I’ll get to this question in a minute but I first want to relate a story.
Somerset Maugham wrote a short story called “The Verger”. It was about a middle-aged a man named Albert Foreman who had been a verger for most of his adult life at St. Peter’s Church, Neville Square in London. The church council discovered that he could not read or write so he was fired. On his way home, disenchanted with life and uncertain of what he was going to do, he craved a cigarette but to his dismay he couldn’t find a shop to buy a pack. Thinking that he was probably not the only person in London looking for a shop to buy a packet of cigarettes he decided to establish a newsagency and tobacconist store. It was an immediate success so he opened and other, then another until ten years later he had 10 stores and was very wealthy.
One day his banker needed him to sign some papers and when he told the bank manager he could not read or write the manager was shocked. The banker said “do you mean to tell me that you have made your fortune without being able to read or write; what would you be now if you had been able to?” “I’d be the verger at St. Peter’s, Neville Square” he replied.
There’s a lesson here.
Several years ago one of our members in Sydney lost 30 percent of his fees when the firm’s largest client was acquired by another company. This experience reminds us of the danger of having an unbalanced portfolio of clients but that is not the reason I’m relating this story. When this happened our client’s initial response was one of disbelief. He told me his felt totally depressed and even contemplated leaving the profession because, in his words he’d “worked so hard to develop the relationship with the client that [I] could not face having to do this again.”
However, in keeping with Thoreau’s advice that “all misfortune is but a stepping stone to fortune”, he re-grouped and within 18 months not only had the lost business been replaced but the firm’s bottom line had increased by 25 percent because the previous client had so much leverage over the firm, the margin earned on the work (which included a significant audit component) had been cut to the bone. Not only that, the client didn’t treat the firm’s team members very well so there was a big improvement in morale.
Let’s take a closer look at this.
What he accomplished in 18 months was a 43% growth in fee revenue which is equivalent to 27% per year! This was for a firm that for the past 10 years had averaged about 10% per year. Of the 43% revenue growth, about half came from additional services and pricing adjustments for existing clients and the remainder came from new clients.
No less important was the fact that the team members were happy to see the last of the client despite being concerned for their jobs in the first instance. Further, because the fee loss had been replaced with a number of new clients the firm’s risk exposure from client loss was dramatically reduced (although having had this experience, the loss of the big client turned out to be the best thing that could have happened—remember, good is the enemy of great) and its pool of potential referrals significantly deepened.
But what is truly amazing is what can be achieved when adversity looks you in the eye. Annual revenue growth of 30% is extraordinary but, as proven by this firm, it’s possible any time you’re willing to give it a shot.
And that brings me to the title of this post, what might you be able to do if you decided to rid yourself of all of your low level tax work? Perhaps you’d be able to achieve 30% revenue growth and 25% profit growth.