When clients of Gordon J. Wiber visit him annually for tax preparation, audits, and financial planning, Wiber offers to sit down with them to ask a few questions about their businesses. Wiber, a sole practitioner based in Vancouver, B.C., says they worry about, "How much money do I have in the bank? How much do I owe in taxes? How much does the company owe me?"
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To answer these questions, Wiber uses CaseWare Scenarios to forecast growth opportunities for his clients using the numbers he has tabulated for their financial statements. Wiber, who has been using the product for six months, says clients are enthusiastic about the financial snapshot the business analysis software provides. It answers the questions that are of most importance to them,
"One thing about the clients I deal with is they certainly understand cash flow," Wiber says. "They may not understand GAAP."
Scenarios has also proved an effective marketing tool. It helps "to further solidify the relationship I have with my existing clients," he says. Performing a business analysis for his tax and accounting clients also differentiates his firm from its competitors, and leading vendors are hoping that many tax and accounting professionals will reach the same conclusions that Wiber has.
A wave of new analytical tools has hit the market in the last two years. Many enable accounting professionals to perform what-if calculations that show how changes in any one financial measurement can impact the rest of the business. Many are also linked to benchmarking statistics to enable business owners to compare themselves to similar operations.
Along with Scenarios, Sageworks' ProfitCents, CCH's ProfitDriver, and Creative Solutions' recently introduced Financial Analysis CS are just a few of the software products that take a financial statement and perform a business analysis that can lead to new engagements for the accountant.
But just how interested are clients and their accountants in using these tools? And how interested are clients in paying for them? Like Wiber, many firms do not charge fees for the analysis. Instead, they use the software to point out areas in which their services can be used to improve their clients' operations.
"The firms I am talking to all like the concept," says Tom Davis, owner of T.C. Davis & Associates of Valdosta, Ga. "But they are telling me that the verdict is still out."
When Davis asks clients why they want to change CPA firms, they often tell him that their former accountant "didn't call me up and say, 'How about this?' He wasn't pro-active." But when accountants are pro-active and suggest additional services, clients often balk at paying for additional offerings.
Business Analysis Vendors|
"I think the firms are still struggling with how they can turn this into dollars," he continues. Davis, who provides consulting services to other firms, says another impediment is that Sagework's ProfitCents, for example, "still takes a lot of partner time and some expert time to refine before you can give it to the client."
Firms should be able to propose analyses of financial information quarterly, and give the clients written results about the health of their businesses, along with proposing how to improve performance. But for the most part, Davis believes that these applications will be of greater use in selling services to new clients, rather than trying to get old ones to pay for more.
The Accounting Stare
Accountants say it is common for their clients' eyes to glaze over when they are presented with financial statements. The documents, they say, are full of financial terminology that can be intimidating, even for the heads of multi-million dollar companies. That is the case at Roseland, N.J.-based J.H. Cohn.
"Typically, our clients in that range aren't sophisticated when it comes to reading a financial statement," says partner Burt Bierman. "This [business analysis software] is great for our sweet spot of clients with revenues between $5 million to $50 million.''
The firm uses ProfitCents, which derives performance indicators from clients' financial statements. Cohn's accountants show clients which of the dozens of metrics the software analyzes should be reviewed to bring the clients' financials in line with their respective industries.
Within minutes, the software generates a seven-to-10-page document that serves as a financial report that can help a client enhance profitability across a business. "It's like a report card,'' Bierman says.
Armed with the report card, the accountant can sit down with the business owner and discuss how to improve performance in each area flagged by the report.
In Canada, Wiber says he is more pro-active with his clients using what-if's to telegraph future growth as opposed to just being a scorekeeper tracking their past performance.
"This gives me a chance to be more dynamic by showing them how to increase their cash flow," says Wiber.
For example, Wiber cited a client that wanted to increase cash flow. With the client by his side at the computer, Wiber used Scenarios to calculate the impact of increasing inventory turns from 2.5 times a year to 3 times annually, while reducing receivables from an average of 45 days to 30 days outstanding.
The longer it takes to collect receivables means someone else is earning interest on your monies, says Wiber, while turning over inventory more quickly should increase the cash flow.
"I can show them how to generate additional cash flow,'' Wiber says, "but I can't show them how to generate sales."
In the six months Wiber has been using CaseWare Scenarios, he has seen a surge in recurring visits from his existing clients. More than 10 percent of Wiber's clients visit him more frequently now that they can receive analyses of their most recent numbers.
"Within five years, I don't think you'll be able to be an accountant and not provide this service," he says.
ProfitCents, one of the first products in this field, was launched in 2000 to perform diagnostic analysis to assist accountants in making projections and setting goals for their clients.
"We're trying to make projections easy so you don't need to be a CFO to use ProfitCents,'' says Brian Hamilton, chief executive officer of Sageworks.
The Raleigh, N.C.-based firm's Web-based benchmarking analysis tool is priced according to the size of the firm and ranges from $695 for a sole proprietorship to $25,000 for one of the Big Four. The average installation is about $1,800 for a 10-person firm.
The business analysis software takes into account and factors ratios, trends, and industry comparisons as part of the assessment. Accountants advise their clients about which areas they should focus on. And the accountant can help with the business-critical step of formulating the clients' goals.
A CD-based product, Accpac's Comprehensive Financial Optimizer, identifies those key performance drivers, and allows an accountant to construct goal seeking, forecasting, and what-if scenarios.
"It allows an accountant to bring a financial statement to life,'' says Geni Whitehouse, vice president of product management for Accpac's Advantage Series. "As a profession, we can tell clients a lot of detail about what happened yesterday. If they ask us about tomorrow, we're stuck."
CFO, by Pleasanton, Calif.-based Accpac International, costs $1,000 per user plus an additional $180 annual fee. According to Whitehouse, CFO is not designed to be industry-specific, but the terminology can be changed to reflect an industry and not alter the calculations.
Very similar to CFO is Profit Driver from CCH Tax & Accounting. It's very similar because both products are based on iMatrix, an Australian tool that the two companies have licensed for use in the United States. The products, obviously, have similar goals, although they have been customized by the two vendors. Both see the products as a way to strengthen account-client connections.
"We felt there was an opportunity for our customer to further their relationship with their clientele," says Stuart Gill, a CCH product manager.
Gill says that one client using Profit Driver was able to generate additional revenue of $100,000. That would be a sizeable return on the investment since the product starts at $2,250 annually for one user up to $4,750 for a network of up to three users at one time. There is an added $750 charge for each additional user and a maintenance charge after one year equivalent to 45 percent of the catalog list price.
CaseWare Scenarios allows the accountant can do as many "what-if" scenarios utilizing the 74 data points encompassing key performance indicators.
"It is important to show the client the relationship between the numbers,'' says Dwight Wainman, chief executive officer CaseWare International. "CEOs are focused on those parameters that drive their business and drill down from there.
Among the key performance indicators it analyzes are sales, research and development, gross margins, market penetration, and currency exchange rates.