Successful, well-run and profitable practices tend to have four things in common, writes Malcolm Arnold
In an increasingly tough and competitive market, practices need to be at the top of their game to succeed. While there is no silver bullet for practices owners in making their business successful, good practices have a number of elements in common. These elements are core drivers of long-term, sustainable practice value and can mean the difference between success and failure in business.
Good people
Without doubt, better practices have good people working in them. The most expensive cost in running an advice business is the people, so having good people in your business drives value for it a number of ways. A more engaged and stable workforce can make a significant different to your client base.
Clear job descriptions are important in businesses that are able to maintain good people, so employees are clear on their role and expectations. Similarly, remuneration has to be closely linked to businesses objectives and goals, and many of the more successful practices also offer long-term incentive arrangements such as equity in the practice.
Having good people in bigger practices can also assist in eliminating key person dependence so that clients will come to a practice to obtain advice and will not necessarily be tied to an individual in the business. This can also assist in driving a lot of value.
Strong planning
In good practices, business owners tend to spend as much time working on the business as they do in the business. While some practice owners who have been in the game a long time tend to be the rainmakers and key salespeople who see important clients, the highly successful ones are very strong on business strategising and planning as well. In those cases where the owner may be the true rainmaker in the business and best placed to continue seeing clients you will often find they acknowledge the need to still spend time on planning and as such will employ appropriate people to manage the business and help formulate the strategy.
These owners spend a lot of time making sure they are clear on business strategy, client segmentation and have a very clear and targeted client value proposition. This is also clearly communicated and understood in the business, so anyone right down the receptionist at the front desk can clearly articulate in a very short conversation the target market for the practice and what it can achieve for clients.
Long-term planning is also important. Rather than just looking at the next six to 12 months, good practices take a longer-term view and plan a long way into the future over two, five or even ten-year horizons.
Capital
Another common hallmark of better businesses is that they are appropriately capitalised.
When a business is highly geared with lots of external debt, this can leave them vulnerable to having less control and flexibility because they have to pay back interest on an external loan. Being highly geared leaves you with less flexibility in being able to take the business where you want it to go.
It is better to be in a position of managing growth in your own way. As soon as things turn in the market or there are other hiccups, being appropriately capitalised will leave you and your business less vulnerable to external conditions.
Access to information
Good businesses have access to good information and a lot of it. If asked, they are able to provide detailed information in a timely way while less well-run businesses can sometimes take months to provide data and when this data is provided often it is not accurate.
Good businesses can quickly assess their client base and know who their key clients are. They are also able to analyse trends in their revenue streams, work out how these might impact key clients and understand the key offerings that drive the majority of their activity. This in turn translates into being able to better understand and manage cash flows in order to drive growth.
So regardless of whether you are someone looking to buy the practice, acquire part of it, a licensee or an external consultant, good practices have their finger on the pulse and are able to provide you with stronger and more accurate information in a timely manner.
