CPA INCOME RISK MANAGEMENT
CPA INCOME RISK MANAGEMENT
As an Accounting Professional, you are advising your clients on risk management. It is one of those subject matters where it is sometimes easy to see the risk but difficult to get the client to understand it - or, difficult to assess the risk factor with the information available and thus, almost impossible to form a definite recommendation for or against.
Risk management is a combination of knowhow, experience and prediction. It could be argued to be one of those less inviting necessities of running a business. If there's one thing that I do know for certain it is that perfection does not exist in risk management, as many of us have yet again relearned at the onset of this most recent economic downturn.
It is easy to get caught by surprise.
Clients can expect psychic powers of you (demanding an absolute and accurate forecast of results from future actions and developments that THEY, not you, will be responsible for!) OR only want to hear that their idea is perfect... and get upset if you warn about the risk you see.
Risk management is a "damned-if-you-do-damned-if-you-don't" proposition involving high mental stress. Sparks fly and you're sitting on a keg of gunpowder. No wonder that mentioning the subject can create explosive reactions.
Here's an idea of how you could service your clients – in fact, a workable idea for an added value service that is yours to use if you choose to:
INCOME RISK MANAGEMENT
The concept of "income risk management" is the same concept that is used in investments, opportunities and expense related matters.
The same principles can be applied to INCOME.
With income, risk is manifested in two vectors (in the theory presented here, that is).
The first element of risk involves the NUMBER of MONTHLY income sources that you have. The more monthly income sources, the less the disappearance of one income source can affect the total.
The second element of risk is governed by the SIZE of individual income sources as compared to the average income sum you get by dividing your monthly income with the number of clients.
If you have plenty of income sources of which each brings a sum that is close to the average income per client, your risk is minimal.
Of these, the number of income sources is the more important one. The risk factor becomes evident once you ask yourself this question:
HOW MUCH would your IMMEDIATE income be affected if your biggest income source would be lost?
Of course, I'm NOT saying it will. And I apologize for the gut wrenching that this thought can cause. We all have that "fear of losing what you cannot afford to lose" nightmare sometimes.
My intention is not to scare anyone but to examine what could be done to minimize the risks in its power to affect the life of your clients... or your own, for that matter.
No matter WHAT the cause of nonpayment or loss of a client – not arguing whether or not there could be circumstances beyond your control – how much would that loss of income affect your total income this month and thereafter?
If you have 50 clients each paying $500.00 a month, then the answer is 2 percent – it won’t keep you awake at night. If you have 10 monthly clients, each worth $2,500.00 a month, we’re talking a 10% sudden loss of income here and it will certainly be felt.
And here enters the "size of individual income sources" factor.
Remember, the risk denominator was "ANY ONE CLIENT" – unfortunately, you seldom get to CHOOSE which one you lose, right? So think with Murphy’s Law... the worst scenario.
So, if you have ten monthly clients and ONE of these is the source for more than HALF of your monthly income... your income risk factor is extremely high – 50 percent.
Let me again emphasize that it is a POTENTIAL risk – but aren't they all, in the final analysis? A clearly understood loss is not a "risk" but a certainty, right?
A risk may exist and yet never become reality. But regardless, the existence of the risk factor will make life less enjoyable. You’ll always have that “what if” at the back of your mind...
But that is still WAY better than having NO CLUE of risk existing, as I personally learned.
I well remember my beginning days as a hopeful ad agency owner some 25 years ago. I had landed this dream account... and it kept me and my small staff SO BUSY that I totally forgot to put any attention on obtaining OTHER clients. In fact, I wasn't even INTERESTED in the small, insignificant assignments that were available... I turned DOWN work offered to me!
Everything was rosy. It was so EASY and natural to get most of my income from one client. He gave us lots of work and paid the bills diligently. But what I forgot was that a client relationship is not a partnership or employment. Which I learned the hard way when they appointed a new Vice President of Marketing...
Well, it was good as long as it lasted. But once the new hand terminated our account it was panic time..
If I learned anything, it was this:
Never, EVER be satisfied with ADEQUATE income alone.
Always ALWAYS make sure your income comes from sufficiently MANY SOURCES so you won't be faced with income crisis of apocalyptic proportions threatening your very existence.
Analyse your income sources, minimize the income risk factor... and work the market to get new clients even when you feel you DON'T NEED THEM. One day, you'll be glad you did... regardless of whether an income risk materializes or not. It's a win-win situation, either way!
Here's the thing:
Clients are not forever.
They get into crisis of their own, they change their minds, bigger companies take over smaller ones, the decision makers change... things CHANGE.
Time in its essence IS change and thus, never get lulled into a false sense of security believing that "nothing changes" or that all change, by definition, would be positive in nature. The “let’s all keep our turfs” -thinking that’s so predominant within the accounting industry is also the epitaph that should be chiselled onto the headstones of most practices that stopped to be.
The best way to look at your clientele is as if it were a RESERVOIR of income potential... but one that LEAKS ALL THE TIME. Now, this has NOTHING to do with client satisfaction. Things just CHANGE constantly.
It may not SEEM like a "constant seepage" because the shift is so gradual – it takes quite some time for any major decision to develop until the results of it become known and take their inevitable effect. It may APPEAR like it came from out of the blue... but it did develop ("leak") for months or perhaps years.
Regardless of HOW well you service your clients, aside from how your income risks are managed, the reservoir leaks all the time. To correct that leak, you need to REPLENISH that reservoir to keep it level – to get more income sources... more clients. Employing an inexpensive system to obtain clients on continuous basis will also automatically minimize your income risk factor.
The better your profit from these (future) clients, the better your ability or reserve to absorb unexpected losses.
The key to creating more viability for your client (and your own firm) and minimizing the income risk factor is of course not in getting rid of big clients but in getting MORE clients. If you have one or more BIG clients you can set out to find an equal (or exceeding) income in dollars from NEW, SMALLER CLIENTS and thus balance the risk factor.
As such, not a bad idea for an added-value service for your clients, is it?
CPA INCOME RISK MANAGEMENT - To learn more about this author, visit Harry Kafka's Website.
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RISK MANAGEMENT FROM A NEW VIEWPOINT
As an Accounting Professional, you are advising your clients on risk management. It is one of those subject matters where it is sometimes easy to see the risk but difficult to get the client to understand it - or, difficult to assess the risk factor with the information available and thus, almost impossible to form a definite recommendation for or against.
Risk management is a combination of knowhow, experience and prediction. It could be argued to be one of those less inviting necessities of running a business. If there's one thing that I do know for certain it is that perfection does not exist in risk management, as many of us have yet again relearned at the onset of this most recent economic downturn.
It is easy to get caught by surprise.
Clients can expect psychic powers of you (demanding an absolute and accurate forecast of results from future actions and developments that THEY, not you, will be responsible for!) OR only want to hear that their idea is perfect... and get upset if you warn about the risk you see.
Risk management is a "damned-if-you-do-damned-if-you-don't" proposition involving high mental stress. Sparks fly and you're sitting on a keg of gunpowder. No wonder that mentioning the subject can create explosive reactions.
Here's an idea of how you could service your clients – in fact, a workable idea for an added value service that is yours to use if you choose to:
INCOME RISK MANAGEMENT
The concept of "income risk management" is the same concept that is used in investments, opportunities and expense related matters.
The same principles can be applied to INCOME.
With income, risk is manifested in two vectors (in the theory presented here, that is).
The first element of risk involves the NUMBER of MONTHLY income sources that you have. The more monthly income sources, the less the disappearance of one income source can affect the total.
The second element of risk is governed by the SIZE of individual income sources as compared to the average income sum you get by dividing your monthly income with the number of clients.
If you have plenty of income sources of which each brings a sum that is close to the average income per client, your risk is minimal.
Of these, the number of income sources is the more important one. The risk factor becomes evident once you ask yourself this question:
HOW MUCH would your IMMEDIATE income be affected if your biggest income source would be lost?
Of course, I'm NOT saying it will. And I apologize for the gut wrenching that this thought can cause. We all have that "fear of losing what you cannot afford to lose" nightmare sometimes.
My intention is not to scare anyone but to examine what could be done to minimize the risks in its power to affect the life of your clients... or your own, for that matter.
No matter WHAT the cause of nonpayment or loss of a client – not arguing whether or not there could be circumstances beyond your control – how much would that loss of income affect your total income this month and thereafter?
If you have 50 clients each paying $500.00 a month, then the answer is 2 percent – it won’t keep you awake at night. If you have 10 monthly clients, each worth $2,500.00 a month, we’re talking a 10% sudden loss of income here and it will certainly be felt.
And here enters the "size of individual income sources" factor.
Remember, the risk denominator was "ANY ONE CLIENT" – unfortunately, you seldom get to CHOOSE which one you lose, right? So think with Murphy’s Law... the worst scenario.
So, if you have ten monthly clients and ONE of these is the source for more than HALF of your monthly income... your income risk factor is extremely high – 50 percent.
Let me again emphasize that it is a POTENTIAL risk – but aren't they all, in the final analysis? A clearly understood loss is not a "risk" but a certainty, right?
A risk may exist and yet never become reality. But regardless, the existence of the risk factor will make life less enjoyable. You’ll always have that “what if” at the back of your mind...
But that is still WAY better than having NO CLUE of risk existing, as I personally learned.
I well remember my beginning days as a hopeful ad agency owner some 25 years ago. I had landed this dream account... and it kept me and my small staff SO BUSY that I totally forgot to put any attention on obtaining OTHER clients. In fact, I wasn't even INTERESTED in the small, insignificant assignments that were available... I turned DOWN work offered to me!
Everything was rosy. It was so EASY and natural to get most of my income from one client. He gave us lots of work and paid the bills diligently. But what I forgot was that a client relationship is not a partnership or employment. Which I learned the hard way when they appointed a new Vice President of Marketing...
Well, it was good as long as it lasted. But once the new hand terminated our account it was panic time..
If I learned anything, it was this:
Never, EVER be satisfied with ADEQUATE income alone.
Always ALWAYS make sure your income comes from sufficiently MANY SOURCES so you won't be faced with income crisis of apocalyptic proportions threatening your very existence.
Analyse your income sources, minimize the income risk factor... and work the market to get new clients even when you feel you DON'T NEED THEM. One day, you'll be glad you did... regardless of whether an income risk materializes or not. It's a win-win situation, either way!
Here's the thing:
Clients are not forever.
They get into crisis of their own, they change their minds, bigger companies take over smaller ones, the decision makers change... things CHANGE.
Time in its essence IS change and thus, never get lulled into a false sense of security believing that "nothing changes" or that all change, by definition, would be positive in nature. The “let’s all keep our turfs” -thinking that’s so predominant within the accounting industry is also the epitaph that should be chiselled onto the headstones of most practices that stopped to be.
The best way to look at your clientele is as if it were a RESERVOIR of income potential... but one that LEAKS ALL THE TIME. Now, this has NOTHING to do with client satisfaction. Things just CHANGE constantly.
It may not SEEM like a "constant seepage" because the shift is so gradual – it takes quite some time for any major decision to develop until the results of it become known and take their inevitable effect. It may APPEAR like it came from out of the blue... but it did develop ("leak") for months or perhaps years.
Regardless of HOW well you service your clients, aside from how your income risks are managed, the reservoir leaks all the time. To correct that leak, you need to REPLENISH that reservoir to keep it level – to get more income sources... more clients. Employing an inexpensive system to obtain clients on continuous basis will also automatically minimize your income risk factor.
The better your profit from these (future) clients, the better your ability or reserve to absorb unexpected losses.
The key to creating more viability for your client (and your own firm) and minimizing the income risk factor is of course not in getting rid of big clients but in getting MORE clients. If you have one or more BIG clients you can set out to find an equal (or exceeding) income in dollars from NEW, SMALLER CLIENTS and thus balance the risk factor.
As such, not a bad idea for an added-value service for your clients, is it?
CPA INCOME RISK MANAGEMENT - To learn more about this author, visit Harry Kafka's Website.
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Dianne CramptonDianne Crampton is an executive leadership coach, team consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. - Visit Dianne Crampton's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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