Report reveals top strategies for costs and pricing: NAB
A NAB report examines how top accounting firms are approaching the management of staffing costs, billing and cash flow management.
Actively protecting and growing customers while also staying on top of pricing, costs and debtor management continue to be important focuses for professional firms this year, according to a recent NAB report.
The Performance Era report for professional services firms said all of these elements, along with cash flow, remain critical for ensuring the profitability of firms.
The report noted that it is difficult to get away from the high price of doing business these days, particularly with staffing costs remaining a key issue amid staffing shortages.
“The issue is particularly acute for accounting firms. The ABS has forecast that Australia will require 338,362 accountants by 2026 – almost 10,000 extra a year,” said NAB.
“It doesn’t help salary levels, but it also doesn’t help the quality of people firms are able to attract – something that goes to the very core of your profitability.”
NAB Professional Services banking executive Courtney Worrall said staff retention and avoiding the costs of attrition have become imperative for businesses.
“Not only due to replacement costs, but also due to business continuity in the trusted adviser workplace of our professional services industries,” said Worrall.
Worrall said it doesn’t have to be simply about higher salaries, with some firms finding alternative ways to attract desirable staff through work-from-home policies and additional leaves.
“Some are also going to great lengths to make the work environment more attractive to engage employees and encourage them back into the office,” she added.
PKF Melbourne managing partner Timothy Bow said his firm has completely overhauled its approach to staffing, from early education for relatively junior staff all the way through to the final course that’s a path into partnership.
Some firms are also looking at offshoring as a way to address challenges with staff shortages and costs.
“There are some great offshore talent and services available to complement professional services businesses,” said NAB Professional Services banking executive, Queensland, Donna Kosiek.
“Access to them can create differences in terms of one firm’s ability to price versus another, particularly when work goes to tender.”
PKF warned that there can be potential downsides however, with outsourcing potentially undermining the future talent pool for the firm.
“We experienced exactly that outcome a few years ago,” Bow said.
“The self-managed superannuation area lent itself very well to offshoring as it’s a contained unit and a very specific skill set. But if you invest in an offshoring setup, what you’re effectively doing is foregoing the fundamental training for your staff coming through.
“You’ve almost got to make a conscious decision to say, if I’m going to give that work up, then I can’t expect in three or four years’ time to have more senior people experienced in that area.”
High performing firms are also revising their billing process as well with inflation forcing firms to rethink what method they use.
“While clients may understand why your hourly rate may need to rise, value-based billing has the added advantage of giving clients much-needed certainty,” the report said.
Debtor management is another big issue for professional services firms, particularly as there is a culture of accepting long-dated cash lockup in work in progress and invoice management.
“Unfortunately, smaller firms are the most vulnerable here. One solution is upfront payment. While this can be problematic with long-term clients, and something you wish to avoid, it pays to take a different approach with newer customers,” the report said.
“While stricter debtor management may prove a more confronting conversation with long-term clients, ensuring that all new-to-firm clients are aware of the payment policies is critical,” NAB’s Worrall said.
If you’re not receiving cash in advance, then its vital you control your work in progress, debtors and lockup days – the number of days you aren’t being paid for the work you produce, according to NAB’s Kosiek.
“It’s also important to give clients options when it comes to payment. Pay by web, for example, is one solution that can help firms get their money faster,” said Worrall.
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