ratios to the industry averages and best, and then you are in a position to identify areas for improvement:

A few example benchmark questions on marketing might be:

1. Does the company regularly review the business’s strategies for marketing?
2. Are existing customers regularly targeted for referrals?
3. Does the company have target customers, and does it regularly target those customers with product information?
4. Does the company have a clear marketing strategy for developing new customers of the type of business they want to have?
5. Has the company reviewed all the marketing costs to evaluate the cost versus benefits of marketing?
6. Does they company know and measure how much it costs to acquire a new customer?
7. Does the company have an accurate database?
8. Has the company carried out an exercise to ensure sales pricing policy has been calculated to maximise profitability?

The answer to these questions will determine whether this area has been seriously considered by the business. The consultant does not need to be an expert on marketing. Benchmarking means knowing what the best in the market does and outlining these procedures to the client so that they can improve their own systems.

Where do you go for non-financial benchmarking information?

There are benchmarking products on the market that cover the non-financial areas e.g. CCH Business which provides good background information about a wide range of industries,

There are also good websites that provide key benchmarking information. For example, the martex website (www.martex.co.uk/taf) provides an A-Z of British industries and trade associations. So if you have a client and need information on what’s going on in the industry, this site will direct you to an appropriate trade association or body where you can get the information.

The Business Link website (www.businesslink.co.uk) is also a good source of benchmarking information.

If any firm of accountants wants to move away from compliance and towards added value consultancy they must have the tools to do this in a more structured way than they have previously done. Failure to have an added value strategy will mean less reward.

On the other hand, those firms that make the transition towards consultancy will be the successful and profitable firms of the future.