In his recent article, "What are you doing about the profession's issues?" (Accounting Today, June 20-July 10, 2005, page 8), August Aquila does a wonderful job of outlining current internal and external issues for accounting firms to consider.
However, I see outsourcing quite differently from Mr. Aquila. His article indicates that outsourcing could be a "tremendous danger," because firms would lose a core competency. I view outsourcing as a tool to be considered by firms to combat the commoditization of tax services and to bring quality services at a competitive price in the marketplace.
In the same issue, Gary Boomer noted in his article, "No false alarm: Sweeping change is on the way" (page 26), that sweeping changes are coming to the accounting profession, whether we are ready for them or not. He speaks of a global marketplace and the continuing commoditization of core competencies. Mr. Boomer suggests that it is time to look at what is going on outside of our offices, as well as inside. I strongly recommend reading the article if you have not. It is important to realize that as products become a commodity, the price that the public is willing to pay usually decreases.
Tax services should remain a core competency of the accounting profession, especially in smaller firms. However, core competencies should not include the shuffling and organizing of paper and data entry into a tax program. The ability to provide tax services allows the local firm to build relationships that could then be leveraged into other value-added services to create the ideal firm of the 21st century. Mr. Aquila rightfully points out the need for partners to obtain skills in areas other than tax and accounting. However, I do not believe that outsourcing, if it is done wisely, will eliminate a firm's core competency in the tax area.
Outsourcing can be the tool to accomplish these desired results. Outsourcing has created new and improved workflow systems that reduce the amount of professional time and drive the errors out of the process at a much earlier stage, rather than on final review. My view would never be an outsourcing of the entire tax function. It is an outsourcing of the "labor" of doing the tax work.
In Running Money, Andy Kessler stated, "We think, they sweat." Our firms must remain the keepers of the "thinking" processes of our tax practice. In America, we invest in companies using intellectual capital like Microsoft and get high rates of return. Flat panels and many other electronics are made in China with low profit margins, and then we purchase them affordably in the U.S. Would you rather invest in a business that thinks and has a high rate of return, or one that sweats with low margins? Which business will your firm choose to be?
To be the thinkers will require us to stay up to date on tax law changes, planning ideas, and the like. Outsourcing will not replace meeting with the client to review his situation or making tax-planning recommendations to him. These are the services that clients really want to pay us to perform, and these solutions enhance our relationships and bring more referrals to our firms. Therefore, we would never give away the prime portion of this work. By shifting to more thinking work and less sweating work, our margin should be higher and our rate of return within our firm should be higher.
To accomplish this, we must re-engineer our processes.
Henry Ford built the assembly line, and for 70 years the process dominated the auto industry. Japan re-engineered the process and produced a better product at a better price. American auto companies, so stuck in the "old way" of doing things, lost trillions of dollars and their No. 1 spot globally.
The Swiss dominated 90 percent of the watch market and were offered the quartz chip. They turned up their noses at it, and eventually lost nearly all the market that they had once dominated.
Outsourcing has created new and improved workflow systems that reduce the amount of professional time required and drive the errors out of the process at a much earlier stage, rather than in the final review. Several trends will continue to have an impact on firms and their tax practices.
1. Transactions will be captured digitally (IRS Forms 1099, W-2, 1098, K-1s, etc.). This information will be captured directly into the return, either by the Internal Revenue Service on simple returns, or by the paid preparer on more complicated returns.
2. Digital documents are rapidly replacing paper in most businesses. The firms that outsource are ahead of most in the document management process. Many accountants are resisting this reality.
3. Most tax data won't be stored at the firm in the future. It will be stored at secure data centers, not in an insecure file server in a CPA's office
Outsourcing requires a paradigm shift to a new way of viewing your firm - from a sweatbox of countless hours, to a firm that thinks and recommends. A firm not just mechanically applying the law through data entry into a tax program, but a firm that advises clients on tax return issues. We must accept the challenge of re-engineering our processes to remain competent in tax law, but not continue to be the worker bee of the compliance products associated with it.
Staffing is always among the top two or three issues facing firms. Outsourcing may also be a solution to staffing problems. Younger people do not want to work 70- and 80-hour weeks. Talented people either are not coming into the public practice or are leaving it quickly because they perceive it to be time-intensive with little reward. Outsourcing can be a path to fewer hours for staff, creating the better lifestyle that they are demanding.
Finally, outsourcing could lead to a better lifestyle and quality of life for firm owners as well. Is the old way the only way? What would you do with extra time in your life - fish, golf, spend more time with your family? Perhaps you could allocate some of it to getting a new core competency other than accounting or tax, as Mr. Aquila suggests. Then you could sell those services to your firm's existing tax clients. The fees for those types of services are generally higher, and the work is more fulfilling.
Thinking in new and different ways is how I decided to become a Registered Corporate Coach, in addition to being a CPA. I am now a strategic planner doing more consulting work, rather than just compliance work.
As I see it, there is only one real danger with outsourcing, and that is to discount its possibilities and ignore the potential benefits to your firm.
John C. Gautreau II, CPA, RCC, is a partner with The Gautreau Group LLC, a CPA and business advisory firm in Baton Rouge, La.
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