Most firms would like to add another zero to the annual fees paid by their top 100 clients. Adding additional advisory services will keep clients happy and increase fees. To some this sounds impossible and they may immediately resist what is transpiring in the global business world.
According to a study by KPMG LLP and HfS Research, a leading analyst authority on global business operations strategies, finance and accounting business process outsourcing services will grow at a compounded rate of 8 percent annually through 2017.
Outsourced accounting services, business process outsourcing or management advisory services are all terms that firms have utilized to increase services. The trend in business is to "mesh" or "source" in order to:
- Pay for what you need, when you need it;
- Experience fixed-fee pricing;
- Access broad-based resources from a bench of talent; and,
- Experience convenience and collaboration through a Web-based platform.
All industries, including accounting, go through various stages, starting with emerging, growth, status and depleting phases. Twenty-five years ago, most firms did some sort of write-up work that included services ranging from general ledger, payroll and accounts payable. They may have utilized a more sophisticated name such as financial reporting. These services became commoditized due to the personal computer and software like QuickBooks in smaller businesses. Another cycle has occurred in our industry due to technology, scarcity of talent and the desire by business owners to "mesh" or "source" these services due to the economics. In-house systems are expensive to maintain and staff, and often are under-utilized.
The Internet or cloud, as the industry refers to the new technology, offers a collaborative platform that is much cheaper, better, faster and easier. Even Intuit, an industry leader in small-business software, has been challenged. Their desktop software, QuickBooks, runs in the Cloud (hosted) via emulation and their QB Online version is not as feature-rich as their desktop software. They have just announced a focus on online services and an interest in partnering with the top 500 accounting firms. Some might say Intuit did not invest early enough in new technology. While you cannot contest their market share, accounting firms should select a platform that will enable them to offer collaborative services at multiple levels in order to benefit from this growing trend. Those levels and a few examples of services are:
- Level 1: Transactional services (bookkeeping, tax returns and financial reporting).
- Level 2: CFO-type services (financing, budgeting, cash flow and data analytics).
- Level 3: Planning (strategic, succession, technology and talent development).
Most firms have done a limited amount of Level 1 services in the past, but have not been as profitable due to issues like inadequate bookkeeping skills at the client's office, version control (multiple versions of software), licensing and hosting requirements, lack of integration of applications, file transfers, and the timing of year-end corrections and adjustments for tax reporting.
Firms are challenged to stay informed and utilize platforms that meet the needs of their clients. The leading platforms we see firms using today are AccountantsWorld, Bill.com, Intuit, Intacct, NetSuite, Sage and Xero. This is a global market and development will continue at a rapid pace.
CPAs should not discount the importance of the ecosystems surrounding these leading platforms. You may also be surprised to learn that reporting tools, dashboards, work papers, workflow, project management and CRM are all available. Development in the ecosystem is at an all-time high. Why? Simply because there is less friction in the cloud and developers are able to develop applications that will integrate accurately and easily, reducing the number of databases most firms have struggled with in the past. The pressure is on for software developers to open their proprietary databases. Many of these platforms are coming from outside the U.S.
Firms that are providing these services through a variety of cloud-based platforms are reporting some interesting findings:
1. Clients are increasing services at all three levels and readily accepting value-creation agreements with payment terms that improve or eliminate firm issues with accounts receivable and work in process. Most firms are assured payment by ACH on the first of each month or work stops.
2. The client's books are accurate and timely, which reduces the time required during the traditional busy season for tax preparation and other reporting. With accurate financial information, it is much easier and faster to deliver CFO and planning services. A CPA's involvement in the production processes is generally more efficient than trying to correct errors at a later date to ensure that the information is substantially correct. This is a basic principle of Six Sigma - drive out errors early and at the lowest possible cost.
3. Bill payment and payroll can be directly integrated into the general ledger, allowing firms to provide the services, source the service, or allow clients to utilize the available tools in an integrated environment.
4. Client referrals are increasing in various industry niches such as medical, not-for-profits, churches, real estate, property management, hospitality and service industries. Interestingly, most firms admit that they "fall into a niche," rather than plan for a niche or market segment.
5. Clients appreciate the reduced investment in technology infrastructure, the security of a system hosted in the cloud with offsite backups, and access to a professional bench of resources.
6. The ability to integrate affordable systems like CRM, project management, workflow, and inventory/point of sale brings tools to small business that only larger businesses could afford.
7. Firms experience an increase in profit margins over their old processes and systems. Once a solid team is developed, the revenue per full-time equivalent increases rapidly and above that of traditional accounting services.
8. Firms are able to attract and employ remote workers who only need a browser and Internet connection. This type of arrangement works best with experienced personnel.
9. The more services a client utilize, the longer the life cycle and greater the value of a client.
10. The business model is more like the "Blue Man Group" than "Siegfried and Roy."
The challenges for firms range from leadership to how to package and price these services. The old hours-times-dollars model does not work. Firms must change their value proposition and marketing message to focus on a collaborative team approach where clients have access to as many resources as they need when they need them.
The easiest way to take advantage of these emerging trends, avoid commoditization and make the necessary changes in your firm is to focus on your best clients. That is where the extra zero comes into play. Take your top 100 clients along with their fees for the last year. Add one zero to their annual fees and then brainstorm about the services your firm could offer to provide 10 times the value. Your biggest challenge is taking the time to think about the opportunities and the required changes in marketing, staffing and profitability. Your peers who are transforming their firms to this model are experiencing growth, increased profitability, and the ability to attract and retain quality people.
As Kurt Godel's law states, to understand a system, you must get outside of the system. This may simply require outside coaching and assistance for many multiple-partner firms due to the change from independence to advocacy. Don't be afraid to "mesh" resources for your own firm! Firms will continue to provide both types of services, but the growth is coming from advisory services in most firms. Gaining and maintaining confidence in the new service line is critical. It requires change.
Okay, so you can't add another zero ... you can only multiply current revenues by two, three or four times. Regular client meetings will uncover many new opportunities. Also, don't forget about firing the clients who don't meet your new criteria. They will only take time and resources away from serving your top clients, increasing revenues and profits. Are you too busy picking up $1 bills when you could be reaching for $100 bills?
L. Gary Boomer, CPA.CGMA, is the president of Boomer Consulting, in Manhattan, Kan., and a facilitator of The Producer Circle, a community of accounting firms that focuses on cloud-based solutions and services.
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