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A diverse revenue mix and a focus on a firm’s existing client base are among some changes that accounting firms can make to increase profitability by close to 10 per cent, a new report has found.
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Diverse revenue mix key to boosting profitability, says Bstar
15 October 2019
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Creating a more diverse revenue mix will significantly increase the profitability of Australian accounting practices, according to a new study released by business advisory solutions firm Bstar in partnership with Bendigo Bank.
The Bstar 2020/21 Accounting Industry Insights Report, in partnership with Bendigo Bank, found that an industry average profitability of 19.3 per cent could be increased to a benchmark profitability of 28.2 per cent by creating a diverse revenue mix.
Speaking to Accountants Daily, Bstar chief executive Grant Bloxham said that while there was no “magic solution” to growth, a good place to start was deepening relationships with existing business sector clients and expanding the number of services provided to them.
However, Mr Bloxham said purely focusing on the often-touted business advisory service line would not assist accounting practices to grow organically, with the report finding that advisory accounting fees generated less than 20 per cent of total practice revenue for just over half of Australian accounting practices in 2018.
“It’s an element, but it’s not the solution,” Mr Bloxham said.
“The focus has got to be on existing clients. That’s where we see the growth and moving to what we call a client-centric advisory model where you have deep relationships with multiple services.”
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While noting that there was no right or wrong revenue mix, the report contends that offering more services with higher profit margins reduces risks for practices heavily reliant on accounting, compliance and tax services.
Mr Bloxham believes firms can implement a number of practical strategies to help drive growth, starting with a review of their clients’ needs.
“I would get to understand my existing clients’ needs really well. They’re the most important thing a practice has apart from the staff,” Mr Bloxham said.
“What can we provide with the skill sets that we have? And then let’s look at our revenue mix because revenue mix is a key profit and value driver for any accounting practice.
“I don’t need to do all the services, but you know, let’s find out the one that’ll make our clients more sticky, which deepens trust and will increase the profitability, the cash, and the value of an accounting practice.”
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