You probably haven’t heard anything at all about inflation recently, have you?
Yeah. That’s sarcasm. Practically every story on every news network has focused on skyrocketing prices for everything from butter to gasoline. As world-leading currencies like the Pound, Dollar, and Euro lose value, companies around the world are forced to raise prices to cover their costs — and/or revise their quarterly and annual estimates to account for the changes.
Times like these are trying for businesses; and for the record number of small businesses born in the pandemic, and still in their incubation stage, times like these can be deadly. Firms can be sure they’ll see a big uptick in clients needing advisory guidance. Only they’ll be missing a key chunk of critical information.
For established businesses, historical data and context is a minefield of worry in an inflationary environment — overstating profit in the face of changes to pricing is a real danger without a move to price-level accounting. For newer businesses, that history is either very short or non-existent, and again, would go out the window anyway.
In these challenging times, the dangers to an accounting firm are present, if not always clear.
Errors in estimations and statements
As we discussed above, failure to address increasing costs at the item-level rather than broadly across the economy can lead to an overestimation of profit, as well as errors in calculating asset values. Price-level accounting, while introducing some level of subjectivity into the picture, can help shore things up, giving the client a better picture into current and future financial performance.
This isn’t always a simple task; pricing in an unstable financial environment is tricky at best. But leaning on historic data here is a much bigger risk, and one that could really hurt your clients — which of course, hurts your firm.
Inflation can be an existential threat to your clients
Do you have a client whose product or service largely or entirely attracts discretionary spending? Things are about to get complicated for them. The kinds of goods and services consumers buy when they have extra cash are the first to be cut during inflation or recession.
Luxury goods, dining out, spa treatments, entertainment — all of these and more are purchases consumers avoid in inflationary and recessionary environments. And as interest rates increase in an effort to balance inflation, any loan- or lease-based purchases are likely to suffer as well. Car and home purchases, equipment leasing and more can take a hit.
Of course, a client’s need for professional accounting services doesn’t disappear because of a drop in profits. However, they might bring some services back in-house or need to delay payments. In extreme cases, some businesses simply won’t survive, and the impact on your firm when that happens is obvious.
Your firm is also a business, and isn’t immune
Inflation increases the prices of everything that makes a firm possible, from energy to office space to equipment, eating into firm profits. Pair this with struggling clients, and a firm can find itself suffering pretty quickly.
Even if you’ve managed to stabilize most of your costs, there is the real phenomenon of wage devaluation. If inflation or a recession carry on long enough, your staff will be looking for help to deal with the fact that they effectively make less now than they did before the economy hit a downturn. And since maintaining your staff and keeping them happy is likely one of your foremost concerns, that means raises and/or bonuses, once again hurting your profitability.
What’s to be done?
None of this is meant to take away from the resourcefulness of accountants. Most firms have plans in place for dealing with inevitable economic downturns. But with the length and severity of those downturns impossible to plan for, even proactive firms can be left scrambling.
So what’s to be done? If your firm is riding the fence about potential impacts of the bleak global economic picture, there are two big steps you can take to help mitigate the pain.
Diversify your services
If you have, or can quickly build, the ability to offer new services, you add new revenue lines to your firm. As some services naturally dip during these hard times, newer services can help pick up the slack.
There’s a caveat here though — high-volume, low margin services can generate revenue, yes. But they can also be time-consuming and leave you poring over pennies, and exhaust your staff. And if your staff who can perform those services are well-compensated, this eats into margins even more.
Your better bet is slower-burn, high-margin services such as client advisory services. These have a significant time investment but, as in the case of fractional CFO, can offer predictable returns at a high margin. As a bonus, advisory also gets you deeper into your clients’ strategy, planning, and cash flow, giving you more influence over decisions that can facilitate their success through difficult financial times. That strengthens client relationships and protects the firm’s revenue stream.
Increase your efficiency
Some people think the definition of efficiency is “doing more with less,” but this is a fatalist view. Simply maximizing the usefulness of your available resources will suffice. That doesn’t mean you escape planning or investment though, both of which pay dividends.
Start by finding those places you can save time. What do your processes look like? How is work allocated? Are you tracking the time it takes to complete jobs? How do you onboard clients? The more wasted time you can eliminate, the more time you have to generate revenue. It’s that simple. You can also check out our free guide from Future Firm’s Ryan Lazanis, “79 Tactics to save time in your firm,” which has all kinds of ideas to help you claw back precious hours.
But efficiency also benefits from using your resources appropriately. Do you have critical employees doing work they’re not well-suited to? Or worse, do you have talented employees whose talents are being wasted on low-skill, low-margin work that’s boring them senseless? Take a hard look at how your firm applies its staff. Chances are, you’ll find some places you can make a change to squeeze out some extra efficiency.
Finally, use automation everywhere you can. For repetitive, mundane tasks, no human can beat a computer. Some places you might not have thought to use automation to boost efficiency:
Using your email client to schedule outgoing client communications and billing
Taking advantage of “smart” mailboxes to sort incoming client communications into priority areas and non-priority areas
Using one of the many available self-scheduling auto-scheduling services to keep your calendar happy
Streamlining office communications with Slack, Teams, or another chat/collaboration platform, which can also automatically link to calendars, documents and more helping you to see when something needs your attention.
And this is a Botkeeper blog, so of course we’re going to do the shameless plug thing. Shameless, not because we have no shame (okay, some of us over here don’t), but because Botkeeper REALLY DOES offer monumental efficiency to firms’ bookkeeping portfolios. Our partners have claimed back THOUSANDS of hours using Botkeeper, accomplishing the same work faster, less expensively and with fewer errors.
But hey, why believe a blog? You can check out our many case studies to see how firms around the country have automated their bookkeeping, resulting in inspirational gains in time, efficiency, and even staff happiness.
Inflation is upon us, and recession might be unavoidable, but you can minimize the pain for your clients and your firm by taking steps now to keep on top of your challenges. And when you’re ready to hear more about how Botkeeper can just generally make life a happy song about rainbows and puppy dogs, you can get started by clicking the button below.