How Professional Service Firms Prepare for Losing ClientsJuly 25, 2017
Christopher P. Hines, CPA, MST
The professional service industry is made up of thousands of businesses of all sizes that operate across a vast array of industries. From law firms to advertising agencies to architecture firms to consulting groups, the list of service professionals goes on.
However, despite their many differences, every business in the professional service industry has one thing in common.
They’ve all lost clients.
Clients may leave their service providers for any number of reasons. Maybe they’re looking for a fresh start with a different firm. Perhaps they’ve made a strategic decision to hire an internal employee to provide the same services. Regardless of the reason, losing clients is, unfortunately, part of doing business.
Given these realities, business owners can significantly increase their odds of financial security by preparing and positioning themselves properly. This requires basic value drivers to be in place. Value drivers are key elements that either build or protect the value of your business.
Business owners can prepare for the reality of losing a client by:
Preparing for every scenario
For many professional service firms, profit margins tend to fluctuate year after year. The success of a professional service company relies heavily on the business’s client list, and losing even one client means losing a potentially vital portion of income.
That’s why it’s important to consistently run in-depth financial analyses that show exactly how your company will be affected by any unexpected losses.
Taking steps to ensure your business is keeping its own costs under control can go a long way in building a sturdy foundation that can survive any surprises.
Reining in expenses
While it’s certainly necessary to invest in your own businesses, expenses can sometimes get out of hand. Take a look at your annual expense reports, and see if there are any areas in which you can cut back.
Successful professional service firms not only employ talented people, they know how to prioritize their billable hours. In-depth, itemized accounting can help business leaders see exactly which clients and which projects take up the most time, and they can help businesses adapt to become more efficient and better serve their entire client bases.
Developing a growth strategy backed with supportive data and analytics
Buyers want to see a formal and well thought-out plan for the business. Components of your strategy need to address the fundamentals of the business. Products and services, customer segments, strategic partnerships, operations, people, supportive technologies and risks should all be addressed in your plan and supported by accurate data.
Putting a proven and strong management team in place
Most businesses are highly dependent on their people. Having a strong and stable management and operations team will drive additional value. It is also valuable to show that the business is not dependent on any one individual in the company.
Achieving positive cash flow that shows sustainability
This is fundamental for the valuation of any business. Providing historical, current and projected financials that support your asking price are obviously the cornerstone of any deal. Spend the extra time and money to ensure that this information is accurate and stated in the most positive manner.
Appropriating financial controls
Ensuring that your organization’s resources are properly measured and monitored is a fundamental aspect to managing any business. Dependable financial controls help businesses produce timely, accurate reports; and give the leadership team the information it needs to make strategic, proactive and big-picture decisions.
Building infrastructure to support the ongoing business
Showing that the business has the appropriate means to support current and future market demand and respond quickly to opportunities will be an important factor in any sale. Making strategic investments prior to the sale of your business will pay dividends in the valuation of your business.
Premier clients are staples at many professional service firms. It’s not uncommon for a company to generate 80 percent or more of its recurring revenue from one client. If your company has the bandwidth and resources to service these larger accounts, premier clients can be great additions to your roster! But it’s important to continue focusing on 1) the rest of your existing client base, and 2) bringing in new business.
As anyone in the professional service industry can attest, the loss of a client—like the end of any relationship—can feel personal.
Professional service firms may not be able to control when and why a client decides to end their relationship, but they can prepare for life without the ones that get away.
How BlumShapiro Can Help
BlumShapiro is the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. The firm, with over 400 professionals and staff, offers a diversity of services which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.