UK firms are "writing-off" an annual average of £187,523 of compliance work before billing it to their clients, according to a benchmarking study by business advisory service Panalitix.
A "write- off", as defined by Inovestopedia, is the reduction in the value of assets or earnings by the amount of an expense or loss, leading to a drop in taxable income.
The survey from Panalitix, of which 103 UK firms with an average revenue was £1.4m ($2.05m) took part, found that an average of 18% (£187,523) of compliance tax and account production is being written off by the participants every year.
Panalitix CEO Rob Nixon said: "You will always get write downs [offs] when you price by the hour in arrears."
"I understand that nearly every other accounting firm in the world does it this way but it doesn’t make it right," he explained.
Nixon says the link between write-offs and firms paying their staff per hour should be broken.
"When you price by the hour you are not incentivised to be as efficient as possible and get the job done super fast. In fact, you are directly incentivised to do the task slower", he explains. "The only way forward is to tell the client the price and scope of every single project in advance and in writing."
Nixon lists five key points as incremental to creating profit: firms should scope and price every client project in advance andcommunicate this with clients in writing, adopt a value-based fees strategy, tell clients up front the amount they will charge, and communicate this with clients in writing, adopt a value-based fees strategy, tell clients up front the amount they will charge, and implement an ‘hours budget’ for staff members opposed to a monetary budget.
The combined points create a new business model that is efficient with its resources and people, Nixon said.
Yet only seven of the 103 surveyed firms in Panalitixe benchmarking study had a 100% value pricing strategy in place.
Reassuringly, however, the research shows 54% of oerall client projects were priced up-front and the client had been notified of pricing.
The same 103 firms were asked to set a 12-month goal for 2016 and the average goal for these 103 firms is still 5% written off or an average of £91,539.