Go for growth: 3 strategies for a smarter expansion
A robust strategy for growth can help professional services firms thrive in uncertain economic times.
A well-thought-out and solid growth strategy is almost pandemic proof, says NAB Professional Services Banking Executive Courtney Worrall.
The economic uncertainty triggered by COVID-19 has hurt many Australian businesses. For others, however, the past 18 months have been a period of growth.
For these businesses, it isn’t simply a case of “right place, right time”, Worrall says. The most successful accounting firms implemented sound growth strategies and built efficiencies into their businesses well before the upheaval of the pandemic, allowing them to capitalise on opportunities as they appeared.
NAB works with thousands of accountants and accounting practices around the country, which Worrall says gives its bankers valuable insights into how high-performing firms grow. “Accountants are leading the charge in terms of innovation and change,” she says. “When a firm is looking to grow, the bank is one of their most important partners in that growth journey.”
Speaking at the recent CPA Australia Public Practice Virtual Conference, Worrall outlined three strategies that professional services firms can use to grow their practice.
1. Diversification through strategic M&A
Many clients are looking for accountants with a diverse service offering. According to the CPA Australia MY FIRM. MY FUTURE. report, 56 per cent of SMEs consider a broad range of services important when choosing an accountant, and over a third (34 per cent) want their accountant to offer financial advice.
One way to diversify is via mergers and acquisition (M&A). A confluence of factors – an ageing demographic, regulatory changes around educational requirements, challenges in adapting to new circumstances and historically low interest rates – has resulted in a climate that many view as particularly conducive to launching a successful M&A strategy, says Worrall.
The ability to articulate the case for a merger or acquisition is critical in securing finance, Worrall continues. Start by establishing if the investment will improve profitability and efficiency or increase scale. “Just because a fee-base is available for you to purchase, it doesn’t necessarily make sense for your business. It’s really important to be able to articulate that strategic piece to the bank, so the bank can understand, ‘Are we funding for one, or are we funding for two, three, four acquisitions down the track?’”
Your financial house must be in order to pursue this strategy. “[Make] sure your accounts and ATO repayments are up to date and your business is as efficient as possible before embarking on an M&A strategy,” Worrall says. “Coming to your financier with this work and due diligence having been done is going to put you in the box seat for what you want to achieve.”
2. Diversified offering through organic growth
Any addition to a business should meet a need in the market. “When you’re establishing a new entity or service line, ask your clients what’s important to them,” Worrall says. “Different demographics of clients have a different view of what they want from an accountant.”
Eugene Smarrelli is a partner at Banks Group, a Melbourne-based firm that has focused its growth strategy on expanding its service offering to clients. Banks Group began in 1978 as a two-partner firm in Box Hill. Smarrelli was the first employee accountant when he joined the business in 1985. Today, the group employs 80 staff.
When Banks Group established an Audit and Assurance division – its first significant new service offering – in 1999, Smarrelli says it was in response to client need. In the more than two decades since, the audit division has grown to represent 20 per cent of Banks Group’s revenue.
Client demand also drove the development of Banks Group’s latest service offering: a private equity fund. Smarrelli says the firm’s partners detected interest among younger generations for investment options that yielded more than the seven or eight per cent return typically seen from funds. The firm decided to “answer the call from our clients… who wanted to invest money with returns at 20-25 per cent” and establish the private equity fund. “It’s incredible how much interest there’s been in it,” Smarrelli says.
This type of growth requires courage – and patience. An investment into a new service offering can take years to yield results. Smarrelli says that the firm’s first foray into Audit and Assurance “didn’t see a return… for two years”. Eventually, he says, the investment pays off and “you start to see the value it adds to your business as well as the businesses of your clients”.
Worrall says it is vital for any firm looking to diversify their practice to upskill their team and ensure the new service offering is a good cultural fit. “Being able to present this service offering to clients in a unified way is critical to success.”
3. Succession planning for growth
Succession isn’t always about retirement, says Worrall. “Succession planning is often discussed from the exiting partner’s point of view – what funds they require to leave the firm or reduce their ownership and how are they going to hand over the clients and exit the firm.”
This view undersells the capacity of prudent succession planning to build the profile and expertise of successors and increase their chance of success. “When appropriate planning is put in place, this is an amazing way to keep high-performing staff within the business if equity is something they are looking for,” Worrall says.
Involve potential successors in financial discussions, advises Worrall. “From a financier’s perspective, it’s really important to introduce the new partners to the bank as early as possible… even before they formally take up equity.”
A long-term succession plan can fuel business growth and increase the financial gain for the exiting partner. “Mapping out your succession plan early… gives you the best opportunity to realise the best value for your firm and the best outcome for your clients,” Worrall says.