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It can be tough explaining how to improve performance to a business owner who doesn't understand basic terms. "I once spent 20 minutes with an individual talking about improving gross profit," says Richard Rackers, a partner in Rackers & Fernandez of St. Peters, Mo. "At the end of the conversation, he commented that 'Our gross profit would be a lot better if we could figure out how to get the overhead down.'"

The joke, of course, is that changing overhead expenses doesn't alter gross profit, which is sales minus cost of sales. But for accountants, getting clients to understand these basic concepts can be difficult. And that means the ability to analyze business performance and recommend how to improve it can also be tough as accountants and other financial advisors find themselves explaining terms and concepts that the accounting community knows cold.

However, there's a payoff for the customer who is willing to understand the terms and follow the practitioner's advice.

Partner Insights

"What I tell folks is that we are looking for the smallest incremental changes to get the biggest bang for the buck," says Rackers. For many companies, he starts looking at cash flow because "you can operate for years without profit, but you can't operate a day without cash. We are looking to narrow down those major areas that will give us the biggest improvement in our cash flow."

To start the process, Rackers utilizes Accpac's Comprehensive Financial Optimizer to analyze a client's business, loading the balance sheet and profit and loss statement into the software. Once that is accomplished, the data can be manipulated to show how changes in one figure affect the rest of the financial statements. That could include increasing sales, and reducing overhead or days outstanding in receivables.

"As we make the changes, we are looking to see what those activities will predict," he says.


But analyzing the data is a bit like using a thermometer. The device can determine that the patient has a fever. But simply knowing that doesn't stop the fever. Someone has to take action and that's what Rackers has done, utilizing the findings to prescribe a course of action that will accomplish what the software suggests is needed.

Rackers says he tells clients that, "We are going to make all these changes. We are going to go through all of this hassle. We have to sell change to employees. We are going to be doing all this for the organization. Let's make sure we like the picture."

That course means assembling a plan of what the client wants to accomplish that includes changes in activities, processes and procedures "and we are going to predict what the impact of changes will be," he continues.

For Rackers, CFO is one of a number of literacy tools that help him snare high-value engagements. And it's one of a number of financial analysis products that hit the market in the last three years with the goal of enabling public firms to provide services with a more consultative bent.

The packages' approach is fairly consistent. Thomson Tax & Accounting (formerly Creative Solutions) fields Financial Analysis CS and CCH markets Profit Driver. All enable practitioners to perform what-if calculations by changing numbers within financial statements and then quickly recalculating how the changes affect other entries. All provide benchmarking data so that clients can see how their financial performance compares against similar businesses.

And all have been less successful than the vendors anticipated.

"CFO is a wonderful tool," he says. "But there are a whole bunch of accountants that have it in their hands and they know what to do with it," says Rackers.

Teresa Mackintosh, vice president of marketing for Thomson Tax & Accounting Professional Software and Services, says that accountants need to find a way to make these applications part of their business process.

"I think the problem with most practitioners is finding the time, making it part of the process," says Macintosh. "They have to consciously think of it. They are busy with audit changes and tax returns and extended deadlines that don't end."

Mackintosh says that applications such as Financial Analysis should be the kind of extra services that accountants can provide at higher margins.

"It gives them opportunities in consulting engagements," she says, continuing, that as far as the product's adoption, "It is the upper echelon of the profession that is providing that data to the clients."

Looking Good, But

For many firms, analysis software has been like a trinket that sits on the shelf. It looks good. But it doesn't get used. And that has less to do with the software than it does with the accountants, says Mark Gamble, product manager for CCH's ProfitDriver.

"What we are finding out is that the product sells and it shows great. Accounting firms aren't that sophisticated in marketing themselves to show its value," Gamble says.

Like Accpac and Thomson, CCH has firms that are putting the software to good use.

"We have some firms that have increased that are pulling in an extra million or two just from these services. It works. It's proven," he says.

One of those firms, Canada's Myers Norris Penny, is making a lot of money through the use of ProfitDriver, although it won't disclose the amount, which not a great amount at a firm with about $185 million in annual revenue. Nevertheless, it's an important tool.

"We use it as a diagnostic tool and it helps clients stay on track. The tool is tremendous in their ability to show right before their eyes, the sensitivity of changes," says Mark Brown, director of business consulting. Brown says that about two years ago, the firm decided to emphasize services that involve improving clients' financial performance.

"Two years ago, we started to select people out of the rank and file accounting area and train them. The focus of training is business consulting advisory skill sets," says Brown.

"ProfitDriver is a part of it. The way we look at things is we examine what is going on with customers, operations, and whether they have people who are capable of doing the proper job. Financial performance is a result of other areas doing well."

Management consulting is one of the firm's important lines of business and services encompass performance improvement strategies, including analysis of business processes and organizational structure. It has actively marketed these, including a seminar in March 2006 entitled, the "Power of Transforming Your Business," that was accompanied by the message that businesses should get a spring tune-up. The company also offered the more intensive 10-month program, "Power of Transformation," to provide one-on-one assistance in changing their operations.

Like Rackers, Brown says troubles often stem from the owners' failure to understand business fundamentals and letting things get out of control; for example, not reacting to price increases on purchases and allowing profit to slip.

The analysis begins with a business health questionnaire that asks a series of questions covering a wide variety of business issues. The firm works with clients to understand how processes work and to assess organizational morale. And it tries to educate the staff on business processes.

"They may have financial people. But it's usually the minority," says Brown. "They may not have the guy in the field understanding why they need all that information to produce an invoice."


The problem areas that Brown finds aren't surprising.

"There are usually working capital challenges. There is quite often too much debt," he says. Sometimes, companies will grow at the expense of profitability with a large increase in sales generating the same or less profit.

But Brown's organization is not the norm, and all of the vendors that have marketed these analytical tools with great expectations, still believing the products have great potential, are looking for ways to spur account interest.

The Tie That Binds

Using analytical tools to provide new services can help hold clients closer, notes Terry Rogers, a CPA who uses Thomson's Financial Analysis CS in his own firm and in his role at Smith Newspapers, a regional newspaper chain.

Rogers says that's following the advice of consultant Gary Boomer, who says that "the more tools you can give to the client, the less likely they are to leave. If you can get up to five, you have about a 90 percent retention rate."

For Rogers, whose Advanced Accounting is based in Fort Payne, Ala., the software has been a critical tool that enables clients to get loans approved.

"I am able to go to the bank and show how [the client] compares to industry trends and how they compare to historical information. Most bankers are not used to seeing any kind of business plan."

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