• / Free eNewsletters & Magazine
  • / My Account
Home>Practice Management>Practice Builder>The Added Value of a Paperless Office

Related Content

  1. Videos
  2. Articles

The Added Value of a Paperless Office

Increase your firm's value while adding efficiency.

David J. Drucker, 10/22/2009

When I was looking for a buyer for my planning practice in 2001, I narrowed the list of suitors to four. The one I was leaning toward selling to discovered that I was running a completely paperless office and immediately and substantially increased his bid. Read on to find out why.

Tim Welsh, a consultant to Laserfiche, the Long Beach, Calif., company specializing in document management solutions for financial advisory and other professional businesses, says increased regulatory compliance will drive more firms to get a better handle on their documents. "Everyone knows about the scandals on Wall Street and financial products that have failed. These are leading us toward a 'compliance tsunami.' "

Historically, says Welsh, the SEC has conducted audits of advisory firms every five to seven years. "Most advisors could skate through on compliance," says Welsh. "Now what we're seeing is the SEC looking for a firm's ability during an audit to quickly provide requested documents." And the SEC is considering subjecting to surprise audits not only firms that take custody of client funds, but those that simply take their management fees directly from their clients' accounts. "Advisors are looking at at least a 10% to 20% increase in compliance costs," Welsh estimates.

A 15-year-old firm, let's say, probably has file cabinets everywhere, he says. "The SEC says 'show us ABC and XYZ documents,' and it's difficult for the advisor to produce that information without having the right technology in the back office to be able to do so." The only way to meet these demands, Welsh says, is to put things in a digital format.

Of course, creating a digital document management system will not only help advisors be more compliant, but will effect overall increases in efficiency--but not all by itself. "Advisors need a solution comprised of document management and workflow control. Managing workflow creates 'audit trails' that answer questions such as who accessed a particular document and what changes were made to it." This enables the advisor to demonstrate to the auditor that he has control of his business.

On example of a document management system coupled with a workflow solution is Laserfiche's "Avante" product. Avante is intended to be a system for integrating the advisor's digital documents into every step of his business processes that is affordable for all sizes of advisory firms. Pricing starts at $1,500 plus $500 per named user license.

Laserfiche describes Avante as combining its own document management solutions with business process management. In other words, where document management alone gives one the ability to digitally capture and distribute documents, business process management is the automation of the routing process for such documents as they are used throughout the business.

The benefits of document management go beyond even regulatory compliance and efficiency, though. Welsh says that the benefits of a document management system also include added security, a means of disaster recovery and business continuity, enhanced client service, and reduced physical storage costs.

But the hidden benefit of document management systems that is rarely discussed is the manner in which they increase business value. Welsh provides an example based upon statistics collected via a Laserfiche client survey: the typical advisory firm not employing a document management system spends 42% of its revenues on overhead resulting in a 14% profit margin. Firms running Laserfiche, on the other hand, enjoy overhead reduced by 9% to 33% and a profit margin of 23% (an almost doubling of what's behind all business valuations).

Taking the example further, if we use a multiple-of-cash-flow approach and assign to Emerging, Established and Enterprise firms, respectively, multipliers of 5, 7, and 10 to increased income realized from document management efficiencies, then these small to medium to large firms can expect valuation increases of between $200K and $3.4 million.

Getting back to my own practice, what did my bidder see that other bidders were missing? Think about the typical firm using paper documents. It has a file room filled with file cabinets. The file cabinets probably contain some form of accordion or hanging files to accommodate client documents. When information is needed from the files, the file must first be located. It won't necessarily be in the file cabinet; if an advisor in the firm is working with the file, it may be on his desk--or in the conference room, or on the president's desk, or just about anywhere.

Once the file is located, the document within the folder must be found. Documents are often misfiled or misplaced, so this search tends to be labor-intensive, as well. Once found, the document is often copied, faxed or otherwise distributed in some manner. Or, it's being looked for in order to answer a client's question or address his concerns in a client meeting.

Compare this process to its digital counterpart. The document you want can be found almost instantaneously since searches occur not physically, but by keyword. With the right system and a uniform method of filing documents adhered to by all members of the firm, advisors can often answer client questions without having to call them back and without playing phone tag. This, alone, is a huge efficiency boost, not to mention better client service. Coupled with that benefit are the considerable savings in rent (no file room needed), labor (photocopying and faxing are replaced by scanning and e-mailing) and compliance (the existence of an audit trail satisfies auditors' need to see a "paper trail").

So if you'd like to increase your own practice's valuation (even doubling it in some cases), not to mention enjoy the overall efficiencies associated with digital document management, check out the various solutions available to you from companies like Laserfiche and its competitors. At the turn of this century, the paperless office was still a nice-to-have solution; now it's a must-have solution.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.