Art of Accounting: Changing business models can benefit small firms
Four recent actions gave me insights into the changing business models of the accounting business:
- PwC purchased GE’s 600-person tax department. This occurred two years ago, but it is representative of similar transactions that are more recent and seem to have become a trend.
- The 459,000-employee Accenture recently purchased a 600-employee advertising agency.
- My firm started a group to do outsourced bookkeeping and CFO services for clients and has grown in three years to 30 staff.
- A young CPA I know wants to quit his job to start his own practice and asked me about how much he would need to put up to get started.
These occurrences piqued my interest and thoughts, especially about opportunities for smaller accounting firms:
The PwC acquisition indicates that businesses are becoming more concerned about concentrating on their core mission and divesting nonessential activities. Also, maintaining a 600-person tax department is costly, needs management and overhead, staff adherence to professional standards, and continual updating in tax laws, IRS and state and local tax procedures and even an HR department. On some level, GE made a decision it would be better to outsource the tax work rather than do it in-house. On some basis, small accounting firms have been doing that forever; in fact, many of their services are outsourced processes that their clients have no desire to bring in-house or do not wish to incur the overall costs of performing.
I believe that many small accounting firms do not factor these issues into their pricing. One reason is their perception of the competitiveness of what they do. I believe that if smaller firms presented everything they do in a way that shows clients how they are being relieved of the burden of managing staff in functions they really do not understand, the clients would see a different value and fees could be greater. I believe this is more in keeping with current trends and should not be treated as a business as usual issue. Think about it!
Accenture started out as a spinoff from Arthur Andersen. Today it is a giant consulting firm. Likewise most small CPA firms are also consulting firms. They just do not know it or do not picture themselves as such. I’ve written many times about the extensive consulting work I have done and how the services were not sold separately but were part of my fixed-fee bundle. It is not fully clear if the ad agency acquisition was to enable Accenture to offer such services to its clients, to capture the talent to assist in Accenture’s marketing, or to use the agency’s technology to develop a virtual business. The thing to focus on here is that the giant consulting firms are moving away from traditional services and toward new services based on perceived or projected needs of their clients, and the smaller accounting firms need to do this too. We are in a professional service business and there is no reason why we cannot add to what we are already doing for the clients we already have and who consider us to be trusted advisors. Think about it!
When Nina Chmura became a Withum partner three years ago, she prevailed upon our management to let her establish an entrepreneurial venture of performing outsourced bookkeeping and CFO services for clients primarily on a virtual basis, but also with staff available to go to clients’ premises. Today, our Withum outsourced accounting services group has 30 people working out of offices in four states and growing. The outsourcing of non-core business functions is growing. This is particularly beneficial to small businesses that do not need a full-time in-house bookkeeping and accounting department. Small accounting firms are perfectly positioned to provide these services to clients; the clients need them and do not have the in-house expertise to manage this staff, and clients gain access to the occasionally more intricate CFO services the smaller accounting firm partners can routinely handle. Our outsourced accounting services group has shown this to be a cost-effective, value-laden service. Think about it!
When I started my practice in 1974, my partner and I each put in $500, got a single room as an office, and we kicked in a few dollars a month to cover the receptionist who answered our phones. Today, my young friend will need upwards of about $20,000 for computers, printers, scanners, myriad software, storage systems, telephones and communications system, smartphones, rent deposits, professional dues and registrations, a website and secure portal, and perhaps a logo and some advertising. He also will need to engage an IT consultant to set things up and assure cybersecurity. One thing he won’t need is engraved stationery. He will also need to get his own health, office and professional liability insurance. Getting started has become more involved, complicated and costly. Things have changed, and getting started is a major process in itself. This is representative of a changing business model. The huge infrastructure requirements need to be considered when establishing fees. If the value provided to clients is there, and it definitely should be, the fees should then cover the accountants’ living and ability to fully fund their retirement plan and leave them with funds to reinvest in the practice. Accountants provide incredible value and need to be properly compensated. Think about it!
Awareness of changing models is a start. Applying them to your firm is essential to your future success. When bundled and presented properly, you are offering clients a reliable turnkey back-office operation that has considerable value. The cost to a client is minimal and even inconsequential when compared to the added revenue it will permit the client to generate when they are relieved of devoting time to managing part of their infrastructure that can easily be outsourced. Think about it!
When you are quoting a fee to get a new client, rather than present a proposal for what they say they want, change the landscape to a complete back-office package that can add true value to the client. It is working for GE, Accenture, and Withum’s outsourced accounting services group clients, and could even be helpful to my friend who wants to get started in his own practice. Think about it!