Why risk the health of your accountancy practice by measuring the wrong things?
Is your firm focused on the RIGHT KPIs?
Lose major money for three months, one after the other, and you’d be stressed.
Lose an important client and you’d feel fretful.
Receive the resignation of a key employee and you’d have a gut-wrenching reaction.
This might sound odd, but such strong emotional reactions are good things – they result in corrective action.
But doesn’t corrective action all feel a bit late?
£300,000 is missing…
Not too long ago, in my capacity as a non-exec for a three-partner accountancy firm, we experienced a somewhat emotionally charged meeting. The partners had been optimistic at the start of their new financial year of achieving £1.8m in fees. Three months later the forecast was £300,000 short.
Audit threshold changes, three large clients sold and a few client losses meant the forecast now showed £1.5m not £1.8m.
Feelings were running high and the commitment to corrective action was also high.
Never before had they been so heartfelt and committed to the measures that drove sales. Nine months later their healthy heartfelt focus had clawed back the lost £300,000.
In a nutshell A big hairy problem created lots of stress and enough motivation to act. A focus on measuring the right things, and taking the right action, quickly resolved their problem.
Hard-earned lessons This firm, most firms, and most of your business clients, do not bring enough emotional commitment to measuring the right things. Until there’s a big problem. Why? Because ‘cure’ is easier to get emotional about than ‘prevention’.
It’s the wrong obsession Accountants measure historical results.
Annual accounts and management accounts focus on sales, costs, profits. A balance sheet shows cash and other assets and liabilities. These are all lagging ‘after-the-horse-has-bolted’ KPIs.
Improving results or preventing disaster comes from a focus on leading KPIs. Just like Continental Airlines did.
Use cleverer KPIs… In 1994 Continental Airlines was failing miserably. In the previous decade it had filed for bankruptcy twice. But then Gordon Bethune took over.
Bethune simply got every employee focused on three KPIs. Together they delivered a remarkable comeback. Continental became one of the most profitable airlines in the sky in the late 1990s.
The game changed because Bethune changed the KPIs. He dumped most measures and got every employee focused on three leading KPIs:
less lost luggage – a quality KPI
fewer complaints – a customer satisfaction KPI
on time arrival – a speed of delivery KPI.
Notice how these three company KPIs don’t show up in annual accounts or management accounts.
Bethune managed to get all Continental employees taking regular action to improve these three customer focused KPIs.
What’s your firm’s equivalent to Bethune’s three customer focused KPIs?
Critical question… What happens to your firm’s results when you start to measure the KPIs that matter most to your customers? What happens if you start doing the same for your clients?
Only when you bring enough emotion and motivation to leading KPIs will you get the result you want. Or do you want to wait till something goes badly wrong before focusing on customer critical KPIs?
KPIs deliver £300,000… The three-partner firm were focused on sales. So you won’t be surprised that the leading KPIs the three partners focused on were:
number of client meetings
number of introducer meetings
number of referral requests
number of follow up actions taken.
Of all of these the top one is the one that matters most to their clients. It was managing this KPI that increased cross-sales and client referrals. This in turn delivered most of the £300,000.
Time for action… What’s your firm’s current focus or challenge? What KPIs should now get your full attention?
If you want a list of 40 possible KPIs for an accountancy firm – plus a four-page report on KPIs with additional support materials to help you measure what matters most – simply email – firstname.lastname@example.org
Paul Shrimpling is a consultant and non-exec for accountancy firms only.
Paul will be sharing more insights about KPIs at the ACCA conference in North Wales on 17 November 2015.