5 tips for a more profitable financial new year


With July upon us, we would have likely seen all the tax tips and end of financial year (EOFY) checklists. But what about planning proactively for a new financial year? If you’re hoping the next 12 months are more profitable than the last, here are some simple ideas that could make that happen sooner.

Ideally you want to increase revenue without also increasing expenses by the same amount. And that starts with putting your revenue under the microscope.

1. Get smarter with pricing

“We talk about seeking ‘positive jaws’ on the profit and loss – where revenue is up but expenses are down,” explains Rob Hayward, Head of Client Solutions, Virtual Adviser Network with Macquarie Wealth Management. “Ideally you want to increase revenue without also increasing expenses by the same amount. And that starts with putting your revenue under the microscope.”

This may be as simple as putting your prices up. “Our benchmarking consistently demonstrates the profitable firms are the ones who increase their fees. One of my clients was nervous about increasing client fees by 10 per cent – yet he didn’t really get any push back.”

Consistency is just as important – it’s a good idea to check everyone in the firm is charging the same rates. “You’d be surprised,” Hayward comments. “Some partners may be more prone to doing ‘deals’ for their preferred clients, and that can add up. For example, we often see financial planning firms who tell us they charge clients a 1% advice fee across the board dipping to an average of 0.8% because of this.”

He says he is also seeing some accountancy practices shift some of their client engagement models to a retainer or monthly payments.

“They may scope out the work for the year, and agree an upfront monthly or quarterly charge. This completely transforms their revenue model: it’s predictable cash flow, less time chasing invoices, and you can forecast your year with much greater accuracy. Many firms start this process by changing how they charge for SMSFs from annually to monthly from the SMSF cash account.”

Another attractive and longer-term benefit of this is the potential to increase the value of your firm. “Financial planning businesses typically sell at around three times revenue because they have regular income stream and a secure client base. In contrast, the traditional accountant ‘fee for service’ model will sell at one times revenue,” Hayward explains.

2. Check your expenses

The other ingredient for ‘positive jaws’ is lean expense management. Collecting cash monthly is one way to trim expenses – you’ll reduce admin hours following up as well as cash flow loan interest payments. 

Hayward also suggests checking for ‘subscription creep’ with licensing arrangements or technology plans. “You may have upgraded your accounting software in the past, for example, but now you have fewer users or no longer need all the features. They might have a more cost-effective plan you can switch to.”

He says it’s not uncommon for firms to still be paying for mobile phone plans and other subscriptions for ex-employees. “When you’re looking at your bottom line, look for those lazy expenses.”

3. Let your unprofitable clients go

Another hidden factor that could be unintentionally eroding your profits? Some of your customers.

It’s commonly understood the Pareto rule applies to business – for example, around 80 per cent of your revenue is derived from 20 per cent of your client base. But did you know a small percentage of your client base is actually costing you money?

Intuitively you probably know who these clients are – the ones that waste your staff’s time, expect more than what they’re prepared to pay for and distract you from more profitable customers. Those high maintenance clients may also be damaging staff morale and performance.

But before you rush to let them go, do some analysis to check just how much they cost to service by tracking time-based activities on each client or project. Then work out why they are unprofitable. It may be that they need to shift to a different pricing model or service package. And if they don't want to, it’s time to suggest they try a different provider. You’ll see the impact on your bottom line almost immediately.

Some businesses identify and increase the fees for unprofitable clients and often find that many of these clients stay with the firm.

4. Don’t just grow market share - grow the overall market

If your growth strategy revolves around generating new customer leads and referrals, you may be able to win some market share from your competitors. But what if you could also grow the overall pie?
For example, 2015 research found that just 16 per cent of working Australians use a financial planner.1 Meanwhile, according to TAL’s research just 33 to 37 per cent of Australians aged 18 to 69 hold life insurance and the Insurance Council of Australia suggests only 63 per vent of Australian small to medium sized businesses have enough business insurance.

So could there be room to grow the overall market for planners and brokers? Potentially. And the same could apply for other service sectors – think about which audience groups are not using (or are completely unaware of) your services. Are there new products, services or platforms you could create to reach them profitably?

5. Be tax-effective with your strategy

Finally, make sure you make the most of any possible tax benefits within your new financial year plan.

First, a word of caution from Hayward. “For example, while the $20,000 instant asset tax write off sounds attractive for small business owners, the reality is it doesn’t really change the dial on your bottom line unless you actually need the asset to generate revenue.”

Other opportunities include a Research and Development (R&D) tax incentive to help cover the costs of developing new products or processes to meet the unmet needs of that missing market share, or financial incentives to hire older workers.

Ready to kick start your new financial year strategy? It’s a good idea to get your team on board first – so check out our tips for a successful planning session

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This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.