Professional diversification helps reduce business risk

While many accountants still rely on the traditional business of preparing financial statements and tax returns, other practices have diversified.

Setting up a new business in a well-established professional practice can be rewarding, says John Haylock.

Why expand a professional service when investment and recruitment risks abound?

Often a business owner needs to invest in diversifying their products or services so the business stays relevant to its market.

Keeping up with competitors in providing true value to customers is an ongoing effort. The business environment is changing rapidly - the rise of cloud accounting, for example. This is disrupting some traditional business models, including some work accountants do such as preparing sets of financial statements and tax returns.

In accounting, this disruption is still at a relatively early stage but it is a positive change that is helping accountants and their clients realise their productivity potential. It looks likely that the stable business model that has existed for some time will be much less stable in the future and it seems likely accountants will need to develop new revenue streams to stay competitive in their market.

Have you seen a new division work well for a professional SME?

While many accountants still rely on the traditional business of preparing financial statements and tax returns, other practices have diversified.

Expertise such as IT services have been provided by some accountants while others have begun to offer financial planning and investment support. Human resources services and specialised services such as business valuations, insolvency and business coaching are also coming out of what we think of as traditional accountancy firms.

When diversification is done well, it strengthens the relationship with clients, grows the business and reduces risk.

Establishing new divisions provides opportunities to strengthen the whole group through cross-selling, while also protecting or expanding the company's share of the market.

It can also provide an opportunity to develop different service levels - for instance, a budget and premium brand - which enables the practice to reach different areas of the market without risking brand damage for the parent company.

What precautions do you advise when setting up a new operation within or outside the core practice?

Great care needs to be taken to ensure the core business practices continue to be done well - and that the business brand does not become diluted or confused from the customers' point of view.

To guard against this, it is a good idea to have a clear separation between the divisional market offerings that clients understand, as well as making sure your team members comprehend the brand and objectives of each, particularly where there is overlap between them.

In instances where you are using one brand to build the other, ensure that the same service standard is applied. Also make sure both are appropriately market-focused. In cases where there is overlap, have a clear understanding of how they compete with or complement each other.

How common is it for established SMEs to set up a new division?

According to the latest MYOB Business Monitor, 25 per cent of SMEs plan to increase the number or variety of products and services they offer.

This increases to 37 per cent for start-up businesses, reflecting the flexibility and dynamism of a business in the start-up phase.

John Haylock is practice performance manager at MYOB BankLink.