Andy Raynor - Beyond the Brief
Andy Raynor's blog
....inside the mind of an accountant.....
This may be a rant.
After the blog the other day I had a few comments from detail-loving accountants who think it’s cold outside if they aren’t wrapped in a blanket of 30-page management accounts with every ratio that David Maister says will make you wealthier.
So the magic of calculating utilisation, recovery rates, revenue per chargeable hour and lock-up stats will lead to instant transformation, will it? Will it heck.
Look, let’s understand this. The majority of management information is simply not used. Most of the recipients don’t even get it out of the box. And when they do their first reaction is to find reasons why the figures are wrong, rather than actually doing anything.
Here’s an uncommon, uncomfortable truth. The numbers you use to calculate the normally accepted ratios of performance......are estimates or lies.
A charging rate is not a fact, it’s an estimate (at best). Chargeable hours are often manipulated to give the statistic the partner wants to show. Charging rates are different from firm to firm, period to period. Are they about costing or pricing or neither? What does it matter that you only recover 50% of a charging rate of £1,000 per hour, if the rest of the world only uses a rate of £500? If you change your charging rate to improve recovery rate, will you make more or less profit? Or exactly the same?
I said in the last blog that statistics are most frequently an excuse for not managing. Do you want to spend weeks improving the presentations of your ratios or half an hour a month with a partner who you think could do better?
Let’s do ourselves a favour and use ratios only when we understand their real limitations and, instead, get out of the office and go manage and lead. No statistic will ever help a partner who cannot help him or herself – that’s the leaders’ job.
And it is a disease to the very top of the game. Stop for a minute and look at three of the largest firms in our blessed Group A. Each of them has taken action over the last few years to improve their profit per partner, which is the figure the eye travels to if you’re a hardworking equity owner. It’s a statistic. It’s the wrong statistic for the long term.
Because none of them, not one, has actually managed to increase total profits, this is all by managing down the number of partners. Extrapolate from where they are now and soon you might find one partner in a field with tumbleweed and no mates.
Don’t miss the point of what you’re trying to do – growth, profits, cash. Real growth, real profits, real cash. By human involvement, help, management, leadership.
Not bloody ratios.
Tell me what you think at andy@andypraynor.com
And see what's been said before by looking in the archive:
© Andy Raynor 2013