Art of Accounting: Small firms need a network of experts
The complexity of everything that needs to be done is making running a practice more difficult for many small firms. When I started my practice in 1969 it was hard, but doable — I did it. I don’t believe I could do it today. There is just too much to keep up with.
I am proud to say that I was an expert generalist. I was great in everything except when measured against most specialists. I wrote about this previously so I won’t repeat it here. Today, the speed and volume of changes in taxes are overshadowed by the accounting and auditing changes and possibly by the IT changes. When I started, I could be a “tax expert” and confidently handled everything that came my way. Today, SALT, foreigners working in the United States, tax audits, tax planning, business taxes, trust administration and about 40 other items all require specialists. My firm even has a couple of R&D tax credit specialists. Yet I see great opportunities for smaller firms.
From the hundreds of accountants I speak to and work with annually, I have noticed a distinct trend. The owners or partners of small firms have grown even stronger as their clients’ "trusted advisors.” They are available and knowledgeable about the client, their family relationships, concerns, goals and long-term wishes. They are custodians of a wealth of experience with the clients and draw upon that on a 24/7 basis as necessary, and they care. They show they care by continual interactions with their clients — many times anticipating problems and offering suggestions before they become evident.
But from a technical standpoint they don’t know everything they need to know. They are aware of the issues, but not the expertise. Acquiring the expertise can be time-consuming and costly. The need to become an expert in a limited area might only apply to one or two clients and is not an effective way to run a business. Instead they form relationships with more knowledgeable colleagues in specific areas. They create, each firm for themselves, an informal network of experts they can call upon, and they pay for these services at undiscounted rates, making this work profitable and desirable for the experts who fully understand the need to provide preferential services to their colleagues when called upon. Now, to be realistic, this work is not that lucrative because it is limited to short consultations — on call — and occasionally a limited-duration special-purpose project, but the desire to assist a colleague and the collegial feeling offsets the minimal revenues it provides. Occasionally a boutique firm evolves and is able to generate significant revenue from many accountants, making this a viable business model for them.
For example, a firm that does a limited number of audits might outsource the review or quality control process to a specialist. The specialist might perform similar services for 12 or 15 firms, and along with some of their own audit work, can have a pretty good business doing such work. The outsourced specialist can also organize internal inspections and represent the firm at its peer review. Another outsourced service for firms with one or two clients in a niche specialty could be assisting clients that are non-U.S. residents working in the United States, or who want to establish a business in the U.S. The same with transfer pricing services, state and local taxation for a client doing business in multiple states, or a client that wants to establish a domicile in another state to save current income taxes and eventual estate taxes. Estate and trust administration, succession or estate planning, and SOC 2 audits are other examples, or a client that wants to minimize taxes on the sale of their business, or who needs due diligence when buying a business.
There are other services where the network is important because the referrals permit the accountant to retain the client for more traditional, but absolutely essential, services they have been providing. These include services they are precluded from performing because they lack independence, such as business valuation and forensic services; audits of employee benefit plans, broker-dealers or HUD projects; or a captive insurance company where the accountant does the write-up or extensive journal entries.
There are consulting services where most accountants are not usually qualified, such as with cost segregation studies, systems installations, asset and wealth management, or sales of life insurance for estate-planning purposes.
The point is that reaching out and finding these experts is being done on a more widespread basis and it is working. Our firm is the recipient of revenues from many smaller firms that call upon us on an as-needed basis, and we also have a network to refer work that is not cost-effective for us to do. This includes smaller business and not-for-profit audits, extended outsourced CFO services, and catch-up bookkeeping projects for clients.
The role of the smaller accounting firm is changing, in a positive way. The strengths of what small firms do best are being maximized, enabling them to offer a wider array of services needed by their clients through their network of colleagues.