Compliance is the Grim Reaper of Accounting Firms
IMGCAP(1)]Progressive accounting firms seek consulting opportunities so their firms can take advantage of more lucrative advisory service offerings.
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.
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 Associates 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 Group report on what small and midsize businesses 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 compliance services:
1. Firms 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 client’s unique financial needs, issues and opportunities without charging 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 client’s 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 insights 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 of a new way of doing business is much easier to reach. CPAs and growth consultants who have made this transition, as well as niche technology solutions, can help your firm succeed from the beginning.
Zach Meyer is a marketing manager at Sageworks, where he is in charge of researching, monitoring and writing about issues and trends of interest to accountants.