Last month’s article sparked a great conversation about how we, as accountants, can support our small business clients. Whether you think cash flow trumps tax obligations or vice versa, small businesses can benefit from our input. Further, it is not only my experience that a strict compliance focus is not always the most useful and valuable thing we as accountants can be doing for our SME clients – other readers were saying the same thing.
What then can we do for these clients to really support them as accountants? I previously suggested we could buy them time with asynchronous accounting processes. Here’s another idea. One of the biggest challenges for even the most successful SMEs is navigating the swing between feast and famine – either having too much work or too little at any time. The result – a lumpy income stream – speaks directly to the cash flow and tax obligation challenges discussed in the previous article’s comments.
A lumpy income stream directly contributes to the constant balancing act between setting aside enough money for HMRC every month, investing in the business to make it more sustainable (and grow it, if that’s the owner’s ambition) and enjoying the fruits of their hard work by buying that new car.
Is this not a challenge we can help our clients with? Can we help them smooth out lumpy income into something that is more predictable, allowing business owners to plan better, worry less, easily meet their tax obligations and grow their businesses?
The rise and rise of subscription services
To find a solution, let’s look at this from the point of view of Pete the Plumber’s customer. Don’t they face the same problem, but in reverse, when it comes to their plumbing bill? While routine plumbing maintenance can be planned and budgeted for, emergencies and bigger investments could be devastating. The solution? Offer these customers the option of making regular monthly payments that cover a certain level of service over the year. Now, they can plan their annual spending and rest easy that they are covered in the event of the unexpected.
Does this sound like a subscription service? That’s because it is and is something that most of us are very familiar with in other aspects of our lives and businesses. For instance, when last have you bought software? As in received a box with a CD-ROM and downloaded the software, which you then owned outright and were responsible for maintaining and upgrading until it reached the end of its life. I’m pretty sure this now sounds like one of those cute things we used to do, in the times when we sent faxes, and had landlines on our desks and a franking machine in the office.
Software-as-a-Service is commonplace today
Today, we don’t think twice about signing up for a monthly or yearly payment for our software, downloading it from the internet, and probably not even realising how often it is updated to keep us safe and to offer us new and optimised services. We no longer own the software, but that’s OK, it’s not an appreciating asset and we need it for what it does, not what it’s inherently worth. The other thing is that we can increase or decrease the number of active users we have, so we do away with paying for more licenses than we need.
Subscriptions for everything
It’s not only software and other IT-related services like cloud storage or cybersecurity though that can be sold on a subscription bases. It’s how we pay for our grocery deliveries, movies, books, pet food and taxi rides. Monthly subscriptions for convenience and to save money have become so commonplace for things that we would never have dreamt we’d subscribe to that we don’t think about it anymore.
Let’s flip this back around again. Is this an option for Pete the Plumber? As well as Sparky the Electrician, Les the Landscaper, Sam the Hair Stylist, and any number of small businesses, perhaps even yours? I’d say so.
A new SME business model
The benefits of having even part of your income locked in with a subscription service start adding up. By removing some of the lumpiness from their income stream, small business owners can start planning and investing. Perhaps by buying new equipment that will enhance their service offering, or by hiring more people to grow the team and take on more work. It also bakes in a level of loyalty with their customers and grows a relationship with them. They can offer these customers a fast-track, or preferential treatment, that will continue to grow the relationship.
Services are becoming more digitised
This business model starts becoming more feasible and compelling when you consider how many typically manual processes have become digital and connected. From irrigation systems to central heating, solar power systems, and even your vacuum cleaner and fridge. This digitisation of “everyday” services allows us to operate them from anywhere, anytime, just by using a mobile phone.
The means that service providers can offer their customers new capabilities, such as monitoring, management and optimisation. And these types of services naturally lend themselves to being offered on a subscription basis.
You might be squinting a little by now, thinking that this is never going to land with your SME clients. I think we should consider Ray Backler’s advice in the comments of the previous article and consider the option of a little “gentle education” to take our clients on this journey, which ultimately results in them “sleeping easier at night”. And like I said, this proposition might very well be true for your business too – what better way to learn and gain experience?
As published in AccountingWeb - November 2023