Stuck in compliance: The Grim Reaper of accounting firms
Progressive accounting firms seek consulting opportunities so their firms can take advantage of more lucrative advisory service offerings. Recent discussions with industry thought leaders and CPAs that are providing advisory services have highlighted a key benefit to this move. Often the amount of time taken to complete certain advisory services is less than traditional compliance engagements that would yield the same return. However, there is a lot of fear holding firms back from expanding their services.
In recent ProfitCents webinars, attendees were asked what barriers were holding their firm back from offering advisory services. Of the options listed, 31 percent marked not having enough time to implement these services as their main barrier. Likewise, 22 percent marked that they were afraid of their fees being too high. These results, though not shocking, are an insight into ways that accountants can overcome these barriers. Yet, if a CPA never portrays the benefits of advisory services or asks their clients about them, then any fear a firm has about implementing these services is unfounded.
Time has always been one of the most limited resources for CPAs. With the number of tax returns and amount of compliance work that an average firm provides, it’s difficult for accountants to go beyond their traditional role. Ultimately this difficulty in transition is not due to a lack of technical knowledge but to a fear of creating financial instability. As the old adage goes, why reinvent the wheel when the wheel helps pay the bills and keeps my manager/partner/board members happy?
However, the wheel isn’t working any more in the accounting market. A recent Rosenberg study shows that mergers and acquisitions account for 30 percent of growth in the industry, which is up from 22 percent the previous year. This increase shows us that as traditional compliance work has become commoditized, smaller firms; that aren’t able to expand their workload to keep the doors open; must sell and merge with larger firms that can support the amount of compliance work necessary to keep going.
Additionally, a recent Sleeter Report on what SMBs want from their accountants reported that the two most common reasons clients leave their accountant are that they find their CPA is failing to provide proactive advice and that they have poor responsiveness.
These reports highlight two areas of concerns for firms providing compliance services:
1. Firm’s focused on providing compliance services are finding it harder to stay in business and are slowly being acquired by larger firms.
2. CPAs that engage with their clients solely over compliance work are finding that their clients are leaving in search of proactive advice.
What must accountants do? Katie Tolin, Chief Growth Guide at CPA Growth Guides, points toward advisory services as the future for the accounting industry. “Many advisory services are project-based and that presents more complex marketing challenges than firms have traditionally faced. Firms will need to increase their marketing and use more sophisticated techniques to fill the sales funnel with enough leads to not only replace revenue on annual basis, but to grow it.”
As urgent as this transition is, it won’t happen overnight. Alongside the financial anxieties behind switching over to providing new services, fear of upsetting one’s clients and the possibility of fees being too high also loom over the shoulder of CPAs.
Therefore this change happens slowly as firms experiment with providing financial diagnostics and guidance for clients. This experimentation should occur with two things in mind:
1. Value billing as opposed to hourly billing. Facilitating a conversation around your clients’ unique financial needs, issues and opportunities without billing for your time can lead to identifying more lucrative services than hourly billing could ever provide. Once you have identified an issue, such as relatively low cash flow in comparison to the clients industry or days in inventory that are higher than average; you can begin to serve as a “next step” consultant that can save your client from wasting their resources and harming their business.
2. The importance of gathering insight and solutions that can help you provide the services your client needs. Rome wasn’t built in a day and neither will your advisory practice. Katie Tolin acknowledges, “The more advisory services a firm offers, the harder it is to educate the staff on those services. Cross-selling becomes more complicated, yet it can be successful if the firm dedicates the resources needed.” By dedicating resources to constructing a solid base and understanding of your firm’s advisory practice, adoption and growth to a new way of business is much easier to reach. Making this transition with the use of technology solutions can also help to develop a strong strategy for how your firm positions and provides advisory services.
To learn more about ProfitCents and how to grow your firm with advisory services, watch a walk-through today.