Accountant cost

[elaine@cheapaccounting]

I say again a 'fair price' IS subjective and isn't really worth arguing about.

So I guess that we now have to shut up and not express ours views!

In my book it's called a debate not an argument. But I guess it’s the world according to Alan so it must be an argument

 

[Alpha]

So I guess that we now have to shut up and not express ours views!

So where have I said that you have to shut up and not express your views?

In my book it's called a debate not an argument. But I guess it’s the world according to Alan so it must be an argument

Ok so it isn't worth debating as we appear to be debating two different things

 

[Wild Goose]

My old economics lecturer defined a fair price as one both buyer and seller are happy with.

But it seems to me that many accountants are such poor negotiators that they end up giving the shop away, by doing free work and the like. So much so that their prices are sometimes unfair - to themselves! :|

 

[Lancelot]

But it seems to me that many accountants are such poor negotiators

I agree with you. I've never been a good salesman. That's why I became an accountant.

 

[internetspaceships]

Tee hee.

Comparative morality from Accountants- - excellent reading.

*winks kindly at Elaine*

Tell you what though guys. I like the points about value added service. If you're charging someone a fixed fee agreement then if they occasionally phone for some advice then for the sake of a ten minute phonecall (when you can fit it in) it certainly should be included.

How many transactions do you do per year OP because that's one thing that makes a large difference to fee agreements?

As to a previous post where a client had underestimated his Corp Tax by 50%, maybe as a Director he should be steered by his accountant to have a working understanding of what constitutes profit at the end of any given month so he can at least keep a rough guestimate of his liability at any time.

I'd see that as the task of an adviser who I pay to work for me. I usually over estimate by a factor of 10% at least so I'm in the clear. The added bonus is that I then end up with spare money in the savings account.

 

[Wild Goose]

As to a previous post where a client had underestimated his Corp Tax by 50%, maybe as a Director he should be steered by his accountant to have a working understanding of what constitutes profit at the end of any given month so he can at least keep a rough guestimate of his liability at any time.

His accountant tried steering him towards management accounts that would have done just that, but the director went for the cheaper option of believing the monthly Sage reports.

As you probably know, they're neither profit statements nor cash-flow statements - more hybrids really - unless you have a team of accountants and bookeepers on board to ring all of the Sage bells and blow all its whistles.

 

[maxine]

There's another thing with pricing too and that is perception.

Particularly true for accountants as some people feel that they are paying "that little bit extra" for something... they may not know what that something is but they still feel as if they haven't punted for the lowest price.

I guess it's like having a bronze, silver and gold mentality with a large proportion opting for the silver and gold because they are scared of being bronze.

You would be amazed at the people we speak with who are very happy paying over the odds for the accountancy fees and who are fiercely loyal to that firm!

And coupled with our survey that determined that 70% of people do not know what qualifications their accountant has makes folk weird and wonderful in their choices

 

[Jaydee]

You would be amazed at the people we speak with who are very happy paying over the odds for the accountancy fees and who are fiercely loyal to that firm!

...which proves that there is no concept of accountancy fees being "fair".

It will never cease to amaze me that UKBF users equate "cheap = fair" and "expensive = not fair". Expensive is still fair, providing it is disclosed before the work is carried out. The client has the choice.

Accountancy practices are businesses too, and there are other extremely successful business models than stripping as much margin as possible out of pricing!

 

[Wild Goose]

It will never cease to amaze me that UKBF users equate "cheap = fair" and "expensive = not fair". Expensive is still fair, providing it is disclosed before the work is carried out. The client has the choice.

To be fair though, it's sometimes a case of Hobson's Choice for clients. For example, a business in urgent need of a biz plan to extend its overdraft usually doesn't have much choice other than to get its accountants to prepare it, whatever the quote.

I've heard clients who happen to be good negotiators speak of wanting "good value", so I guess Maxine is on the money when she says it all comes down to clients' perceptions. I guess if they wanted the cheapest they'd all drive Hyandis and eat at McBurgers.

 

[accountancyextra]

Steve Pipe talks about over 50% of accountancy practices in the UK actually making losses. This is because the principal doesn't take a market salary for their time or effort.

I suspect a large part of that is down to pricing

 

[elaine@cheapaccounting]

Steve Pipe talks about over 50% of accountancy practices in the UK actually making losses. This is because the principal doesn't take a market salary for their time or effort.

I suspect a large part of that is down to pricing

So if they took a salary then the loss would be bigger?

Whether you take a salary or take your rewards through dividends is a business decision – factors influencing this may be your future intentions for the business e.g. building to sell etc.

As to firms making a loss – there is no law that says just because you are an accountant you will be good at running a business.

There are some accountants who are just not good at it!

 

[accountancyextra]

So if they took a salary then the loss would be bigger?

Whether you take a salary or take your rewards through dividends is a business decision – factors influencing this may be your future intentions for the business e.g. building to sell etc.

As to firms making a loss – there is no law that says just because you are an accountant you will be good at running a business.

There are some accountants who are just not good at it!

What he talks about is that on paper the practices make a profit. However, if they employed someone to do what the principals do in the business, or, if you added their true cost of the principal to the P&L they would actually make a loss. In other words, whilst you make a buisness desicion to withdraw profits from the company via the dividend route, that is actually masking the underlying profitability of the firm.

 

[MyAccountantOnline]

What he talks about is that on paper the practices make a profit. However, if they employed someone to do what the principals do in the business, or, if you added their true cost of the principal to the P&L they would actually make a loss. In other words, whilst you make a buisness desicion to withdraw profits from the company via the dividend route, that is actually masking the underlying profitability of the firm.

I have a sneeky feeling Elaine knows exactly what he/you mean

 

[accountancyextra]

I have a sneeky feeling Elaine knows exactly what he/you mean

Then it was far too subtle for me

 

[MyAccountantOnline]

Then it was far too subtle for me

I could be off the mark here but I dont think I was

 

[elaine@cheapaccounting]

A business owner decides (and an accountancy practice is a business) to:

• keep profits high to reward owners through dividends

• keep profits low by talking a salary, dividend, investing back into the future grow of the business e.g. marketing, PR, systems etc

• Other depending on the business strategy of the owner

To take a profit and loss account on face value and say that this profitable business is in fact loss making is bonkers – do we do this as accountants when advising clients through the due diligence process.

I hope not!

We look at a much wider picture of business performance – current, past and future.

I have not seen the presentation or article from Steve Pipe so this may be out of context but I do hope that this is not spouted around as some sort of truth according to an oracle!

 

[MyAccountantOnline]

I do hope that this is not spouted around as some sort of truth according to an oracle!

I think it's fair to say Steve Pipe likes to think so.

 

[Jaydee]

The report is three years old and only had a sample size of 209 firms

http://www.accountingweb.co.uk/item/182799

I think that the point is not a salary v dividend one, it is that unincorporated practices do not show the principal's notional salary in their p+l.

So a p+l profit, would become a loss, if the principal charged a market cost for themself.

 

[elaine@cheapaccounting]

T

I think that the point is not a salary v dividend one, it is that unincorporated practices do not show the principal's notional salary in their p+l.

So a p+l profit, would become a loss, if the principal charged a market cost for themself.

My points apply if unincorporated or incorporated business – just change salary / dividends to drawings.

Great that he had full access to the accounts of unincorporated business to see how the income was utilised in the cost base to be able to reach the conclusions that they were actually loss making businesses.

 

[Strontium Dog]

Does Steve Pipe say what his idea of a market salary is for someone carrying out the duties of a principal in an independent accounting firm?

The added spin I would put on this is that if so many are loss making, the market rate is not as high as Mr Pipe-dream thinks.

 

[Jaydee]

... just change salary / dividends to drawings..

No, I think that what he is saying is:

A sole practitioner's accounts may show a profit and he/she may be drawing less than the profit and so the business appears to be/is profitable.

But now if you take a market "salary" for the practitioner's time that he/she expends in the practice, it would make a notional loss.

 

[elaine@cheapaccounting]

Yes I get that and my point is so what.

I’m obviously not explaining this well at all.

I look at a Practice as a business – guess that is where I may be different from many others.

Whether and how one chooses to reward oneself as the business owner depends on the business strategy as I have said.


Not taking a market salary / dividends / drawings but re-investing all the money on marketing/ advertising / software / costs and hence showing a low profit or even loss to build future capital value is a business decision.


Business success in not just the profit or loss alone. Surely we all know that!

Whilst yes of course by applying a market value salary (whatever that is) a loss may result - who cares. If the business is performing to plan.


Are we at cross purposes?


I has a quick glance at the link but it was just a selling thing wasn't it?

 

[internetspaceships]

I think Elaine has it right here.

It IS a business. Applying "market salaries" and whatnot is daft. If you're growing a business and reinvesting profits and time in order to achieve a business with a value then that fulfils its own goal.

Breaking things down too far can be counterproductive. For example I have an overhead including all staff costs etc etc of £x0000 per month. When I exceed that in margin in that month then I'm in profit. If I don't then I'm making a loss.

 

[Wild Goose]

Hi Ahmed,

What are your charges for unanticipated work (business plan, HMRC enquiries, tax planning, meetings, etc)?

Is the work outsourced offshore?

 

[Wild Goose]

I think Elaine has it right here.

It IS a business. Applying "market salaries" and whatnot is daft. If you're growing a business and reinvesting profits and time in order to achieve a business with a value then that fulfils its own goal.

Is this about what economists call "opportunity cost"? If I work all year and make £15,000 profit (regardless of whether I extract some or all of it from my business) then I'm missing the "opportunity" of earning a wage doing something else: working for Elaine, for example, where I might command a large salary on account of my dynamic handshake.

A hairdresser client owned the freehold on his salon, but profits were consistently low at around £10k per annum. When it sank in that he was working for around £5 an hour, he closed shop and got a job earning double that. So opportunity cost was £20k. In fact he now rents out his shop for £10k pa, so I guess he was really working for nothing (and the true opportunity cost was £30k). On the down-side, Yours Truly now has to pay for his haircuts.

 

[internetspaceships]

Is this about what economists call "opportunity cost"? If I work all year and make £15,000 profit (regardless of whether I extract some or all of it from my business) then I'm missing the "opportunity" of earning a wage doing something else: working for Elaine, for example, where I might command a large salary on account of my dynamic handshake.

A hairdresser client owned the freehold on his salon, but profits were consistently low at around £10k per annum. When it sank in that he was working for around £5 an hour, he closed shop and got a job earning double that. So opportunity cost was £20k. In fact he now rents out his shop for £10k pa, so I guess he was really working for nothing (and the true opportunity cost was £30k). On the down-side, Yours Truly now has to pay for his haircuts.

Yep I get where you're coming from. Where we differ is that another way to look at the "opportunity" is that even though the hourly wage may currently be below what it should be (based upon your analogy above) this is an investment that leads to future gains far in excess of the "lost" opportunity.

If we take the scenario where those years "lost" earning less leads to years earning ten times the "lost" income then where does that stand in the economists view?

After all, isn't this the theory behind which most of us start a business?

 

[Tom McClelland]

Yep I get where you're coming from. Where we differ is that another way to look at the "opportunity" is that even though the hourly wage may currently be below what it should be (based upon your analogy above) this is an investment that leads to future gains far in excess of the "lost" opportunity.

If we take the scenario where those years "lost" earning less leads to years earning ten times the "lost" income then where does that stand in the economists view?

After all, isn't this the theory behind which most of us start a business?

I suspect that Steve isn't particularly talking about startups. He's talking about mature businesses (presumably a category that most small practices fall into) that don't have any particular growth plan where the principal takes home a reward that isn't commensurate with what they could earn elsewhere with their hard-won diverse skills.

What that analysis ignores (and I have respect for Steve and his message) is that the principal may well be making a conscious choice, and prefer operating their own business, bumbling along making decent but not earth-shattering money for the partner(s). Working close to home, working the hours that the principal chooses, dealing with clients who are the principal's choice to deal with, not travelling far and wide on client business, taking holiday when the principal wants to, etc, etc. These things are very valuable, more valuable to many small businessmen than the money that they bring home.

 

[internetspaceships]

I think I understand where you're coming from Tom. Just so as we're clear, what exactly would be the daily role of the principal, and am I right in assuming that he/she would be a qualified accountant for the purposes of this discussion?

 

[Tom McClelland]

I think I understand where you're coming from Tom. Just so as we're clear, what exactly would be the daily role of the principal, and am I right in assuming that he/she would be a qualified accountant for the purposes of this discussion?

The daily role of the principal would be doing the "qualified" work for the clients, managing the practice, managing juniors, and so on.

In a wider sense my earlier words apply to many small businesses though, not just accountancy practices. I think in Dragon's Den they refer to "Lifestyle" businesses which may deliver exactly what the owners want out of them, but which aren't investable because there is a broad match between business profits and the professional expertise and input of the owner/managers, with little left over for a hypothetical outside investor.

The trifecta would be to achieve the lifestyle benefits to the principals of the lifestyle business, with comfortable income that exceeds the market value of professional inputs, and growth towards a trade-sale. Wanting that combination is easy, but if achieving it were easy everyone would be doing it.

 

[Strontium Dog]

I think Tom is correct to a large degree.

However, I still think Mr Pipe's argument is somewhat circular.

He is saying that the business is not providing the owner with a market rate of salary. HOWEVER, this ignores the fact that if so many people are not achieving his idea of the market salary, then his perception of what the market rate is must be wrong (ie, too high). This seems blindingly obvious to me. Reduce the market rate anticipated to below what the peeps are actually achieving in their businesses, and low and behold profitablity returns. My next trick will involve smoke and mirrors!