Learn how an accounting practice or CPA could positively minimise its risk of income loss by delivering an added value service for income risk management to their clients...

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CPA Marketing Newsletter: Income risk management

Modern Accountancy Marketing & Sales Course

CPA - Accounting Firm Marketing Newsletter:
Accountancy practice income risk management

 

In this issue, we take a look at risk management in connection with planning income.

It's a "hot" topic but I believe this article can bring a new viewpoint to the subject... and give you a new added-value service to deliver to your clients, too!

Risk management as an accounting service

As an accounting professional, you are advising your clients on risk management.

It is one of those subject matters where it is sometimes easy to see the risk but difficult to get the client to understand it - or, difficult to assess the risk factor with the information available and thus, almost impossible to form a definite recommendation for or against.

And if neither is a problem then the challenges come in attempting to devise a plan for dimishing and/or ridding oneself of that risk.

Suffice to say that risk management is a field of challenges.

Risk management is a combination of knowhow, experience and prediction of future. Perfection is unobtainable as one would need to be psychic AND all-seeing to predict every eventuality and counteract it before the fact.

It could be argued that risk management is one of those less inviting necessities of running a business.

Risk management is not an exact science although it purports to use the principles of precise measurement and existing facts.

One is, after all, always weighing potential income against potential loss. In other than obvious cases, the scales are not tipped clearly either way; that's the job of risk management.

Clients don't often realise that you cannot forecast every eventuality of future problem accurately despite being an accounting professional.

The accountant or CPA is, however, perfect in one way when it comes to risk management.

You're the perfect culprit when something goes awry!

The paradox here is that the less the client has given you to work with TO predict IN TIME, the more intently he blames YOU for the problems created by him in his business activity.

Reversely, those clients who willingly pay you to monitor the key figures of their accounts and consult them on monthly basis on your findings (projecting potentially emerging problems and opportunities), will NOT consider you guilty of their mistakes in financial planning.

That's because they HAVE some form of functional financial planning and, with your help, they have some (often considerable) CONTROL and prediction over the development of their fiscal year.

He who knows what's happening and has the tools to influence those events, is in control... and needs no culprit... and no luck either for that matter!

Yet the client who "doesn't want to know" and thus definitely is unwilling to PAY you for finding out... well, he is upset if you tell him about some potential (or existing) danger in his business activity and/or finances.

So when the inevitable occurs he will then be "surprised" and think it was all "bad luck." They also tend to think the accountant a MAGICIAN who can swiftly whisk away problems with his magic wand.

Well, you know all this inside out, of course. Risk management is a "damned-if-you-do-damned-if-you-don't" proposition involving high mental stress.

Sparks fly and you're sitting on a keg of gunpowder... and thus the mere mentioning the subject can create explosive reactions in some clients.

But how about YOUR risk management when it comes to stabilising your income?

And how could you combine the two for the benefit of all concerned?

Here's an idea of how you could service your clients – in fact, a workable idea for an added value service that is yours to use if you choose to:

 

CPA Firm risk management as a marketing strategy: Minimising the risk of drop of income

The concept of "income risk management" is the same abstraction used in investments, opportunities and expense-related matters, but here applied to INCOME.

With income, risk is manifested in two vectors in the theory presented here. I'm now simplifying the issue and concentrating only on the structure of clientele and billing (and the nature of assignments).

The first element of risk involves the NUMBER of MONTHLY income sources that you have.

The more monthly income sources, the less the disappearence of any single income source can affect the total.

The second element of risk is governed by the SIZE of individual income sources as compared to the average income sum you get by dividing your montly income with the number of clients.

If you have plenty of income sources of which each brings a sum that is close to the average income per client, your risk is minimal.

Of these, the number of income sources is the more important one. The risk factor becomes evident once you ask yourself this question:

How much would your income — immediate and future — be affected if your biggest source of income would be lost?

In other worst, if the worst-case scenario played out and you would lose THAT client you can't do without... how much would it cut your monthly income?

Of course, I'm NOT saying it will. And I apologize for the gut- wrenching feeling the very idea can evoke.

It's something we all feel – it's that "fear of losing what you cannot afford to lose."

My intention is not to scare anyone but to examine what could be
done to minimize the risks in its power to affect the life of your clients... or your own, for that matter.

No matter WHAT the cause of nonpayment or loss of a client – not arguing whether or not there could be circumstances beyond your control – how much would that loss of income affect your total income this month and thereafter?

If you have 50 clients each paying $500.00 a month, then the answer is 2 percent – certainly nothing to keep you awake at nights.

If you have 10 monthly clients, each worth $2,500.00 a month, loss of a client would create a bigger effect – 10% of your income is gone and that can definitely offset your budget and finances.

And here enters the "size of individual income sources" factor. Remember, the risk denominator was "ANY ONE CLIENT" – unfortunately, you seldom get to CHOOSE which one you lose, right?

Now, let's say you have ten monthly clients and ONE of these is the source for more than HALF of your monthly income. In this example, your income risk factor would be very high – a whopping, paralysing 50 percent.

Let me again emphasize that it is a POTENTIAL risk – but aren't they all potential before they materialize, in the final analysis?

A risk may exist and yet not come realization – it may never happen. Regardless of whether the worst happens, the very existence of the risk factor can of course make life itself less enjoyable.

But even that is better than not having a CLUE that a risk even exists... as I personally came to realize.

I well remember my beginning days as a hopeful ad agency owner some 20 years ago. I had landed this dream account... and it kept me and my small staff SO BUSY that I totally forgot to put any attention on obtaining additional SMALLER clients to balance this new-found income source.

In fact, I wasn't even INTERESTED in those "small, insignificant assignments" that were readily available - the bread-and-butter bisness as it's called.

Arrogantly, I even turned DOWN work that was offered to me...

Everthing was rosy. It was so EASY and natural to get most of my income from one client. He gave us lots of work and paid the bills diligently.

But what I forgot was that a client relationship is not a partnership or employment. Which I learned the hard way when they appointed a new Vice President of Marketing, a guy who had his OWN buddies in the ad industry...

Well, it was good as long as it lasted. But after the new boss terminated the account it was PANIC, big time.

If I learned anything, it was this:

Never, EVER be satisfied with ADEQUATE income alone. Always make sure your income comes from NUMEROUS ENOUGH sources
to ensure you won't be faced with income crisis of apocalyptic measures that threaten the very existence of your business.

Analyze your income sources, minimize the income risk factor... and work the market to get new clients even when you feel you DON'T NEED THEM.

And don't turn off those "boring" bread-and-butter jobs, but accept them and devise a good way of selling a more involved service to these guys.

That way you'll have the security of wide-base income (with low risk) and also the excitement of new challenges!

One day, you'll be glad you did... regardless of whether or not the risk materializes. It's a win-win situation, either way!

Here's the thing:

Clients are not forever.

They get into crisis of their own, they change their minds, the decision-makers change... things CHANGE.

Time in its essence IS change and thus, never get lulled into a false sense of security believing that "nothing changes" or that all change, by definition, would be positive in nature.

The best way to look at your clientele is as if it were a RESERVOIR of income potential... but one that LEAKS ALL THE TIME. Now, this has NOTHING to do with client satisfaction.

Things just CHANGE constantly.

It may not SEEM like a "constant leakage or seepage" because the shift is usually so gradual – it takes quite some time for any major decision to develop until the results of it become know and take their inevitable effect.

It may APPEAR like it came from out of the blue... but it did develop ("leak") for months or perhaps years.

Regardless of HOW well you service your clients, aside from how your income risks are managed, the reservoir leaks all the time.

To countermand or "fix" that leak, you need to REPLENISH that reservoir ALL THE TIME to keep it level – to acquire more income sources... more clients.

Employing an inexpensive system to obtain clients on continuous basis will also automatically minimize your income risk factor.

The better your profit from these (future) clients, the better your ability or reserve to absorb unexpected losses.

Now, how can you combine the two ideas here — offerning your clients a risk management service that works at their level of understanding of finances AND ensure that your income becomes impervious to any sudden changes?

 

Risk Management Accounting Service

The key to creating more viability for your client (and your own firm) while minimizing the income risk factor is NOT in getting rid of big clients but in acquiring MORE clients to offset the risk of losing a big one.

The way you can achieve that is by offering a service that allows you to sign on new clients easily for monitoring their finances on monthly basis so that you become their early-warning system AND their advisor on how to solve emerging problems and utilise new-found upward trends in their business activity.

Such a service exists already and we call it the Monthly Financial Consulting Service.

This "income risk management" has been included in the MFCS as a value-added accounting service. And it really offers a way to minimise your own income risks by helping others do the same!

Neat, don't you think?

All right, keep up the good work give the idea of lowering the income risk factor some thought!

Best wishes,

Harry Kafka
HDK Consultants U.S.A. Inc.
PMB 211, 411 Cleveland
Clearwater, FL 33755
Phone (727) 474 1206
Calls from outside USA: +1 727 474 1206
CONTACT FORM


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HDK Consultants USA Inc.
HDK Consultants U.S.A. Inc.
PMB 211
411 Cleveland
Clearwater
FL 33755
Phone (727) 474 1206
Calls from outside USA:
+1 727 474 1206
CONTACT FORM

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