What does it take to grow your small maritime business from £50k to £250k in turnover? So many ‘experts’ in helping small maritime businesses grow to focus purely on sales and marketing. Sustainable growth for a small business is so much more than winning new clients. To go from £50k to £250k means changing your business from largely being just you to you plus a team.
In this article, Alasdair Milroy explores mindset shifts, leadership priority changes, and the practical stuff you need to do to successfully make this leap.
What happens when your business grows from £50k to £250k?
You need to rethink where you spend your time, as you have run out of time
One of the models we like to use with our members is the Red/Black/Blue model. Where each of the colours represents what you spend your time on. The Blue area is ‘blue sky thinking’. It’s what we often will call working on the business.
It’s where you do strategic type activities or stuff which will help your business in the long term, such as:
The Black area is for front-office activities. This is where you earn money to service your clients. Some of your short-term business development activities will also come into this area. Your Red area is for back-office activities. This is the cost of being in business, and every business owner needs to do this. For example, bookkeeping, taking the time to renew your insurance and measuring and monitoring your KPIs.
You run out of time when you get much beyond £50k in turnover as a maritime services business. The Black area has typically consumed all your time for the Blue stuff. This is when you wonder why you gave up your demanding day job and its long hours for another demanding day job, much longer hours, and a not-guaranteed salary at the end of the month. Typically, what happens is around £50k (or sometimes earlier), and accounting firm owners start to bring in team members to reduce the amount of Red stuff the owner is doing. But also take over the lower-value ‘Black’ activities needed to service the client's workload. For example, calling them to ask them to bring in their records, doing personal tax returns, bookkeeping-type tasks, etc. These team members can be trainees, apprentices, or virtual assistants. These team members could be part of an outsourcing company, off-shored in India, Philippines, Romania, or Pakistan, or a freelancer working for you. Reducing the amount of ‘Red’ and lower value ‘Black’ activities the accounting firm owner is personally doing frees up the firm owner to take on more clients, i.e. more revenue and/or work fewer hours.
We encourage our members to hand over as much of their compliance work as possible to the team. But some members take a little longer to stop doing personal tax returns. In our experience, they can often feel guilty for not doing the tax returns when their team are flat out in a busy season. Of course, the mix of work you do or don’t do is up to you. But the sooner you can move the lower value ‘Black’ activities onto a team member, the more time you have to focus on what you need to do to move your practice forward.
You are now responsible for a team
By the very nature of having people to manage, you suddenly have more demands on your time. One of the key leadership shifts, when you have a team, is to recognise now that your first priority is to help your team members perform to the standard you require. This takes time - and frequently, you don’t have time - particularly if you struggle to afford more resources in your business. This is often why small accounting firm owners will take on an apprentice first or go the outsourcing route.
Outsourcing your compliance work, such as year-end accounts and personal tax returns, is a great way to increase your capacity without the costs of a full or part-time staff member. In our experience, you can grow your business to ~£300k with just you, an outsourced team, and admin support.
Many small business firm owners have a firmly held desire to not offshore or outsource their work. It’s not for this article to say whether this is right or wrong. Instead of outsourcing, many firms will find cheap labour by employing an apprentice. Taking on an apprentice as your first employee if you have run out of time is often the wrong decision. Just because their wages are cheap doesn’t mean to say that they are a cost-effective hire. Most of our members agree that apprentices only start delivering real value to the business when they have 6-12 months of experience. Until then, you will be spending a lot of time you don’t have training and developing your apprentice.
You have to find the time to recruit, develop and retain your team. This means that there is a major shift in what you spend your time on. For example:
Fail to prioritise your time with the team, and you will sadly find one or all of these things will happen:
You have to learn to trust your team to get things done
Doing all the client work by yourself to your team doing a large amount of work is not easy. Some accounting firm owners never quite make this transition. It’s much easier to trust your team if they are sitting in the same office as you. Sadly, with the COVID-19 pandemic, more and more accounting firm employees are opting to work from home for some or part of their week.
To find this level of trust often requires time, communication, and the right technology.
Your profit margin gets painfully squeezed
When your cost base was limited to software, insurance and what you needed to fund your lifestyle you could afford to keep your prices low. In fact, these low prices may have been what helped you attract your first clients. But these low prices will be slowly choking your business growth.
After all, by adding in staff members to do work on your behalf your fixed costs and cost of sales increases. For example, deciding to take an office or a bigger office to house you and your team. If you don’t actively change your practice efficiency by raising your prices or doing things differently, you will find that as your firm revenue grows your net profit margin reduces. (See graph below) It will often reduce to the point where, you the owner, are the lowest-paid member of the practice. Or even worse you are, what feels like, working day and night to pay your team rather than pay yourself. From personal experience, this is often the point where you look at the cashiers at your local supermarket and ponder whether you would be better off having their job.
You will often need to price your existing clients’ fees
One of the quickest ways to increase your business revenue so you can pay yourself enough to live on is to increase your existing clients’ fees. Even though this move makes fiscal sense, it can be incredibly daunting. After all the clients who really need a fee increase are often your first clients. The ones who supported you in the early days of your practice. Plus you will find that the loud voice of fear in your head will be yelling at you to not commit commercial suicide by putting your fees up.
If you are still pricing at the same level as when you started your practice now is the time to revisit those fees. We often find with our members that most wish they had repriced much earlier… and they only lost at most a couple of clients. But these were the clients they wanted to lose.
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You will invest in additional software to increase your practice efficiency
As you can see from the graph above if you are to increase your profit margin to have enough to live on, increasing your practice efficiency is now a leadership priority for you. Most of our members will introduce practice management software for accountants. But it may not just be practice management software you introduce. It could be different accounts prep or tax computation software to help reduce the amount of manual input and time to produce accounts and tax returns.
Many of our members have invested in the new breed of cloud-based practice management software for accountants such as Karbon, Senta and the new kid on the block Pixie. They are using their practice management software to:
A good practice management software stack can often save your firm the cost of an admin person.
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Marketing and sales are still important: But the focus is more on keeping existing clients happen
In the early stages of your accountancy firm, it was all about how you were going to win more clients. To go from £50-250k in turnover you are still going to need to win more work. But the likelihood is that if you look after your current clients well, you will generate a reasonable amount of new business from your existing clients. This could be your existing clients wanting more services from your firm or recommending your firm to others in their network.
We find that many of our members when they get to the £200k level will often change the mix of their business development plan. For example, they may leave a networking group, such as BNI, outsource elements of their marketing to external professionals.