BAM Day 1 - The Opportunity and How to Set Up Your Advisory Service with Mark Wickersham

Let's start thinking about business advisory because I think that we're in interesting times. As you know, we have been for a couple of years now. The world has changed in a major way because of COVID because of lockdowns and also right now other things going on in the world or at least in Eastern Europe with the Ukraine having huge knock on effects with inflation around the world and food shortages and so on. So we are in tough times. And when I first ran this event after lockdown, it's actually in lockdown. Two years ago I was in the uk, we were supposed to be. Sarah and I had got our bags packed to come and start a new life in Portugal and we got stuck in lockdown in the uk and it certainly got me thinking about business. And a phrase that I think, I think is a really interesting one that reflects the times that we're in is this reinvent. I think the last two years we've had to rethink business in a number of ways on three dimensions. Firstly, our clients, and many of your clients have probably had many perhaps have lost their businesses during the COVID period with lockdowns. Many have had to reinvent their business, change their business strategy, change their business model. And this has been over the last couple of years a really good time for us in the profession to step up and be the heroes and help guide our clients through the challenges. I think it's also of course.

A time for us to reflect about our business and our accounting firms and what needs to change. And we've been seeing, even before COVID we've been seeing this.

Increase in cloud accounting technology changing the way that we work. Certainly today is very different to when I was in practice back in the 1990s with manual books and records and so on. It's a different world we live in. And of course one of the things we hear a lot about is artificial intelligence and will there be decreasing downward pressure on prices for compliance work with automation and so on. And that's an interesting issue. That's meaning that we perhaps have to rethink about what does an accountancy practice mean if we want to start generating premium prices and there's downward pressure on compliance work, we need to be thinking about what more can we do, how can we create more value for our clients. And advisory biz advisory is certainly one way of doing that. And I think a third dimension of this reinvent is we've seen over the last two years, I think a change in the way that we even work, that we deliver our solutions with again, this shift to online and perhaps you know, more than ever before, having meetings with clients and prospective clients through Zoom technology, for example, through Zoom other online platforms, we're in this virtual world more than ever. And I know that in my audience within the Value Pricing Academy, I hear of a lot of particularly bookkeepers saying now they're running virtual businesses, which opens up some interesting opportunities. But also when we go online, we also have to communicate in a different way. And I'm going to talk a little bit more about that on day three in one of my breakout sessions. I know that there's some people here, I have many people here who are part of the Value Pricing Academy, which is great because I recognize the names, but some of you probably have no idea who I am. So very quickly, a bit of my background. My name is Mark Wickersham, I'm a chartered accountant. I've been in the profession now for over 30 years. I entered the profession, I came out of university in the UK in 1988, went to work for a large multi partner firm. I think it's eight partners in the middle of UK Sheffield. I spent three years qualifying as a chartered accountant. I then spent three years in their tax department doing income tax and then became their corporation tax manager. I worked another firm for a short period but then decided in May 1996 I wanted to be my own boss. I wanted to do my own thing. I started my own accounting firm. It was 31st May 1996. Exciting day, a day full of hope, enthusiasm for the future. I want the biggest driver for me starting my accounting firm was because I wanted to choose the hours that I worked. I thought it was crazy that the firm I'd worked for before, you could only have 20 days holiday and things like that. And I want to choose the hours. Little did I know, of course, how hard the next three years would be. I found myself at the end of 1998 working crazy long hours, working harder than ever before and struggling to make ends meet. I made a lot of mistakes. If you'd have been. If you'd have seen my practice back then and from the outside looking in, you might have thought I was running a successful accounting firm because.

From the outside I grew fast. I started off in May 96, I had a spare bedroom in the house, I bought a computer, a table and I had no client. I started looking for clients and some of the marketing seemed to work really well. Within two months, July 96, I moved into my first offices. I hired three team members. Fifteen months later we outgrew those premises, moved into much bigger premises and. And I actually have, I think. Where is it here.

That's a picture of me and my team. That's me in the middle. Yes, I look really, really young there. I think that was taken. I forget when I got the Invest in People award, but I think it was something like 2001, about five years into my practice. I think there were a team of 10 of us. By then I think it was a bit more. I think a few people didn't make the photo shoot. So from the outside looking in, it might have looked like I was growing really fast. But by the end of 1998, two and a half years in, my life was a mess. I was working crazy long hours, struggling to make ends meet. I was constantly going back to the bank manager with a begging bowl saying, please, sir, can I have a bit more money, Can I have another loan? Can I have a bigger overdraft? Because I was just growing too fast. My fixed costs were going through the roof, I was employing people and I couldn't work out what was going wrong until some interesting events took started taking place in 98. 99. In October 1998, I went on something called the Three Day Accountants Masterclass, run by somebody who's now become my closest friend, Steve Pike. And over three days he completely changed my mindset about how to run an accounting firm. And that inspired me to do other things in 1999. I then met another of my heroes, Paul Dunn, on the Four Day Accountants Bootcamp. And that just blew my mind as well. And it was Paul Dunn that introduced me to Ron Baker, another of my heroes, who told me, explained to me what value pricing was. I'd never heard of value pricing before then. I'd grown up in the accounting profession believing we had to keep timesheets, believing we had to price and bill based on the hour. And so those three people changed my life considerably. I started implementing value pricing. My accounting firm at the end of 1999 had a huge impact on that. And I'll talk about that perhaps later on.

And as some of you now know, I then sold my accounting firm. The two people in the top left and top right, Steve and Jonathan, actually bought it off me. A few years later, they bought the accounting firm off me. They still run it today. I think it's still called Wickersham's, I think. I don't think they've changed the name. I have lost touch with them. But I sold the accounting firm because I was then invited by Steve Pike. To share my journey and the things that I'd done to turn my failing accounting practice round to one that became sellable and profitable. And we went into business together teaching accountants in the UK. And then in 2014 I formed the Value Pricing Academy. And I've been teaching the profession around the world. Accountants and bookkeepers.

Back in October 98 when I first met Steve, there were really two things. That event for me was life changing. It took me on a journey where I discovered value pricing. We'll talk more about that later. But the other thing that was fascinating and what I got from that event in 2008, sorry, 1998, 1998 was up until then I had a practice that was compliance based. The only work I did was that was non compliance was I did tax planning. I think in the US you sometimes refer to it as tax advisory because I came from a tax background. I did lots of helping people save tax and that was the most enjoyable thing. But it wasn't until Steve in 1998 that he explained how we can add value to our clients by running advisory services. Business advisory services, business consulting services. And then when I met Paul Dunn at the accountants bootcamp, a lot of that was based on that as well. That inspired me and I then spent the next three years in my accounting firm mainly doing business advisory including a couple of major 12 month consulting projects. One was for a two partner firm of electric contractors where they were struggling in their little business and I charged them 30,000 for a year for giving them advice, helping them with turn their practice around. And then a year later I worked for a two partner firm of lawyers, did the same process and I got another 30,000 pound fee. By the way, that's about 40,000 US dollars and that was back in the early 2000s. So I spent a few years doing advisory work, business advisory before I then sold my accounting firm and started teaching accountants. So a few other little things I'll talk about before we then dive into the content. I know that we've got. I said earlier we do have some members here of the Value Pricing Academy. So if you are in the epa, let me know in the comments. And also because my team will read all the comments later, let me know what's the best thing about being in the vpa? What difference has it made to your life, to your practice? Let me know in the comments box and I'll look at those later. And while VPA members are doing that, one of the things, if you have no idea what the Value Pricing Academy is, I will tell you later, because it's what I do now. I teach the profession. We go live every month with training, resources, and most of the year it's closed. We don't take enrolments, but twice a year we open up for enrollment. We open up for six days twice a year. And you're in luck because now, today, just a few minutes ago, we opened enrolments and it will be open until Monday. So I'll tell you more about later, but over these three days is your opportunity to find out more about the Value Pricing Academy, what it can do for you, and you'll have that chance to enrol. I'm going to cover a lot of stuff today. I'm going to talk about, I'm going to share some success stories as well, of people doing extraordinary things with either pricing and their advisory work. You'll hear other speakers who are doing amazing things, but there is no magic button. There is no magic button. What we're going to teach over the course of these three days is frameworks, things that work, but you have to make them work. Nothing's easy in life. You do have to put the effort in. But if you put the effort in, if you follow the processes, the frameworks, you will get results. One of the things I often talk about is there are two types of people. I know some of you know this because you've been before. There are two types of people that come to events like this. There are the note takers. Those are the people that come along to an event. They listen, they perhaps print out the workbook and they take notes. But taking notes isn't going to change your life going along. It doesn't matter how many conferences and workshops and webinars you go to. The people that get results are not the note takers. They're the action takers. They're the people that do something off the back of it. And what I'm going to remind you several times during the course these, these next three days is I'm going to ask the question, you don't have to answer it, but my question for you, Are you a note taker or are you an action taker? And I'll remind you of that a few times, because what I want you to do is every single day, today, tomorrow, Thursday, you're going to learn a ton of stuff. But I'm going to want you to pick one thing that you're going to go away and do one thing you're going to just do. You might have if you watch the little 10 minute countdown timer you may have seen the first little clip from Jessica Fox. She runs an amazing bookkeeping business in Florida and she is an absolute action maker. She always does stuff. It's amazing. Every time she comes to a live session, she then goes away and does something and she gets results. We're going to share lots of stuff over three days. It may sometimes feel overwhelming. The key thing is just pick one thing. Just pick one thing and do it. I know we're going to have questions about. Are there recordings for these sessions? Yes, there are recordings. I said earlier. There's a section in the left hand menu bar for replays. When today is nearly over, my daughter Gabby will process the videos, get them uploaded to the replay section. It may be that some of the sessions today will be available three hours from now before we even close today down, but they'll definitely be available tomorrow. So there will be replays so that you can catch up, particularly of the breakout sessions. If you want to attend both sessions on each day, then pick the one you want to be there live. The other one you'll have chance to catch up. Okay, a couple other things. If you have questions for speakers, if you have questions for speakers, then either put them. There's a Q and A box rather than the chat box will go crazy. It's probably gone crazy already. Okay. And so speakers will have time to go through all of the chat. There's a separate Q and A box that you can put questions in. If you do put them in the chat, put two Q's in front so it just stands out again, the speakers might miss them. But my team are looking for questions. If you do ask a question other than in my Q and A session at the end of today, try to keep questions short because I know that it's very difficult when a speaker's got content to teach and then a question comes in which is seven or eight sentences, and it takes a long time to read, understand it, think about it. So it really helps if you keep the questions short. And last thing is just to remind you one more time is that there is a conference workbook and you'll want to make sure you've got that to hand because the last quarter of it is the workbook that accompanies our sessions on the main stage. So let's dive in. In fact, before I dive in, I'm just going to.

Okay. Loads of comments in the. In the chat box and I'm not going to go through them now. I might pick on some later on. It may be that Sarah put some of them on the screen if she thinks they're particularly worth putting on the screen. So, Sarah, I'll leave that over to you to put useful stuff up there, but I'm going to get started. So over these three days in my sessions in the main stage, we're going to be covering a number of themes. We're going to look at some of the challenges. A little while ago in my Facebook group, I asked people in my community, what are the big challenges that you face with business advisory and the top things that people said. The biggest challenges people have with business advisory is understanding what it is, what is business advisory and how do we spot opportunities. That was one of the challenges that people said. Another one was how do I package it up? How do I package it into a service that I can then make it some I can sell? Another one is I don't know how to communicate the value so that people want to buy it. All three of those we're going to address today.

Tomorrow we're going to address another two set of challenges and big ones that people have, which is, well, how do I sell it? How do I sell advisory work without feeling uncomfortable? We're going to talk about tomorrow and also how to come up with the price, how do I calculate a price for advisory work? So tomorrow we have a lot to cover. In my session tomorrow, it's going to be all around selling and pricing, business advisory. And then on Thursday, the theme for that, we've got two themes. The last two challenges that people tell me is, well, how do I do it? How do I do this business advisory? So we're going to really focus on how to deliver with confidence. And the other thing people tell me is I need to win more clients. Marketing, I need to win clients. How do I win? How do I find the right people? How do I win? Brand new clients who the right sort of people for business advisory. So that's Thursday. That's. So essentially this slide is our agenda for the three days on the main stage. And then of course, we have other speakers as well. Okay, so let's start with. Let's start with the definition.

What is business advisory? What are we talking about here? And.

This came in a couple of years ago, my Facebook group from Todd. He said, having just a bookkeeping background, I'm not clear on what constitutes business advisory services per se. Probably a dumb question, but I had to ask. No, Todd, he's probably not here this time. He was at the time. It wasn't a dumb question. There's no such thing as A dumb question. All questions are great questions and the chances are that questions that other people are also worried about. And I know that in the case of what is business advisory? It's a common one. So what is it? Well, firstly, it's.

Advisory, giving people advice. When I say business advisory, I differentiate that from say tax advisory. Tax advisory might be where we're helping people to save taxes and some of the things we'll talk about over the next three days. Some of the principles may also apply to tax advisory, but we're specifically talking about business advisory, which is really a definition. It's the business, it's giving businesses advice. Advice on what? The way I see it is it's all about helping our clients build more successful businesses, helping our clients increase their profits, perhaps grow their business, improve their cash flow. So it's all about helping our businesses be more successful, our clients be more successful in business. I think a second thing about business advisory that's really important is I see it as being a recurring, recurring work as opposed to perhaps one off consulting engagements where we might do a consulting project for a client to help implement a marketing strategy. And that could be something we do over three or four months, that will be a one off project, helping somebody set up a marketing campaign. I see that as being consulting, but business advisory is recurring. And where that makes it a big opportunity for us is it creates for us recurring revenues where the client pays us every single month. So what do we do as part of business advisory? And I think there are six, six key components of business advisory, six things that we should do as part of a business advisory solution. It doesn't mean you have to do all six for every client, but a comprehensive business advisory offering I think would have these six elements. Firstly, I think goal setting is really important because if business advisory is all about helping our clients build more successful business business, then we first have to understand what is success to that client, what are they looking to do with their business, what they want to achieve with their business, and not just their business, but their life in broader terms. So I believe that every, every business advisory client, the work starts with understanding what are they trying, we're trying to get to what do they want to do with their business, how big they want to grow it, where they want to sell their business, what do they want to achieve with their life. Because we, we have to understand the end point, the end goal first. Another element of advisory is strategic planning. And I spent a year at Durham University Business School which is in the uk. It's the leading university when it comes to.

Business advice. And the lecturer was giving some different textbook definitions of what strategy means. But he finished. But he gave about a dozen different textbook definitions and they were all a little bit confusing. But then he said, I like to keep things simple, which I do too. And he explained it in a way that made so much sense. He said, business strategy is this. All it is is figuring out first of all, where is the client right now? Their point A, what's the pain they're having, what's the problems right now in their business? Where are they trying to get to their goals? That's point B. So they're A, right now, they want to get to B. And strategy is simply all the things they need to do to get from A to B. That might be creating a brand new website, it might be revisiting their pricing, it might be having a marketing campaign, it could be hiring a key employee, whatever. It might well be. These are all strategies. These are strategies to get from A to to be. And so biz advisory is largely as well about helping our clients come up with a strategy for achieving their goals. A third element of it is forecasting where we look to the future. We might use forecasting software to start to look at where, what their business might look like. For example, if a client says, we think we're going to double our sales over the next 12 months, we want to double our sales over the next 12 months, then that's going to have implications on the cost will change, working capital requirements might change. They might find that if they double their sales, accounts receivable goes up, the amount of stock work in progress, inventory needs to change. And so we have to understand and model those things. Forecasting is a key element of advisory. And tomorrow you're going to hear more about that with one of our guest speakers. Number four. Number four. And by the way, if you're curious, I have no idea where the pencil's gone on the screen. There's a missing pencil. It's. I know it's there, but it's gone invisible. Anyway, it's not important. It's not important. Just don't worry. Some people get worried about things like the missing pencil. The fourth thing, the fourth thing is reporting, management reporting. That's about taking the numbers in their financial system and turning them into something meaningful and creating, for example, a monthly management report. And we're going to look at some of the things we might do as part of that. Today when we look at the opportunity spotting, I think the fifth element is Then the ongoing advice where we then perhaps look at those numbers, look at the report, and try to understand, well, what's that telling us about where the client is right now? Are they on track to hit their forecast? Are they on track to hit their goals? And so I see that the core recurring part of advisory is every month. It could be every quarter, but very often it's monthly. It's about producing some reports for the client, reviewing those reports, having a meeting with the client, helping them understand what the reports are telling them, and, and then have a conversation around what they need to do to get back on track towards hitting their goals. And then last but not least is what I call accountability. And what I mean by this is, and we're all business owners.

Have you ever had a situation where you've had a meeting, perhaps with somebody and perhaps you want, perhaps you want to put in place a marketing campaign and you talk to a marketing expert and they go through the things that you could do, and you create a long action plan of things that you could do, and you think, yeah, I want to do all those things. And then a month later they say, how did you get on?

I got busy. Other things happened. Clients wanted stuff. Other things happened, and I actually didn't do anything. That's so, so common for us, but also our clients. And I know this from experience when I was working in my accounting firm that very often clients would, would get excited about. You'd have a session together and come up with some ideas, and they'd create their action plan of things they wanted to do. And then a month later, in the next meeting, you would then say, so which of those did you do all those things? No, I got busy. So nothing ever happens, Nothing changes. It goes back to this point. Are you a note taker or an action taker? Are you going to take action? And so one of the most, I think one of the most powerful things that we can do for our clients is what I call accountability. Hold them accountable for doing the things they know they need to do to get to where they want to get to their goals. And that might be something as simple as we have a monthly meeting with them, we go through the reports.

Between us, we come up with an action plan and things that they should do between now and our next meeting in a month's time, let's say. But then what we do is perhaps a week or two weeks later, we email, we call them, we jump on a zoom meeting and just say, hi there, Mary. I just wanted to just check in with you because we have our next meeting in two and a half weeks time. But I know that you said that there were five things you really wanted to get done. So tell me Mary, how are you getting on with those things? Oh, do you know what? I'm really struggling. I know I need to do them. I need. I'm so glad you've rung. That's reminded me I have to do these. That's all it is. It's when you sometimes I used to refer to it as nagging. Just nag the client. They know they need to do these things and they appreciate somebody holding them accountable. Okay, so that's. They're the six key elements of business advisory and we're going to come back to that later on. We'll see how we perhaps use that today when we think about packaging. But let's now talk about how then do we spot opportunities? Which was the second part of Todd's challenge and question and interesting. I got this in my Facebook group a little while back from Kathleen and she said my biggest problem, my biggest problem, biggest challenge with advisory work is jumping straight into solution mode, giving information away instead of seeing it as an opportunity to a valuable upsell would like to know how to spot opportunities and what are the right questions to ask.

So that's what we'll have a quick look at next. How do we spot those opportunities? And I think that it's really about.

Having perhaps a better understanding of what are the numbers telling us.

We're the experts in numbers. We understand financial statements better than anybody else. We understand what a balance sheet is telling us, we understand what assets and liabilities are, we understand profit or at least we should do. Whereas for our clients, most of our clients have no idea what the financial statements are telling. So we need to be able to look at a set of financial statements and be able to see what's going on in the business. And, and there's a number of techniques we can use. Simple ideas that will help us to spot opportunities of where perhaps things are going wrong in the business. Things that we could then help the client with. So let's have a look at that and what we're going to do is I'm going to do this using a case study. It'll just bring it alive. So if you have got your workbook, you'll probably want that to hand. And I'm going to use a case study. It's a made up business. It's a business called Jeremy's Water Jet Cutting Business. And I chose this just because Way back when I was doing advisory work with clients, I had a client, his name was also Mark, same as mine, got confusing, but he ran a water jet cutting business. It's an engineering business, but it was a fascinating business because.

He cut up pieces of thick steel just with water, which I thought was interesting, but apparently.

I know this. But when you, when you, you have water at such a fine pressure, it can cut through steel. And that's exactly what he did. So that inspired me for this case study. Okay, so let's imagine that Jeremy is a client. He runs a water jet cutting business that cuts up steel and stuff using, using water. And he's been in business for 10 years and we're going to look at the last five years in business. So he's been in business 10 years. He started off with second hand water jet cutting machinery. But let's imagine that in year eight he bought a brand new water jet cutter for 300,000. I don't mind whether that's pounds or dollars, you convert that to your currency. I might accidentally say pounds because I'm from the UK. So he bought a waterjet cutter for 300 grand and he financed it partly from cash, but 200 grand was with a five year loan. And so if.

We look at the numbers, here we go, here's the balance sheet, here's the summary of the last five years. They're in the workbook. And so we should be able to look at these, something like this, this information and perhaps see some, and start to see some possibilities, some, some ways that we advise the client and hopefully, hopefully you being an accountant or a bookkeeper, this all makes sense, fixed assets. You can see that in year eight it jumps because he purchased the waterjet cutter, but not, but then we depreciate it so it's not at the full price of 300,000. We can see his cash balances, we can see in their accounts receivable. If in the UK that's debtors, debtors or accounts receivable, I'd put other current assets.

Total current assets are cash, accounts receivable and other current assets. Then we've got our current liabilities, our long term debt. And you can see there in year eight, there's the 200,000 loan that he then started repaying over five years. And then we have the bottom half of the balance sheet. Similarly we have the profit and loss account. So if we look at this.

We might straightaway see some interesting things that might be going on. I think the first thing that jumps out to me is that in years eight and nine, he makes a loss, hence the minus, the red number at the bottom, net loss. We can see that he's paying interest now because he's got the loan. So there's the information. So what do we do? How do we start to analyze that? How do we start to understand it better? And the first technique that we should use, the first technique is a very simple one, but very powerful, is what I call trend analysis. So look at what's happening over time. Benchmark the client's current results against the past. How are they doing? We're so used to producing statutory financial accounts which show the current year and usually the comparative. But two years isn't really sufficient. We should be looking at.

A longer trend and then we can map these things and see what's going on. So, for example, we might look at the trend in sales. What's happening in sales? And generally speaking, the business is going the wrong way. It's shrinking, although there's been a slight upturn in the last year. And if Jeremy was my client, I'd be wanting to show him this and ask him questions. What I'd want to know why have sales been going down? What's the reason for that? And what's the reason, if anything, if he knows for the upturn? And when you ask clients these sorts of questions, can you explain what's going on here? Either they don't know, and if they have no idea, they might say, I have no idea. I've tried everything. My sales are going down year in, year out. If they don't know the reason, then there's an opportunity for us to work with them to try and figure out what's going on. Or it might be they do know the answer and I'd like to know why. What's he done different? I want to start to understand the business better because there may be a reason why he's done it. It could be that it's just it's something he's done that's genius. But it could be something he's done that could actually have some impact in other areas of the business. So that's the trend in sales. I would also perhaps look at gross profit. Gross profit is very important. And.

I can see here that it's interesting that in the last two years that's gone up. I'd want to find out more. I'd want to ask Jeremy some questions. I'd want to know, why has his gross profit fluctuated like that? If you do this for a client and you see that consistently gross profit is falling, that's a cause for concern and therefore you should definitely have a conversation with the client just to try and understand what's going on.

Another one might be net profit. What's the trend in net profit? Well, we can see that it fell off a cliff two years ago and want to know why. What happened between year seven and year eight? What happened to the profit? What changed in the business? I want to understand that now, actually, as you'll see later.

We can start to understand that without asking the question. You'll see in a bit why, but I'd want to know why.

The reasons for those things. So that's the first idea. When we're looking at numbers, let's look at trends. Which direction are the key numbers going in? And that's a great starting point, but we need to go deeper than that because you. Because you can't always get a true picture without looking at how things are moving compared to something else. And so when, when we had the lockdown and Covid two years ago in the uk, I found it very frustrating when they were the government and the media were reporting on how many cases, for example, and the cases were going up and up and up and up. But there were other things going on. For example, in the UK in 2020, we were getting better at testing more people. And so if more people are being tested for Covid, then you would expect the number of cases to go up. So actually, what would be much more useful is what proportion of people tested are coming up as positive. You can't look at single numbers in isolation. You want to see how they are moving compared with something else. And this is where we get into the world of ratio analysis. And this is really, really critically important. And I'm going to go through it fairly quickly because I know we have a guest speaker who is much cleverer than me when it comes to understanding this stuff. He's a genius. But I want to give you some of my thoughts on this. So we need to understand ratios. We need to use them to spot opportunities with our clients. There are essentially four main categories of ratios. There are our profitability ratios that tell us how profitable the business is. We have our liquidity ratios, which are about cash flow.

Cash availability. We have our efficiency ratios, for example, how efficient productivity ratios, if you like. And then we have our investment ratios. I'm going to share with you four or five of what I see as being some most important ratios. We should start with that. We should be getting into the habit of measuring with Every client, or at least every substantial client, because these help us to spot what's going on in the business and see where there may be opportunities. So if we go back to our case study again, the first of the ratios I want to talk about is the gross profit margin. So we looked at gross profit itself, but we have to look at the gross profit margin. And that's a very simple calculation. It's just our gross profit divided by our sales and then multiply by 100. And if we were to look at this for Jeremy's water cutting business and plot this, then we can see it's a different shape to. So the gross profit itself is the columns, but then the gross profit margin is the line. And that shows a different picture. I'd want to know.

Two years ago it went up significantly. The last two years, he's gone from. Something's changed in his business. There's been big change. And we need to understand why. If you see gross profit margin consistently falling, by the way, in this case, it's gone up for two years. But if it's falling, then we need to start to find out why. We need to ask the client the questions. Why is the margins falling? Because if they don't do something about it, if they don't turn it around, which of course Jeremy has done two years ago, if they don't turn it around, they'll probably end up going out of business. And so we need to understand what are the things that impact gross margin? What are the, what are the things that kill margins? Another, another measure we should look at is the net profit margin. Now, this is less valuable. I think the gross profit margin is much more important.

Because there are all sorts of things that can impact on net profit margin and distort it. And we'll have a look at one or two of those in a short while. But essentially, net profit margin is a simple measure. It's typically net profit before interest and tax. I'll give an exception to that later. But it's usually net profit before interest and tax, and it's divided by sales.

There are, sometimes you'll see different. With some of these ratios, if you read the textbook, sometimes they give you slightly different formulas. I wouldn't get too hung up on that. The most important thing is that when you measure these for your clients, you are consistent. So we could then measure our net profit percentage. And in this particular case, the margin is very similar to the trend in the net profit itself. And again, I'd want to know from Jeremy what happened two years ago. Why did it fall off a cliff? What went wrong?

Another very important one, this is a liquidity ratio is in the uk we call it data days. In the us, Canada, you would call it accounts receivable. And one of the ways to measure that would be to look at the average accounts receivable or average debtors and divide that by annual credit sales and then multiply by 365 days because that's the number of days in the year. The bottom is usually the annual credit sales. So if you have a business that has a mixture of credit sales and cash sales, you, you would typically exclude the cash sales from the calculation. There are other ways of calculating it and that's fine if you want to use a different methodology, but this I think is the most common. So we can plot this for our client. And again, this is really important because cash flow is so important. If you ever see a client where the last two or three years their accounts receivable is going up, you want to find out why. Because if accounts receivable keeps going up and up and up, the client will run out of money and they will go bust. And so there's an opportunity to help the client. When we see that happening in this case, it's actually going the right direction for Jeremy and his business. I would still want to know, when I meet with Jeremy, I'd say to him, so, Jeremy, I noticed that your, your debtor days or accounts receivable has been very consistent over the years, except last year it suddenly dropped. Tell me, what have you changed? What's changed in your business? Because when you ask these questions, it'll help us to understand, understand perhaps what's going on and spot opportunities. Let me share another ratio. This is the return of on investment. So this is an investment ratio and this can be a very important one. It's actually an interesting ratio because in simple terms, this ratio is net profit before interest and tax divided by the fixed assets plus the current assets. There is actually another way of calculating it which I think actually opens up, gives you some more insights because the rate, the return on investment ratio is actually two other ratios multiplied together. One we've already covered, which is the net profit margin. And the other ratio is what's called asset turnover. So asset turnover is your fixed assets plus your current assets divide by sales. And that tells you, your asset turnover tells you how efficiently are you using the assets in the business? How efficiently are you using the, the fixed assets, for example, the stock or inventory, how efficiently are you using those to turn to Create sales. So that's the asset turnover is all about the efficiency of your efficiency of managing assets, whereas net profit is more about how efficient are you with the trading side of the business, the ability to generate profit from your sales. And when you multiply those two things together, that is the return investment. And the reason I like to think of it as those two separate things, I would rather measure it as asset turnover and net profit, is because if we see return investment falling, and so in this particular case we can see this happening, we can then start to understand is it because they're not very good at their trading activities, at creating sales and turn them into profit, or is it that they're just inefficient with the assets in the business? So that's return investment. The last one I want to talk about is, or last thing I want to talk about is we have to make sure though that.

We look out for things that might impact.

On those ratios and might distort the story. So one of the things we should look at is what's called ebitda. Ebitda, I said earlier that typically the net profit margin.

The net profit used, is net profit before interest and tax. But EBITDA is a measure that's certainly something that investors would look at and you should as well. What does it stand for? Very simple. It's earnings, profit before interest and tax, which we've already mentioned with the normal definition of net profit and depreciation and amortization. So in other words, we take our net profit and we add back the tax and the depreciation and the amortization because they can distort things quite significantly. So if we take Jeremy's business again, so on the left is we've already seen the net profit margin. The right hand one is what I've called the EBITDA margin, which is basically adjusting the net profit by adding back depreciation and amortization. And you can see it tells a very different story because whilst net profit was hammered in three years ago, of course that will be because Jeremy bought an expensive piece of plant and machinery, a brand new waterjet cutter which will have huge depreciation on year one, plus then the interest on the finance. And so what we're doing with EBITDA is, is we're really taking out things that.

Interest, for example, is a financing thing and depreciation amortization is how just a, an accounting way of writing down fixed assets in an attempt to record them on the balance sheet at something closer to market value. And so we'd add those things back. So that's. They're just some thoughts for you of how you want to look at the client's information, the sorts of things you might want to put into your reports so that you can have a more meaningful conversation with the client. Okay, so where have we got to so far? We've looked at what does. What is biz advisory? And we've now looked at. So how can we look at the numbers and get a better understanding of what's going on so that we can have a better conversation with the clients to understand their business better and look for things that could be a problem in the future? So what I want to look at next is, okay, so we now understand what our advisory service is. How are we going to package it in a way that we can present it to our clients so they understand it? And one of the things that we want to do is create some different options, because every client's different. We're going to go into pricing tomorrow. And one of the key things about pricing is everybody values things differently.

If you have a single option, a single price, it's always the wrong price. And I know many of you have followed me on value pricing will know this, so I'm not going to go into too much detail on that itself, But I am doing a later session today where we'll look at the foundation of value pricing. I'll go a little bit deeper if.

You feel like I'm missing something. We've got a session later on value pricing. But one of the things that we want to do is give the client a choice. Every client's different. We want to give them a choice. And so what we want to do is give a choice of different.

Packages of our advisory service, because we don't know how much somebody's willing to pay. If you offer business advisory, and let's say you have a standard package and every client gets charged $400 a month, well, I can tell you with absolute certainty that $400 a month is guaranteed the wrong price. Because every client has what economists call a maximum witness to pay or a buyer's reservation price. In other words, there's a number, usually subconscious. There's an amount that's the maximum a client will pay for something. And the chances, the probability that that number, the maximum they're willing to pay for advisory is $400, is so remote, it's pretty much impossible. The number that's the maximum for them will either be lower or higher. If they don't see anything more than $200 a month in value. Then when you present your price at $400 a month, you will lose out because they, they don't see that it's too high. But they might be thinking, this is going to make my life so much easier. If you can help me grow my business, this has got to be worth $1,000 a month. And you say $400, you'll make the sale great. But you've left money on the table. So we get round that by giving people a choice of different options, typically three. It doesn't have to be three, but I call it the magic of three. You've seen this, you've seen this in so many places. Think of it as the bronze, silver, gold. Some clients will just want the cheaper option, but some like a premium. They want something that's, they want more, they want, they want more value, they're happy to pay for more stuff. Some of your clients will be premium buyers. The reason why three, by the way, the reason three is something called the magic of three. What happens is when you present your clients with three choices, actually two things happen that's interesting. When you present your clients with three options, the conversation subtly changes from will I buy yes or no? Will I buy yes or no? To now, which one will I buy? Becomes a different conversation. But also interestingly, when you offer three, most people choose the middle option. And there's a reason for that. I'm going to talk more about that in the foundation session later in my breakout session. For anybody who's new to value pricing and wants to learn more about that, we'll talk about that in a bit more detail. But we want to create three different packages for our advisory. And so I said to you earlier, you might be thinking, okay, so what might I build into those packages? Well, I said to you earlier that those six components of what might be an advisory solution. So that would be a great starting point to think about those six things. And you might decide that.

Your entry level, your bronze level advisory might be just about doing monthly management reports and perhaps having a zoom meeting once a month to interpret them. Your middle option might be monthly reports, a physical meeting, and start off with some goal setting and helping them with strategy. And then your premium one might build in some forecasting and it might also build in some accountability. Okay, that's a little over simplistic, but, but that hopefully gives you the idea that you can take the various elements of what makes up advisory and give clients different choices. They can pick the one that's best for you. But I specifically want to talk about something which I call the Journey Technique. Because when you are selling compliance services, for example, let's say you're selling tax returns, payroll, bookkeeping, when you create three different options, and you should do this, you should create packages and options for all your different services. When is compliance work? What tends to happen is because it's compliance, people have to buy it. So you're probably going to get the win the client and get the work. And when you offer them three choices, what you'll find is most people will gravitate towards the middle option. You'll also find, I don't want to go to the science of it now, but I might touch on it later, is that more clients than you think will go for the premium.

The problem with advisory work, though, is that they don't, they don't have to buy it. And they probably never bought it before, They've never experienced it before. They don't know what advisory is. They've only ever had their bookkeeping done by an accountant before their payroll, end of year financial statements. And now this is an advisory option. And so what we want to do when we create our Bronze Silver Gold is do something a little bit different in our thinking. The Journey Technique says that we know that clients don't necessarily know what their service is until they've experienced it and they don't have to buy it, even though it's extremely valuable. So let's create our Bronze Silver Gold in such a way that we almost recommend every client start with the bronze promise and we build it so it's a package that then when you've delivered that thing, they see so much value that they then naturally want the next level, the silver. It's a journey. There's a, like you've thought of your packages, so they can upgrade. And then we can do some interesting things which we'll talk about tomorrow with anchoring, we could do some interesting things about prices. That makes it much easier to then sell the, at least the entry level and get clients staffed on that journey of being advisory for you. So I want you to just bear that in mind when you think about creating packages, think about the Journey technique. We'll see more of that tomorrow when we look at the pricing piece. Okay, so once you've then done that, the end result might be that you create something that might look like this. You might end up with a little brochure, a sheet of paper or something where you can sit down with your clients and you can show the three different options. Your Bronze Silver, gold. Your entry level with the, what you can see here is what I call the tick list technique where you show with ticks and crosses what they get, what they don't get with each of your advisory solutions. Okay, I can see that we are absolutely bang on time, which I have to be because I have a guest speaker. We have a guest speaker coming on soon In I think 20 minutes. But what I want to know, I'd like some feedback.

What have you learned so far? What's been of all the things we talked about so far today and we've got so much more to cover, what's been the best thing so far? What's been the thing that I've said that you've think you know what that's, that's, I didn't realize that or I want to go away and do that. What's the best thing so far in the short time we've spent together. So let me know in the comments box what's been the best thing I might ask Sarah then to put a few on the screen.

And so what we're going to do next is we're going to talk a little bit about how to communicate the value which will set up nicely for tomorrow's pricing piece. And before I do that, I want to tell you just briefly about.

The Profit Advisory Academy. So the Profit Advisory Academy, we teach accountants and bookkeepers how to turn advisory business advisory into a profitable service. It's something we introduced a little while back and it's part of the Value Pricing Academy which we'll talk about more later. So what is the Profit Advisory Academy? It, it is made up of firstly live training. Every single month I deliver live training where we go deep into an aspect of helping clients build a more profitable business. So live training every single month. It's also structured video training. So on Monday we're going to have a kickoff day Monday to welcome new people. On Monday we'll have a kickoff session and we start a six month video training program where every month you receive videos and resources guiding you through the process of building a profitable advisory service. We start off by going really deep on spotting the opportunities. We look more at the numbers at ratios and stuff like that. Then we go really deep on what exactly are we selling, how do we get our packages, we look at how do you communicate the value we're going to touch on in a short while but we go really deep on that the way the exact words you use the techniques and it culminates with ready to use pricing brochure with all the, all the packages and everything set the words, the scripts that you would use. We then go really deep on how to sell advisory, how to price advisory, which we're going to start on tomorrow. We go, I talk about tools and things that you can use to deliver advisory services. And then once we're, we have our advisory servicings services. How do we add value? Sorry, how do we create new clients? What's the marketing? How do we win clients? By being seen as being different, as being somebody that helps clients increase their profits. So we have over six months video based training, then lots of resources and software. I'm not going to go through it all now because the reason I'm not going through it now, I'm doing a Q and A session later on on today. There are so many resources you get as part of my profit, part of the Profit Advisory Academy to help you implement this stuff. There's workbooks for all the training levels. I teach you things like what are the five margin killers? So if you do see the gross profit margin is declining in a client, there's five reasons for that. And I go through what those five reasons are and how you can identify them. Because if you can then discover what's the thing they're doing in their business that's resulting in margins going down, you can work with them to fix it and judge premium prices. Another thing that I teach is I love marketing and most of your clients I guess want to grow their business. Nobody wants to shrink, they want to grow it. And so one of the things that I do is teach different ways of growing a business. And the proper growth form is 101 Ways to Increase your clients profits. And the reason I've done this is because a lot of accountants and bookkeepers are scared about the idea of well, my client wants to grow their business, but I don't know how to help them with that. A lot of growth strategies are really simple stuff, simple idea. We do not have to be marketing experts to help a client grow their business. And so I share and teach 101 different ways to do it so that you will never be short of ideas to help your clients grow their business. We have all sorts of tools and resources and things that you can use to produce reports, measure numbers and so on. That's the Profit Advisory Academy. It's part of the value Pricing academy. And so if you decide over the next three days that you want to join while enrolment is open, one of the things you automatically get as part of the value pricing Academy, you automatically get everything included in the profit Advisory Academy, everything you need to be successful with advisory. So you probably want to know what's your investment in that and I'll give you. I'll share that in a second. I did. I don't know, I don't know if he's here or not today, but one of the members of the Academy shared a. He's got an amazing story and he's going to be doing a session actually to this time next week. I think, I think it's this time next week. Rennie Evans, he, he's got a practice in the uk, he focused on advisory and he's doing a session next week where he's going to talk about how he used the pricing. We'll talk about tomorrow to win a 31,908 pound per annum advisory service with an existing client. That's about US$40,000 by the way, and.

That'S very possible to get those sorts of results. In fact, I would suggest to you that when you do advisory.

And we'll look at the pricing tomorrow, but every business advisory client you should be charging at least $400 a month. So $4,800, it could be as much as $40,000. That's what Rennie's going to be teaching next week, how he got a $40,000 31,000 pound advisory client. And so to answer the question about what's your investment in the Value Pricing Academy and to get access to everything in the profit advisory academy is the answer is just one advisory client. If you work through the training and the program and you get one advisory client, one advisory client could pay for your membership of the academy because your Investment is just $395 a month if you're in the US. If you're in the UK it's 297 pounds. If you're in a different country, we'll give you the link. I think Sarah, could you put the link into the chat box when you go to the page and I'll show you more of this later on in the conference. But when you go to the page to find out more about.

The Value Pricing Academy, this is what the page looks like, by the way. Sarah's put the link in the chat box. You'll see it closes in 5 hours and 25 days and 21 hours. We close enrollments. We only open up enrollment twice a year. You'll find all the detail here. I'm not going to go through it now because I've got more things to talk about and share with you. But also when you come here, when you click on Sign Me up, it takes you to a page where you can see the price in your country. So if you're in Canada, if you're South Africa, for example, we make it easy for you. You can pay in your currency. So the Academy is only $395 a month. And a couple of really important things is you can stop whenever you want. You're in complete control. And also remember we close enrollments on Monday. Also we always put the price every single year. But when you join, if you join today, the price you lock in. We never change the price in the future, so we keep adding more value. The profit Advisory Live, it was only introduced back end of last year and all existing members just got that given to them. So you'll get more and more stuff as the years progress. But your price will never ever change because as we create new content in the future that's.

Paid for by future members.

Okay, I'm going to tell you much more about that over the course of the next few days and in particular in my Q and A sessions which are optional but please come and ask me questions. We do have some bonuses for people who take who decide to join during the course of the masterclass itself. So if you join during the masterclass, then one of the things that we'll send you is the complete guide to menu pricing. This is where I'd go really deep on this whole idea of menu pricing, creating packages and a seven step framework and advanced strategies for doing exactly that. We normally sell that for $597. You will get that as a free gift straight away if you join during the course of the masterclass, we also will give you some training on how to use a piece of software that you get. As my gift for joining the Academy, this is the piece of software that will help you to sell Advisory. We'll look at it tomorrow when we do the selling piece of the how do you sell advisory work. You'll also get straight away a version of the Profitable growth formula. In the next six months I'm going to teach you 101 ways to increase your clients profits. But if you're an action taker and you want to start doing this stuff straight away, we're going to send you stuff to start getting results. We'll also send you the recordings of the conference that you can access anytime during your membership. For everybody else, they're just for a few days. Okay.

Let'S. Where have we got to? What I'm going to do. We have a guest speaker in seven minutes. But I want to cover one more thing. I want to start to touch on this idea of how do we communicate the value of advisory? And a couple of things I want to share with you. The first thing I want to share is what I call the. The three phases of the value conversation. So when you're talking to a client, and this applies to anything, not just business advisory, it's any service that you offer, the first thing you have to do is uncover the value. In other words, you have to ask questions. Questions are the most powerful part, the most powerful thing you can do in the sales process. We have to better understand the client. And it is particularly important if we want to do advisory work. We want to understand what are their goals, what are they trying to achieve in their business, but we also want to achieve. That's that point B, by the way. But even more important, where are they right now? What are the problems they're facing right now? What are the challenges? What are the roadblocks? What's the pain that they are feeling? Because the more that we can uncover the pain, the problems that they're having, the more that we can make sure we come up with a solution that better meets their needs, that gives them a better outcome. We can't deliver a solution until we better understand what. Understand what's important to them, what do they value? What are their goals, their aspirations, what's their problems, their pain, their feeling. Once we've done that, then we can move on to the second phase, the value conversation, which when we then build the value. And typically when you're selling advisory work, I strongly recommend that you think of these perhaps as two meetings. The first meeting is just to ask questions to understand the client better. And then that gives you time to go away and reflect and think for a couple of days about how can you best solve their problem. And in the build the value phase, that's where you will then present some different solutions, some packages, and you will communicate the value of those things that so they want to buy. And then when they do want to buy, when they're interested, then you capture the value and what that means, which we'll see tomorrow. That means we price. We price based on the value that we create. In other words, you don't charge every client $400 a month because you will be leaving money on the table. You want to charge a higher price where you can create more value for a client. And we're going to see this tomorrow on the price. This is one of the most powerful things we'll cover during the three days that if you can spot a bigger opportunity, if you think you can help the client increase their profits by a larger amount, then there's more value and we can charge based on that. We can price based on that. We'll see exactly tomorrow when we do the pricing piece, how you do that. Let me wrap up for the last few minutes before we hand over to Jim with I just want to share with you some communication strategies that you can use when, when you are communicating the value of advisory. And we'll build on these tomorrow because they, these communication strategies impact on the sales process and the pricing process. The first idea I want to share with you is the power of anchoring. So this is the word of price psychology. Extremely powerful, extremely important. What anchoring means is that we are as customers, as customers, whenever we buy anything, and it's the same when your clients buy from you. We are clueless about price. We don't know the price of anything. We learned this. This was taught to us by, in the world of psychophysics which has been around for over 100 years, we don't understand the price of anything, which makes sense because price is just an arbitrary number. What happens is whenever as a customer we see a price, our brain goes away in a nanosecond and subconsciously to make a comparison to see whether that price feels right. What comes back is a feeling, an emotion. We judge prices in emotional terms, not absolutes. We judge prices. What might come back is we might think, wow, that's expensive. That's a rip off. What a great deal that is. That's a fair price. We turn a price into a feeling.

And your goal with your communication and your prices is to create something in their mind that's going to give them some comparison. It's called an anchor in the world of price psychology. And we use anchors so that when you then reveal the price, they are much more likely to say that's reasonable. I thought it might be more than that. So that's the concept of anchoring. And you'll see that tomorrow I'm going to share with you at least two really powerful anchors that are going to help you to sell much more advisory and at higher prices. Second idea, second idea is whenever we talk about either pain people are having or the benefit, the outcome, we want to quantify that in some way. We want to use numbers. After all, we're the numbers experts. We want to put a number on something. If the client's coming to us because they want to increase their profits. Their profits are stagnated, they're low. They want to build a more profitable business. Then we need to make sure that we, we quantify.

How much we think we could increase their bottom line profits by. And you might be thinking, well, how can I possibly do that? Tomorrow I'll show you exactly how you do it. We have to quantify because then it creates. Those numbers are also a form of anchor. We start to use the contrast principle. What happens is the client then compares that quantification, eg, how much extra profit they could potentially get by with the price and it'll make your price seem much smaller. There are dozens of other techniques that we can use in terms of communicating value. We might cover some more tomorrow. Ultimately, the ultimate resource that you want to create is some form of written brochure because. And we provide one of these in the academy. In fact, we provide lots in the value pricing academy. Brochures are a system. You might think, why do I need a brochure? It gives you a system. It gives you an agenda, an aid memoir, a reminder of what to say. So when you have the value conversation, you say the right things in the right order. Okay?