2012 key trends: How to grow
How to restructure your practice and get ready for the upturn, before it comes, by Christopher Jenkins
What sort of challenges will your practice face in the year ahead? Many businesses will be glad enough just to stay afloat, but is that good enough? We are all sick of being threatened with a double-dip recession, but following recession comes the ‘Third Wave’; the final phase of the recessionary cycle where the market bottoms out and turns towards recovery. Now is a good time to develop a growth strategy that will get your practice ready for the next upturn. Here are a few ideas that might help.
Think about using these less busy times to install process in your business. Process is valuable because it allows excellent client care to be replicated at all, not just senior, levels. Processes also allow consistency in delivery, which is the prerequisite of excellent service. In one of our client surveys, an overwhelming response was that people wished they invested in process earlier than they had.
A practice where managers do not spread their knowledge throughout the organisation is likely to struggle. If key management is indispensable, the business cannot grow through leverage. Successful practices are process-driven and able to combine design freedom with an appreciation of the methodology behind maximising profit.
Retain and motivate staff
The recession may have allowed us to shed some of our less talented staff, but how do we retain those we want to keep when there is little in the budget to provide the financial incentives we relied on in the past?
Here is a simple idea: keep your money in your pocket and involve them. No incentive scheme that we know of (bonuses based on intelligent KPIs, EMI, and so forth) can ever really guarantee an improvement in performance or loyalty. Why? Because most people who are still building their careers want to acquire knowledge that can’t be downloaded from Google, the wisdom that can only come from being involved in your business.
Give everyone an area of responsibility, beyond his or her fee-earning role. A marketing focus group is the obvious place to start: include junior trainees and set them alongside your most senior people. Get the right age group to address the right task and find out what people like doing.
Create champions for a segment of your organisation, whether they’re the expert on a piece of software or the person who knows more about social media than anyone else. Throw away the list of five things that everyone should be perfect at and encourage your staff to excel at what they do best. Do this, and your business will come alive and your people will love coming to work. You, as leader, will also enjoy it more, as the pressure to be in charge of absolutely everything lessens noticeably.
Tax planning: LLP or PLC?
Pay for some sensible, practical advice that will allow you to make the most of your profits. What is the best structure for your practice? You may have taken the plunge and converted from partnership to LLP but it could be time to revert to a limited company, or at least consider incorporating one into a larger LLP structure.
The current disparity between the top rate of income tax and the lowest rate of corporation tax has never been greater – at 30 per cent – than it is now. Banks are not lending and we have to rely increasingly on retained earnings to finance the practice. When it can take £2 of pre-tax profit to provide £1 of working capital, a limited company, which only requires earnings of £1.25 to achieve the same result, can seem like a tax haven.
When banks, if you can persuade them to lend, will only do so with increased personal guarantees and higher margins, what is to be done? The answer is not to scale down your growth but to find the working capital you need from within the business. ‘Sweat’ your balance sheet (debtors, trade creditors, work-in-progress). Open up a new dialogue with your clients before you sign that contract and involve and educate your staff in how the business model of an architecture practice actually works. But look also to new lenders filling the void left by high street banks – the Funding Circle and Borro are just two examples of the emerging alternative lending market.
Christopher Jenkins is senior partner of Wingrave Yeats chartered accountants and business advisors, which he co-founded in 1983