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Some firms do succeed in growing or buying these practices and in this article I would like to summarize some of the reasons I see for these successes and failures.
Many firms are very comfortable offering the same or similar traditional accounting services that we expect from the typical CPA practice – audit, tax, occasional consulting, write-up or managed accounting services. There are risks with adding any new service, including new but traditional CPA services such as accounting consulting.
Gaining efficiencies takes time, subject matter experience, quality staff, business expertise, and clients. And when services are not delivered according to client or firm expectations, most professionals can expect lost revenue, lost clients, and lost credibility.
The further accounting firms move away from their expertise levels, the higher the business risks. Therefore, firms need to evaluate their confidence and comfort levels with potential technology offerings. These include ERP and accounting solutions, customized financial system reporting or front-ends, network consulting practices, and other industry specific software offerings.
The rewards of providing technology consulting services can be significant, especially at a time when most firms are actively looking to broaden and differentiate their businesses. For example, with my practice I do see different business cycles from the rest of the firm and this has generally been a plus.
Professional service technology firms provide implementation and support services using a combination of time and material and fixed-fee invoicing and CPA firms are very familiar with delivering these types of professional services. With technology consulting needed across clients of all sizes, the firm’s existing clients can be reasonable starting points for business. Also, professional services can be billed on monthly cycles which can be similar to the firm’s current processes.
If the firm is considering delivering financial system services, for example, some existing staff may have an appropriate background or interest and can used for some of the needed implementation or support services; this is an advantage in growing a practice.
There are also real differences between a technology and CPA practice. Risk tolerances are higher and need to be higher for actual implementation and technology support services. I am making a distinction between technology advisory services, such as developing strategic technology roadmaps for clients, and hands-on technology support and implementation, which is the focus of my practice.
Technology providers generally need to be comfortable with more recent technologies than the traditional accountant, who is business application driven rather than technology driven. In fact, my experience shows that accounting staff are generally happier with older technology as they tend to have lower risk, lower training needs, and lower costs.
Technology staff actually wants to learn and be challenged by the latest offerings, even beta versions of product and technology practices are generally influenced and trained by their vendors to offer new products and services. At the same time, technology publishers need to sell new products to generate their revenue.
To achieve higher sales, software publishers are very much marketing and sales organizations and they want their partners to be as mature in their sales expertise. This is a significant difference between the CPA and technology practices.
In my experience, a successful technology firm has a much stronger sales and marketing level of expertise than the traditional accounting firm. Even the larger regional and national accounting firms can be less sophisticated in their sales and marketing expertise than much smaller technology firms. This impacts the cost structure for the technology practice with additional sales and marketing staff or costs that may not be needed by the rest of the firm.
The traditional accounting firm is more hierarchical than the technology practice. I find that technology services require a more collaborative working relationship than the more structured accounting staffing hierarchy. We go to the technology expert that can solve our problem – not just to the manager of the group and this affects how the teams work and how newer solutions are developed.
The Bottom Line
Most CPA firm clients are well established and owned by certain partners and practices. Since the sales side of the accounting firm is generally based on referrals, long-term relationships and well established connections, accountants are very, very reluctant to take much risk with their client base. Factoring in the time and selling expertise needed to grow a technology consulting practice must be considered when developing forecasts and business plans.
I have reviewed some similarities and differences between the traditional accounting firm and a technology practice. To make this work, I believe the firm needs the following:
- Strong support by upper level management for the midterm – generally there is no short term explosion of technology revenue.
- An experienced technology team & team leaders – building this expertise in-house takes a lot of time and some mistakes.
- An understanding for needed sales/marketing sophistication, including additional costs.
- Early wins – catching the wave of a growing business cycle can help.
- Strong technology vendors – they can help with leads and products.
If the practice is successful, it can bring a number of advantages to the entire firm. This includes an enhanced firm reputation, a profitable practice that sells products and services -- frequently at higher billing rates -- a source for additional clients new to the firm, and opportunities to leverage staff with newer skill sets. For my firm, I can say we have found a technology practice to be a welcome addition to our overall service offerings.
Seth Zarny(firstname.lastname@example.org) is the technology partner at Washington, D.C.-based accounting and consulting firm Raffa P.C. and heads up the firm’s technology consulting practice. Prior to joining Raffa in 2004, he spent 19 years as a principal with Information Resource Associates, a financial systems and technology consulting firm which was sold to EYT, formerly Ernst & Young Technologies, in 2003. He has been active with financial system implementations and software development projects for more than 20 years and has managed the implementation of a wide variety of technology projects.