Don’t be a numbers person: Be a ‘complexity filter’

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People don’t have a problem finding information these days. It’s everywhere. They have a problem applying that information to their business and personal live and making it useful. As a CPA, that’s what clients are paying you for. But are you delivering knowledge and wisdom when you send clients a completed tax return or updated financial statement? I know it’s hard to believe, but those tiny rows and boxes full of numbers aren’t very interesting to most people, unless it tells them a story and shows them what to do with all that information.

The 'What' the 'So what' and the 'Now what?'

When I start to feel overwhelmed by all the data and information I’m bombarded with every day, I like to use a filter called “The What. The So What. And the Now What?”

The What = What does this mean?

The So What = What does this mean for me?

The Now What = What do I need to do about it?

Suppose your clients used the same filter when reviewing the tax return or financial statement you prepped for them. Would they see value? Probably not.

Unfortunately, most CPAs continue to overwhelm their clients with low-level data and information (the What). They don’t get into the So What and Now What stages. They don’t provide clients with any relevance or context to the information. They don’t provide any next steps or recommendations based on the return they just delivered. The return looks like a foreign language to most clients, so they just skip to end to see if they owe money or if they’re getting a refund. The return doesn’t help them make smarter financial decisions for the next year and beyond.

Here’s a secret that high-performing CPAs know: A tax return is just a supporting document for the high-value advice and recommendations you can share with clients.

Don’t be a jargon jockey

CPAs tend to fall back on jargon when explaining tax issues to their clients. For some it’s a conversational shortcut when swamped during busy season. For others, it’s an attempt to show off how much they know about the Tax Code. But when you resort to jargon and accounting-speak, it simply confuses clients and turns them off to your message. Here’s a clue: If you find yourself starting sentences with words like “Form” or “IRC” or “according to the TCJA,” instead of just referring to it as “the new tax rules,” then you’re headed down the jargon black hole. Don’t go there!

I’m a partner at a CPA firm even though I’m not a CPA. Sometimes when I’m in a meeting with our other partners I have to stop the proceedings and ask the “dumb questions” that no one else in the room will ask. They’re getting into things like arcane form numbers or corporate entity issues. If I’m not understanding it, most clients won’t get it either.

The DIKW Pyramid

In my new book coming out later this spring ("The Personal CFO"), I talk about the DIKW triangle (data, information, knowledge, and wisdom). I won’t take up a lot of space here, but the pyramid below can help you understand the hierarchy of information that we deal with every day.

1. Data is just X’s and O's. The raw numbers you put into returns and financial statements.

2. Information is just X’s and O’s that have been translated. Most accounting firms are just relaying data and relaying publicly available information.

3. Knowledge: Moving up to this level means you take information and filter it through the lens of “What does this mean for me? What should I do about it?”

4. Wisdom: This involves the core principles (the framework) that we use to make decisions. Core principles are often driven by the client’s values.

Your clients can get the bottom two levels of the triangle by themselves (data and Information). Don’t waste your time on No. 1 or No. 2. You have to give clients something of value they can’t get by themselves (or for free). Punching numbers into boxes and delivering the output in the form of a tax return is not wisdom or knowledge. You’ve simply charged your client to “lease” your accounting software for a few hours. That’s not the same as going up the triangle and asking yourself: “Knowing everything that I know about my client, given my experience and expertise, what are some decisions my client can make that are going to have a big impact on their future?”

I know that giving advice scares many CPAs because they’re providing an opinion, not a black-and-white answer. And your opinion could be wrong. Take a page from the medical profession. Provide clients with a confident, well-informed professional opinion.

When a doctor tells a sick patient and his family: “We’re going to have to cut your brain open,” I can assure you they don’t follow that up with: “I guarantee this is what’s going to happen after we do the procedure.” Doctors never say “guarantee.” It’s more along the lines of: “This procedure will give you the best chance of not dying.” But you could still die. Most CPAs hate this kind of discussion because the “advice ledger” in their mind doesn’t balance. It’s a professional opinion, not a guarantee.

Putting DIKW into action

For example, let’s take the S corp vs. C corp debate in light of the new tax laws. Every business wants to pay lower taxes and return more profits to the principals and shareholders. Don’t just read back the IRS rules about S corps and C corps to your business owner clients. That doesn’t help them. Without running complex calculations, simply ask your business owner clients, “Do you plan on stripping the earnings out of this corporation? Or do you plan on leaving it in the company and letting it grow?” Offer to bring them in so you can “white board” the differences for them.

Many CPAs think successful business owners already know the answer to this question. I can assure you they don’t. They need your expert advice. Some owners will tell you they live on the revenue from their business, so they’ll want to take most of the money out. Others will tell you they’re grooming a child to take over the business, so they’ll be less inclined to strip out equity, so they can keep growing the business.

This is when you should be a “thinking partner” for your clients, not just a financial historian.

Explain to your clients that if they strip all the money out, a C corp won’t help them much. But if they think they’re going to be growing the enterprise for the long-term, and leaving capital in to reinvest in the business, then a C corp could be very helpful.

You don’t need sophisticated software to run the numbers on these two scenarios above. Your job is to be the “complexity filter” for your clients. Just explain how the numbers could be different under each scenario (taking money out vs. leaving it in the business to grow) and which option is better for their unique situation. Again, you’re providing an opinion, not a guarantee.

If you can do this, clients leave your office with peace of mind.

What’s better than that?

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