Introduction

The reasoning behind funneling free cash flow into Bitcoin and not other alternatives from the perspective of a small/medium accounting, financial and/or advisory business

This isn’t necessarily relevant to all aforementioned businesses, but generally what I have seen from experience. This is also just my opinion on the matter and I would like to get inputs from others with regards to this, even if I can look like an idiot

A critical assumption not to be overlooked, of course, would be that the ultimate owners of the business understand what Bitcoin is and that they believe in it's long term potential as a store of value

Background

Small/medium accounting, financial and/or advisory businesses generally have the following characteristics:

they are human resource intensive: Due to the nature of the services provided, skilled personnel is usually needed to deliver these services to clients. The more clients they have, the more personnel they need
they have relatively high profit margins: Apart from the salaries and related personnel expenditure, they don't really have very high operating costs. They might spend money on advertisements when they are trying to expand and they do have some obvious monthly costs, but the biggest expense, by far, would be the salaries. Employees usually complete timesheets to indicate where they spend their hours working during a week/month and, not precisely but ultimately, that is how the managers and owners determine what to bill the clients. The markup from the cost of the salary per hour to the bill charged to the client per hour is often very large
they are owned by a single or handful of individuals: This is because, ultimately, the responsibility of some of the services they offer (like auditing, preparation of financial statements and certain advisory services) have to end up with an individual and cannot be a company, due to regulation. The person is usually a registered auditor, an accountant or chartered accountant and a financial advisor or similar designation that have to be registered with the relevant controlling body
they tend to retain many of their clients over the long run (assuming they maintain/improve their quality of service): Many of the services they offer are closely linked to trust and having a professional relationship with the client. Over time, a business or individual likes to know that his/her financial affairs are in the hands of someone they can trust. As time goes by, the trust between the client and the firm will strengthen as the firm, hopefully, delivers on client expectations. It can still be broken, but a small slip up from the firm's side wouldn't cause the client to leave and find a new firm that has to start over the whole process of getting to know the client's business and it's particular needs and preferences. It would have to be a major slip up because moving would require some time and effort from the client's side to establish a new, working relationship with another firm

Why them?

When you want to grow your wealth and you also own a business, what choices do you have in terms of where to allocate your free cash flow to do this? There are essentially two choices:

reinvest it in your own business in order to grow said business
invest it somewhere else

Reinvest in the firm

Even though they generally enjoy the luxury of having relatively higher profit margins, reinvesting into their business can be quite tricky:

Let’s say you want to become more cost effective by addressing one of your biggest expenses, which is your salaries. You could spend money on training your employees to be more efficient in rendering their services to the respective clients, reducing the time they spend on client tasks (assuming the training was successful and all they lacked was additional training and not, for example, motivation) so they will collectively have more time for you to take on more clients, assuming you can get more clients. If that works, you still don’t have any guarantee that your employees will just resign at some point, seeing as you don’t control them, taking their skills with them after you might have paid for them to gain some of those skills

You could spend money on marketing to try and gain more clients if you have the capacity, or spend money on increasing your capacity (personnel) along with your marketing efforts in the hopes of gaining more clients. In doing so, it’s important and difficult to balance the additional growth with retention of your existing clients, because if they sense that they’re not getting the attention they used to get then they just might make the effort to find another firm, seeing as some clients can lose the sense of trust and professional relationship easily (some businesses that make use of small/medium firms often do so because they think that these firms will go the extra mile for them, which large firms normally only do for really big clients, paying millions in fees)

Don’t get me wrong, if a firm is driven to grow in the market then it’s very much possible if they put their resources and efforts to work, but because of the ownership structure and regulatory environment mentioned earlier, you will have to start selling equity in your business if you want to expand rapidly as you can only do so much and take on so much responsibility that would not dilute your reputation or add a risk of diminishing quality with regards to the work that you do for your clients, and many owners don’t really want to dilute ownership in their firms. So my belief is that these businesses should grow organically, depending on the number of clients that would like to make use of their services. In other words, if your services are in demand and your current clients’ needs are met, allocate resources to expand, but don’t force expansion by going on ‘n hiring and marketing spree when you might get some interest from potential clients that aren’t really willing to commit, might cost a lot of time to get the client set up or neglect your existing client base

In short, reinvesting your free cash flow into your business could be difficult, risky and uncertain when you consider a small/medium firm’s business model and their operations. The owners mentioned earlier also tend to be more risk averse. That, together with the fact that you make comfortable margins, doesn’t make it seem like risky market share plays are the right choice for many

I have also seen first hand the issues caused by large firms that try and gain as many clients as they can in ‘n short period of time, because I used to work for one. Your clients get agitated with the teams because they feel that the firm doesn’t allocate sufficient resources to the task at hand, they negotiate your fees down to the point where those nice margins don’t exist anymore just because you refuse to not win over the client and, of course, the quality of services can take a hit because teams are under pressure to meet deadlines. Considering reputation is a big deal in this industry, it may add heavily to your risk profile

Invest it somewhere else

Apart from the usual reasons why Bitcoin is seen as a good place to store your free cash flow (like portability, ownership, accessibility and sovereignty), the reason I think it will work well with this business model is because of the seemingly healthy financial relationship it would bring into the equation

The value that the firm creates as a business would be stored in something that should retain it’s value better than any alternative, and seeing as the owner(s) would have full control over the Bitcoins, they can access it, if necessary, for expansion at a later time. What if the price isn’t favourable at that point in time and they would have to sell at a loss to fund their expansion?. Assuming the high margins and some free cash flow kept aside can’t fund everything, your business should look very good on paper for banks. High margins, steady and consistent income from various clients (so your income is, to a certain extent, diversified) and you will have your Bitcoin that they might be willing to accept as collateral in case you can’t make your payments. So, I think, getting a bank to finance part of your expansion wouldn’t be too hard, so by moving free cash flow into Bitcoin you’re not taking expansion off the table, just changing the way you would do it in case you want to expand while Bitcoin is on a downturn

Bitcoin will also compliment your already somewhat sovereign business, seeing as your income is derived, ultimately, from your professional skills, which follow you where you go. Now your stored value can also follow you with much more ease than any alternative

Conclusion

This method won’t suit everyone, of course, but for someone running a firm that likes to focus on delivering quality, strengthening relationships with existing clients, doesn’t want to dilute a lot of ownership in his/her business, prefers to grow into the market rather than “take” market share, tends to be more risk averse (notwithstanding the risk of owning Bitcoin) and values increasing his/her sovereignty over time, allocating free cash flow to Bitcoin might be an appropriate business plan