Track 1: The service lines of tomorrow

From CAS and cannabis to ESG and NFTs, this panel will sift through the new and emerging service lines that offer the greatest opportunities for accountants, and what it takes to get involved in them.

Transcription:

Dan Hood (00:11):

All right, thank you. Also, we're starting a little bit late, but the problem when you follow John Napolitano is that people want to talk to John and ask him questions and he's got answers to them. So we're starting just a minute or two late because we wanted to get all that out, but we're talked about this panel, it's about the service lines of tomorrow, and we originally conceived it as just a long list of the service lines of tomorrow, but then we realized that while there are a lot of exciting service lines, that was probably not the best use of our time or a better way to do it would be to one, quickly go over some of the hottest niches that we're seeing that we hear firms moving into. And I'm going to do that very quickly in about three to five minutes, but then we're going to talk about how you think about new service lines and how you think about integrating them into your practice, picking the right ones, making sure they're launched correctly because there are a lot of commonalities regardless of the type of service you're offering or where it fits in your firm.

(01:03)

There are a lot of commonalities that run about picking the right ones and rolling them out and make sure they're successful. Obviously every niche is a little bit different. There are specific things about them individually, but broadly speaking, we think there's enough valuable stuff that we can make a panel discussion about it. And with that, before I dive into, like I said, that list of specific niches that we see doing very well in the near future, I want to introduce our panel. We're going to start with Loren Fogleman. I'm going to ask everybody to introduce themselves and tell you a little bit about them and what they do.

Loren Fogleman (01:29):

I'm Loren Fogleman and just to get the accent out of the way, originally from New York, but I now live in a little bit north of San Diego, California and I'm a sports psychologist turned business coach. So what I do is I show accounting firms how to double their income working half the time. So I help with the pricing part of it. We've already heard a lot about value pricing, which is part of what I do. And then how to enroll new clients on the value of what you do as opposed to having to pitch your services.

Bob Lewis (02:01):

I'm Bob Lewis with The Visionary Group. I've been working with CPA firms exclusively for 27 years now. I was an accountant prior to that. We do a lot of mergers and acquisitions in the industry, which is really not the focus of today, although there is an impact on what we're talking about on value in the firms. We help from capacity through value pricing offshoring, and we help them really open up how their advisory services department groups should work, which is a key thing what we're going to be focusing on today.

Jeff Phillips (02:29):

Hi everyone. I'm Jeff Phillips out of Pensacola, Florida. I'm the CEO of Pageant Business Services Pageant is a 60 year old company focused on, we do small business payroll, tax and accounting. We're a franchise for we're we one of the last remaining old school franchises. And my job ever since I was hired there three years ago, was to take a six year old brand and modernize it and roll out new service lines. We're the ones we're talking about today. And 12 years ago I started a staffing agency called Accounting Fly. We do remote staffing for the accounting profession, so CPA firms hire us to fill remote jobs and we we're doing that, I'm proud to say long before the pandemic made remote hiring so popular. So looking forward to being here.

Dan Hood (03:16):

Excellent. Alright, so you can get a sense of why this panel is strong on figuring out how to integrate service lines and which ones will work best for your firm. But again, before we dive in with that, I'm going to quickly run through a list of the areas that we see firms particularly focusing on new areas that we see firms focusing on. Some of this is drawn from our top 100 firms list where we ask firms what are the areas you're consistently seeing growth in every year. And so that's informing it, but also just from talking to a lot of firms, one of the first ones obviously is CAS, this is an opportunity we're seeing more and more firms embrace. CAS itself is three or four different service lines depending on how you describe it, depending on where you take it, if you start most firms or not most firms, but a lot of firms start with it as CAS as a transaction service.

(03:57)

So client accounting services in enough way people talk about it or compliance CAS or transaction CAS, where it really is, it's the bookkeeping, it's the invoicing, it's the back office functions, the compliance work. And then we're seeing more and more firms start there and then evolve up to more of an advisory focus. They continue to do the compliance work that's important because that's the basis of the insights that they use to deliver the advisory services. But we're definitely seeing that sort of switch. Now, not every firm is doing that. I've mentioned this, I think I talked about this earlier. Not every firm is doing that. Some firms are sticking with compliance cast, they're comfortable there. Either way. We're seeing lots and lots of firms do it and making strong growth in there. Anywhere from 10 to 15% growth, way more than sort of traditional areas like tax and bookkeeping and audit, which tend to be more six, seven, 8%. Another area that's been, people are talking about it a little less recently, but it's still an area that needs a lot of accounting services is cannabis. The tax situation there is still ridiculous and complicated and awkward, but all the reporting there is ridiculous and complicated and awkward. And cannabis has become even more normalized than it was before the pandemic because a lot of states went with it, the pandemic for a bunch of different reasons. Taxes.

Bob Lewis (05:12):

Dan on the cannabis niche. Yeah, is it true? It's highly profitable, but unfortunately they eat the profits up.

Dan Hood (05:19):

Now you understand why we have Bob on the panel. Thank you ladies and gentlemen. Oh sir, we'll be here all week. Try the veal. But I can confirm we have spoken or confirmed that that is not true. We have spoken to a large number of accounting firms and most of them are not smoking their profits. So I don't know. I can't talk about the cannabis businesses themselves. And most of the accountants we know are not getting paid in product. So though they're obviously one of the big issues for them is they get paid in cash because that's one of the issues the cannabis companies face is that a lot of their business is in cash because, and they find it very difficult to get banking anyways. There's a lot of reasons why that is an area that needs a lot of, from accountants. We talk about international tax tax is obviously always a big area, but international tax has been growing significantly over the last few years.

(06:05)

It's expected to grow even more so in the near future, in part because the last 15 years have seen internationally a sort of, it's not a race to the bottom, but it's a race towards much more friendly tax environments, lower rates for business, less complicated regimes in part to draw business in the last three years of the pandemic have seen companies get a, not companies, countries get a lot less, a lot more interested in revenue for themselves and making sure that they're getting what they need to continue providing the services they provide. So there's an expectation that we will see much more, you can call it selfish tax regimes, which means much more complicated tax regimes. Suddenly you may find yourself paying a lot more individual taxes in or you, not you, but your clients may find themselves paying a lot more individual taxes in a lot more countries.

(06:54)

The situation, just the tax regimes will get more complicated as countries try to claw back a little revenue. So that's expected to get even more successful as a niche than it has been in the past. A lot of the growth in international tax over the last 10 to 15 years has been driven by just more people going overseas, more companies operating overseas now it's going to be driven by the complexification of those tax regimes. Wealth management is an area that sort of on a recurring basis becomes very exciting to people, tends to become more exciting, the worst the economy does because a lot of people look at their current advisor and say, I'm not getting what I need from them, or I don't feel comfortable with them. We saw it in 2008, 2009. We're seeing it during the pandemic where people are just feeling like my current advisor isn't giving me what I need. My CPA is always there to do what I need. Maybe I should switch. And so it's a sort of perennial opportunity for accounting firms that they pay attention to. Often only when their clients say, Hey, my guy's terrible, what are you doing? Can you help me with this?

(07:55)

IT both in terms of helping people implement new software, pick new software main maintain or manage their services. But also in terms of security, security is a big area. We're seeing a lot of accounting firms get into doing all kinds of pen firms that are doing penetration testing, that are helping with making sure you're up to whatever, depending on the industry you're in, making sure you're keeping your data secure. That's particularly for heavily regulated industries. That's an area that a lot of people are getting. A lot of businesses are finding more and more pressure on them ran as ransomware and malware and all those things ramp up. You're seeing a lot more businesses take it seriously, particularly again in heavily regular areas. Healthcare for instance, obviously with HIPAA laws, it's a tremendous area of opportunity for accounting firms. I just want to make sure I'm getting all the ones, because there is a long list HR services, there's particularly with help from payroll companies, there are a lot of payroll companies, ADP and Paychecks, all the big payroll operators are helping accountants offer more comprehensive that are sort of adjacent to payroll, so HR, benefits administration, that sort of thing.

(08:59)

So there's leading a big push there, but also just a lot of clients are asking for clients, anything that they can push off on, anything sort of administrative stuff, they can push off their like they like to do that. And it's becoming easier and easier to help clients with that as a lot of the things become automated. Executive search is also a part of that I should mention. We're seeing more firms pushing to executive search often very specifically focused on accounting help. They're not just helping you fill any role in a firm in a company. They're helping you fill a CFO role or a tax department lead, that kind of thing. SOC work, obviously that fits in sort of with a test that continues to be an area we see a lot of firms diving into and doing very well in. I would say industry specializations, Alan Colton mentioned earlier, industry specializations are always a strong area and the deeper you go in, the more exciting they are.

(09:47)

Niching is just a huge, we're going to be talking about that a bit. And the final one that I would mention, and I mentioned it earlier as well, is ESG. We're expecting to see a lot of potential for ESG starting in consulting, helping businesses set up their reporting systems, and then over time transitioning to more of a test focus, right to the systems are set up, they're delivering data, and now someone's got to come in and make sure that that data is presented accurately and reflects the real position of the business and satisfies whatever stakeholders have created the requirement for the reporting. So those are number of areas that we see as high potential for accounting firms. There aren't the only ones by any stretch of the imagination. As I said, you could go through any industry. There are a lot of industry niches that are booming depending on just the state of the economy.

(10:31)

And that will vary over time from year to year. Obviously there are a lot of businesses that did very well during the pandemic that needed services and that will change after the pandemic. We'll see different businesses need to do well, but there's always great niches within industry specializations. I'm not going to pick out any right now, but it's always worth paying attention to. With all that, what we want to do now is talk about, like I said, talk about how to figure out which niches work for you, how to figure out which specialties are the right ones for you to offer, and then how to go about our offering. And I might want to start by differentiating or doing a little differentiating here, and I'm going to ask Loren to help with this to talk about the difference between a niche and a specialty and health firm should be thinking about those differences and how approaching that sort of conceptually.

Loren Fogleman (11:13):

First of all, I think that for a lot of people, marketing in the beginning is confusing. It was for me also because they didn't teach that when I was going through school, at least I didn't take those classes and I had to figure out what is the difference between a niche and a specialty. Because a lot of times they're used interchangeably. The niche is who you serve. It could be the cannabis industry, the crypto industry. It could be beauty salons. I've seen pet grooming. All these different things are who you serve, but who you serve also as far as a niche could be the personality. So get beyond the demographics and we can go into the psychographics. Maybe you prefer to work with innovators or you prefer to work with people that are very in their thinking. And those are two very types of different personalities.

(11:58)

And you'll find that maybe that personality is drawn to a particular type of industry, which is true for the accounting industry, has a lot of organizational, systematized type of people. Whereas you get on the other end of the spectrum, marketers have a lot of creatives who are strategists. They have big ideas, but the implementation part of it, they don't do very well. So that is a niche. The specialty is what you do for that particular type of business. What is the problem that they have that they're coming to you for that you can solve? Or what is something aspirational that they want to do that you can help them achieve better? Because the fact that they have the numbers to make better decisions. And really the best thing is the more focused you are, the better positioned you are for premium services and to differentiate yourself from somebody else. So choose possibly a niche as well as a specialty as opposed to either or, because that's where you're going to actually get the big bucks and be able to really be relevant as the firms are moving forward towards accounting. That the advisory side of accounting.

Dan Hood (13:03):

And I love that point about the point about it's not just an industry, but it's the type of, is it an entrepreneurial company in this industry? Is it a more established company in this industry? That's a valuable point to make. Bob, I don't know if you want to weigh in on this.

Bob Lewis (13:15):

Sure. I want to peel back some of the services for just a minute too. How many firms here are under 25 people? How many are over 25 people? Okay, so the way you do the, that's about half the room by the way. What a great poll we're done. So there's a difference on how you set up your niching and your advisory services. If you're a, I'm going to use the word smaller firm under 25, and I know there's some people in the room that have really large firms, you're setting up different kind of niches. It's harder to set up a niche in crypto or cyber when you're a 25 person and under niche to affirm because you don't have a lot of the clients that have that demand. One of the larger firms are going to be able to niche out in those kind of areas much more deeply.

(14:04)

So think about the services every single one of your clients need. They all need payroll, they all need hr, they all need some form of it. They only need some form of sales. So those are core things. But also look at the life cycle and the life cycle can go in a smaller firm or a larger firm if you have clients at a ladder stage of their life cycle. One of the big niches I like is transition, planning a lot of money in it, huge value add for the client and it's extremely valuable to the client. And you don't have to actually sell the business, but you can help them get ready, do the valuations, the estate plan to trust, get them ready to sell, bring them to brokerage or investment banking. And then when it becomes liquid, if you're ordering wealth management, which a lot of firms are really converting back to, bringing that back in house, it's a money stream that is internal because as those merge out, sell a new crop comes in and you can do that either a big firm or a small firm level.

Dan Hood (14:58):

Excellent, Jeff.

Jeff Phillips (15:00):

Well that was awesome. I was just thinking of an example of the niche and a specialty. Loren after you gave that example. We have a known within pageant who's in New Jersey. His name's Dennis Bishop. He, he does tax work for race horse owners. He's charging probably about 10 to 15 times what the average national average of just doing a tax return for a business is because he has this incredible niche who would've thought, and especially, we're a primarily a tax firm, but we have some owners who own their own individually owned firms who only does CAS and absolutely no tax returns. That's her specialty. So just interesting to see these come to mind. Yeah.

Dan Hood (15:45):

Well it's interesting. As soon as you said horse facing, I was like, well, that's the hobby loss rules. That's got to be a terrible, right? That's an area of a huge specialty and there that you can clearly understand why they would make a lot more money. But that's the sort of thinking about nowadays you have the ability to get super specific that we talked about being virtual and the ability to, you can serve horse owners across the country wherever they are. Some horsepower owners may be more localized, but whatever the case may be. I want to pursue this with you, Jeff, talking about the managing of an addition of a new service line. There are a huge number of moving parts to this, but when you think about that of adding a new service line to a practice, what are some of the first things you think about that firms need to be thinking about as they do that?

Jeff Phillips (16:25):

Where I would always start is what is our mission? What's our vision? What are our values? And sometimes I get eye rolls when I say that because it sounds cliche, but our firm, we look at our mission as being small business consultants for very small businesses. We know really, and we have an idea of who that is. So any new line of that we're going to deliver will come from that mission. So we want to make sure we're paying attention to that. The other thing I would think about, and we've learned this the hard way, and again it sounds obvious, but it's not until some things you have to learn the hard way. Even when they're obvious, it's 20 times easier to sell a new line to existing clients than going out and marketing to a whole new bank of clients. So that's lucky if you have this. We do. We have way too many individual tax returns and tax returns that we've collected over the years. We've amassed them. Some of them aren't staying with us. We have a system of firing them, but existing clients are so much easier to sell than our beginning clients. So there's a lot of tactics, but from a strategic standpoint, we need to start there.

Dan Hood (17:34):

That makes absolute sense.

Bob Lewis (17:35):

Add onto a piece there. So a hundred percent selling to the existing clients is a lot easier than selling to a new client, especially since they have a relationship in place with some other organization. And if you look at what most we do when we do our merger and acquisition, one of the first things we do is analysis of a firm. Okay, what do you think the average advisory revenue is? That's not CAS revenue or tax consulting. What do percentage of average is in most firms that we see? Anybody want to take a stab? What percent? So I got a 10 million firm. How much are they doing in consulting work?

Dan Hood (18:08):

Two and a half, 10.

Bob Lewis (18:12):

I about to say 10 out of 10. That's really a bad guess, John. Sorry. It's like, sorry, that's like looking at the jelly beans are going. There's three in there. It's obviously three. Okay, so oh, 10%. So I got a million for her. Who else? Somebody said two and a half.

Dan Hood (18:26):

Yeah, that was me. I'm hoping it's more.

Bob Lewis (18:29):

Okay. Shockingly, most firms we see are under 10%.

Dan Hood (18:34):

Okay, well.

Bob Lewis (18:35):

Narrowing in on the 5% and the 5% is just because those are people who problem that are coming in. Now, the larger firms, different analogy. All right. The reason why they're doing it is the people that can deliver the consulting work are the busiest people in your firm. They don't have time for it. And the only way you're going to effectively sell consulting work or develop an advisory department in the beginning is you need to partner. You need to bring in John, I don't know your organization at all. So he's got a consulting organization. I need to bring him in to do that work until they get large enough to bring it in completely. We see this mistake with R&D services all the time. Salt work inside firms. You got to partner until you get large enough to bring it in. Okay.

Dan Hood (19:21):

All right. Loren, you want to weigh in?

Loren Fogleman (19:23):

Yeah, I'm going to take a different approach on this. Cool. I'm going to talk about John F. Kennedy. When he wanted to be the first to land the spaceship on the moon, we were in the space race with the USSR. We were sorely losing. And something to think about, it's called moonshot thinking. And what is it that that problem is going to solve? So being there is going to once again make us a recognized nation globally. And who is this going to serve? It's going to serve the country because we were coming from a war one country. We needed to be tied together on something that we couldn't be unified behind. And as a result of that, what would be capable, because we were able to do this and what would be capable is that once again, our country could be united. We could be able to move forward with things.

(20:13)

We would be positioned well in the world globally because of what we had achieved as a country. So think about that. When you're looking to move forward with a particular service line with your particular firm, what is that moonshot that you're looking for? And the thing is that John F. Kennedy didn't know how to do that. He had the vision for that country, for our country. What vision do you have for your firm? And then who are the people that you need on the ground running to invent the materials to be able to take an idea and actually create the processes and the tactically put them on in place so that not only can they get to the moon, but you can get safely back home as well.

Bob Lewis (20:55):

Yeah, you bring up an excellent point. People have a lot. It's easy to sit and vision and create. I've got all kinds of creative plans. The hard part is how do you implement? That's a discipline. And a lot of people don't have that discipline, especially when you get into the consulting side because it's not what you do. Rules and regulatory issues very well. Bright people can do the consulting still, but it's time. Right?

Dan Hood (21:18):

I also, just to add, I mean the unification, the unity aspect of the moonshot, it's huge. Usually important because one of the things you hear from a lot of firms as they try to launch new service lines is that everybody else in the firm is like, yeah, that's fine. As long as it doesn't affect me, you can do it. Just don't come one. Don't bother my clients. Don't talk to my clients. Don't look. Why are you even looking at my clients? Why do you know which clients I have? And you got to be very careful about that. And that kind of buy-in is crucial, right? Because that can stein a new service line. To Jeff's point, the best clients are the ones that you have already. But if they're carefully protected and ring fenced by the partners who own them, that's going to be a problem. So you need people ever across the firm to be buying into the general notion of this is what we're doing. This is exciting for firm. It's going to help everybody because that way you can bring in all the people who aren't directly involved in, there's also, I just want, I'm sorry, go ahead.

Loren Fogleman (22:06):

Oh, I'm going to just butt it right in. Do it it. I think the other thing that you need to look at then is the culture in your firm. You want it to be us working together as a team as opposed to each person be being in a silo with singular ownership in order to serve the greater good, which would be your clients. Because let's face it, client-centered firms, those clients aren't as price sensitive as ones where it's more transactional,

Dan Hood (22:30):

Right? Yeah. The clients that have two or three services from you, much stickier, much more willing to work with you, value you much more. So that's definitely, that's an excellent point,

Bob Lewis (22:39):

Dan. Yeah. Another point that came up from the outsourcing people of all thing, a couple weeks ago, they made a really good point. They said one of the reasons why outsourcing fails in firms is they try and roll it out to everybody has, everybody in this room has to do it. Instead, pick out three or four people in the firm that want to support something, trial it up with them. If you're going to do consulting, get it started, get the bugs out of it, then make it more of a firm-wide initiative. Otherwise everyone will go back and go, it failed, so we can't do it.

Dan Hood (23:09):

Well, this brings up again that Alan Colton was talking about the willingness to fail, willingness to try something and fail. Now, if you do it right, you probably will not fail. Demand for accounting services is such that most of the niches you're looking at, you're not going to fail unless you set yourself up for failure. And you talked about the need for leadership. You probably don't have a John F. Kennedy at your firm, which is good cause he's dead. And that will be weird. But you need someone to lead the new area and they need to have the freedom to lead it. One of the things that we routinely hear firms doing is saying, well, you'll lead this new niche. You'll lead our new wealth management practice, you'll lead our new cybersecurity practice. And the reason you're doing that is probably because that partner's excited about it.

(23:47)

They think this is a great opportunity. They want the firm to go in that direction. They think it's going to be great. And the firm, firm, other partners say, that's a great idea. You go do that. But remember, you still need to deliver X number of billable hours a year and you need to serve all your other clients and you need to be doing that. Basically, it's a second job for you to run this new service line. It is important to give the people who are running the new service lines, the support and the freedom they need to be able to really focus on it and dedicate to it. Cause otherwise it's, again, it's just sort of a second job. They're not going to be able to focus on successfully. So

Jeff Phillips (24:19):

Dan, I'm just going to add one thing to that. Go. They're a phrase. I'm going to say that accountants typically do not like to hear when it comes to a new service, but it's ready, fire, aim. I'm not an accountant, I'm an entrepreneur. But you have to, that says it all to me because you're going to have to get out and this try it. Bob mentioned getting test kitchen, what we call it, a consulting practice. Then you're going to make mistakes. Then we're going to fix the bugs in the system and then repeat, repeat, repeat.

Dan Hood (24:48):

Excellent. I, I'm sure we've missed some areas of importance when it comes to rolling out. So I want to summarize some of what we've talked about and then we'll see what areas we've missed and we can jump back in. But I think we want to start, Jeff, to your point about the clients you have are the best ones to have. So you want to go through them and say, okay, is this new service line that we're considering good for any of our clients? Or is it retire, require an entirely new greenfield sort of set of clients? If this is a service line that you're not going to be able to sell to any of your current clients, that may be a sign that it's not the right service area for you to go in for you to work on. Secondly, you want to be able to go through and make sure that you can access all those clients, assuming you've got those clients that make sense for this new service line.

(25:28)

You want to be able to make sure that you don't have partners who are saying, no, no, no, no, you can do that for everybody else, but don't ever talk to my clients about this. And that goes to a broader firm culture. Think of making sure that you have sort of a one firm culture. That the clients aren't the individual partners clients, they're the firm's clients. That's an issue for a lot of other things as well. But particularly for new service lines, you want to make sure that you're going to be able to access those. You want to have some unity. You want to make sure that the people have a sense of, this is a big goal for the firm. This is valuable to everybody, not just the people who are setting up the new service line. It is worthwhile for the entire firm. We should all be excited about it. Even if you're not working in this area, it's valuable to you as somebody who belongs to this firm. It is a valuable thing for the whole firm to be doing. What else did I miss in that summary?

Bob Lewis (26:10):

That was the best summary I've ever heard in my life. Well, yeah, it, it's so sensational.

Dan Hood (26:15):

I'm working with good material. Some of the things we wanted to be talking about, right? Is how it gets rolled out. You want to make sure you have a champion. That champion has the freedom and the resources to make the investments they need to make.

Bob Lewis (26:27):

Oh yeah. Okay. So here I, sorry, I just fell asleep for a minute there. So

(26:34)

One of the things we see in firms, we deal with a lot of firms, large firms, top 10 all the way down, and they want to open up an advisory. So what do they do? They go to a partner who's never done consulting and goes, let's open up a niche that only three people in the United States want. And then wonder why it doesn't work. Okay? So small niche. Well, we see this with, I want to do quality of earnings because I'm an audit partner. I'm going to do quality of earnings, right? Great initiative. But then you got to have a network of private equity companies, groups that are buying and selling companies to be able to do quality of earnings. Cause that's a great niche by the way. Deep, very profitable, highly valued niche. But if you don't have that in your backbone to start with, you're going to start with a niche, it won't work. And then they'll add fraud into the niche, which everyone likes to do because fraud is an accounting related thing. Who buys fraud by the way? Anybody? Do you ever have clients that actually buy fraud protection only

Loren Fogleman (27:30):

If they've had it happen to them?

Bob Lewis (27:31):

Correct. So it's an aftermarket purchase and then it's a really expensive aftermarket purchase. But in the front end, nobody wants to pay, oh, let's pay for an internal controls checkup. I know Jeff, you're thinking,

Dan Hood (27:47):

I think there's a lot of accounts out there who could make fraud happen and then follow up the, but

Bob Lewis (27:52):

I think I just sold them some internal controls. I don't do it, but that's okay if somebody else does it. You got a buyer now. But I think that's a huge mistake firms make is they listen to their leadership team that doesn't necessarily have that experience. Does any of the partners in your firm really understand cyber? Do they? I mean they get the basic concepts of it. They get the skull and crossbones that come up on the screen when they take over. I know that's in, I think that's in an Independence Day movie, but that's okay. But point is you got to put services in place that are logical to start with and then grow into them. That's a key,

Dan Hood (28:28):

Right? Yeah. You have to understand your own firm, your client base, what you can do, what you can't do as you pick through them. It's not just a matter of the list we gave you earlier, right? Will not work for every single firm. Not all those service offerings are for everybody. And you do you need to know yourself and know your client base before you can pick them. I want to talk a little bit about rolling out and specifically in the area of marketing and pricing. So I think those are two areas that a lot of new service lines get a little hung up on. Figuring out how to make sure beyond just reaching out to all our current clients, how do we reach out to others? How do we find the types of clients that are fit for this? How do you identify those? But then also how do you figure out your pricing? Because that's an area where a lot of firms often are uncomfortable. How do you figure out, I don't want to charge, my clients don't. There's a lack of confidence in terms of going to them. There's a fear that they're going to be like, well that's ridiculous. I couldn't possibly pay that. So there's a lot of issues around both of those. I don't know if you want to jump in on either of those. I absolutely

Loren Fogleman (29:21):

Want to jump in. I'm like chomping at the bid here. I can tell. So pricing's like my favorite topic and what I'm going to say is, if you are charging for your time, then you are doing something that is out of date. Because the pricing model, the billable hour was created about a hundred years ago before there was tech. And it was created by an attorney who had to justify his rates to his clients. It wasn't based on anything logical. He just wanted to justify his high rates. But with technology, the more technology, the more expertise you have, the faster you become. And it is a race to the bottom. It actually creates a pricing tug of war between you and your clients because they want you to do it as quickly as possible to pay as little as possible. You're not incentivized to speed things up because then you get punished, punished for efficiency.

(30:07)

So what you want to do is actually focus on pricing the client, which is a paradigm shift. And I believe you spoke about it in your breakout, your keynote this morning. Yep. Yep. And what you want to look at is what's the value from the client's perspective? You want to think about putting yourself in their shoes. What's the outcome? How can they gain from that? Can you in 15 minutes help them make another seven figures in their firm and what would that be worth to them and how would you be compensated? So that's how you start looking at pricing the client. But one thing I want to go do a deep dive into real, a quick deep dive, all right, is that the top one percenters in the field have a system. They're able to actually name their system and it's all benefits driven. It is not task driven.

(30:55)

So think about the cannabis industry we've been talking about. So maybe we're going to have your system given name, the cannabis cashflow system and there might be five steps. So the very first thing you're going to do is where's your business at? Just that get acquainted. Let's just hear what's going on. That's step number one is to get the details right. Now, step number two would be a deep dive into the financials where you're actually being paid to look at their financials instead of doing a quick review of their QuickBooks and then telling them right in that first meeting what it will be moving forward. So you get paid to do that deep dive. Step number three is where we're going to go ahead and get you up to speed. So this is where you're getting their financials up to speed and all cleaned up so you can then help them be more profitable in their business.

(31:45)

Step number four is going to be cashflow trajectory where you are going to now help them on a monthly basis be able to move forward. They have a cash business, so they need to really understand how to manage that better. And step number five will be cash flow strategy on how to be able to bring in the advisory services now that they're up to speed in order to help them be even more profitable. Not just grow the top line, but really the bottom line as well. So that's something to think about is not just all the minutiae, but how do you present this to your clients in a way where they see you as the defined expert? Because you can go ahead and define all the steps in your system and that helps them take something that they don't really comprehend when you tell them accounting. And it gives them a way to see how you can help them move forward to what it is that they want to do at some point in the future.

Dan Hood (32:39):

And it, part of the beauty of that, right, is it puts the focus on the deliverable at every point. It's not saying, I'm spending all this time on you, it's delivering this judgment, this assessment at every step of the

Loren Fogleman (32:49):

Of the way. You're not talking about bank accounts, transactions and recon reconciliations right

Dan Hood (32:53):

Next.

Bob Lewis (32:54):

So how do you answer the question, my client doesn't want to pay for it. What's the answer to that question? Anybody want to take a stab?

Audience Member (33:04):

Didn't communicate the value.

Bob Lewis (33:06):

Okay, didn't communicate the value. That's probably a good point. Here's the real easy point. You probably have the wrong client. That's the problem. We're just stuck in. We're trying to sell services to clients that are the wrong clients that are valuing you to do a tax return only because you're stereotyped in their mind. And I hate to say it, every single person in this room stereotyped. I still am. People think we do m and a only. And I've had firms come up to us and go, well, I know you only do large firm deals. And I'm like, wow, where'd they get that from? I must be projecting the large firm image deal. But most deals are anywhere from one to 5 million anyway, because that's most firms out there. We all face this stereotype in our firms. And I will tell you the second answer to that question is you probably don't have the selling skills to be able to present a really how you did it. And that's a big problem out there when it comes to consulting services. People do not know how to sell it. That's what we run to. Nope.

Jeff Phillips (34:04):

It struck me a little while ago when we asked the size of the firms and then I think the majority were 25 or under. And for a lot of smaller firms, partners and owners and staff, they just feel very stuck in the grind of doing transactional compliance work. So you can't really add new service lines until you free up capacity to free from that life. But Loren, what you are talking about is so key because it starts with how we price pricing affects your profit margin, but it also starts to give you time margin as well, which we have to scrap for every inch when it comes to having capacity to do anything. So until we get right on what our business model is, it's hard to add those processes. So while crypto is exciting and ESG is exciting, let's make the transition from high, high transaction low price work to moving more into consultative annual relationships that had tends to include tax return. We're doing that at our firm, which is really a elusive, it's a franchise, it's affiliation of 170 offices and everyone's scared every time we go through this process. Not once has a firm lost $1 in revenue when it would raise its prices or fire clients, it always found it's like a law of physics. It found new revenue opportunities at the new price that we would raise it to every. So I think part of this is just getting over the fear of making this transition that we're talking about. But it does start with pricing.

Loren Fogleman (35:44):

Jeff, probably the only thing that they lost was stress and overwhelm.

Dan Hood (35:47):

Yeah. I want to just to pursue a little bit on some of the things we've been talking about. It's just to talk about the importance as you think about new service lines, new service offerings. We've been talking about subscription pricing and we've been talking about the recurring business that it's important to as you look at a new service line to say what kind of business is this? Is it particularly for many advisory services, there are a lot of advisory services that are one-offs that you do this service, particularly people talk about cybersecurity scenario where there are often that's a one-off engagement where you're doing, like I said, a pen testing kind of thing where you're going in and assessing a client's security position, how well they are, how well they're defending their data, all that sort of stuff. And it may be a one-off engagement and it may be super profitable and you may enjoy it, but that means when that engagement's over, you've got to go find another engagement to replace it.

(36:32)

And that's fine. There are entire industries built around that and there are plenty of accountants to do on a regular basis. But as you look at a new service offering, that's a key characteristic to understand is this a one-off kind of set of consulting services or is this more of a, I am now your accountant for this will I'll be talking to you every month or every year. I'll return every year, whatever it is. So bearing that in mind, that is an important distinction to make because you want to know what you're letting yourself in for, particularly given the disinterest, let's put it across the profession for selling. It's not a thing most accountants are comfortable with or enjoy doing. So that's something to bear in mind as you look at these new service offerings, just to be able to say, is this something where I can get the clients on board and then I never need to worry about it again? Or am I going to be constantly recurring to working on the treadmill?

Bob Lewis (37:18):

So like wealth management where the fee just keeps coming. Yes, every month.

Dan Hood (37:22):

Yeah. This is the kind of business we love. Okay, this is why we love cash. The beauty of cash is once you clear, clarify the value and get the client on board, they're there forever.

Bob Lewis (37:31):

Yeah. And the other part on CAS too is it opens doors. I mean, you're tied into the spine of the client, so you're hearing everything you're see and everything. You can sell other consulting projects, you can bring other people to refer into. It to me is the widest opening ability to sell more services because tax has some audit, kind of closes the door for a lot of it for independence purposes. But CAS work is just wide open for selling other work,

Dan Hood (37:57):

Just identifying needs alone, just the ability to identify these loans. I want to give a little bit of time for questions. So I'm going to just run one last question by all of you. And Jeff, I'm going to start with you if that's all right. And it's basically just your best advice, best one or two pieces of advice for firms that are looking at new service offerings or want to explore them.

Jeff Phillips (38:14):

Just get clear on who you are as a business with your team. And some of this worked really, really well for us, especially our business structures. We call it a test kitchen. Restaurants will open a fake restaurant in the city and sell their products and see what sells and what doesn't. So whenever we roll out a new product, we recruit a handful firms and we document everything that works and everything that we bust up and we fail at. And then we have a playbook that we can then teach and train to everyone else inside our firm. And so the stakes are low, you're going to screw a bunch of stuff up and then once you identify the winning playbook, then you teach it. Everybody else.

Dan Hood (38:53):

Thanks. All right, Bob.

Bob Lewis (38:54):

My advice would be understand who your clients, what their goals are. So we did a small exercise once with the A. Actually it was one of BDOs all regional meetings. And the managing partner stood up and he said, okay, I'll kind of play. I said, so if your top 20 clients, the revenue clients, how many do you know the goals of? And he said, probably six. And the others just became revenue numbers to him. And he said one of the first things he needed to do was go back and understand what their goals are. Because if you understand what the client's trying to accomplish, you understand what else you could potentially add value to or cross sell to or refer into without understanding the goals. They just become a number. What you don't want to be, once you're a number, you fall into compliance trap or the commodity trap. And once you're a commodity, your pricing opportunities go completely away.

Dan Hood (39:44):

Right. Well that's one of the beauties that the cash practice, right? Is that a cash practice, particularly one that's further along towards the advisory services aspect of CAS your clients inside and out, or you should be getting such an intimate relationship with them that you understand their goals, you understand their needs and are able to identify the right services for them. Sorry, I jumped on you.

Loren Fogleman (40:02):

Oh, it's all good. I've jumped on you also a couple times, right? Okay. So I'm going to piggyback on what Bob said. Stop that.

Dan Hood (40:13):

It's late in the day. Cocktails are coming.

Loren Fogleman (40:14):

Is that there's usually a gap between thinking about raising your rates and actually doing it. And every month that you don't do it, you're leaving money on the table. So if you are a client centered firm and you're client, you've invested in the relationship, those are sticky clients, statistically you can raise your rates and 82% of those clients will retain your services. The ones that leave are the ones that never respected you and just want a champagne service at beer prices. So what I will say is you can go ahead and actually raise your rates by 20 to 30%, not the five to five to 10% that is the safe side, 20 to 30% with your clients. If you know how to sell the value and have invested in the relationship, you can do that. And as a result of that, you'll have more revenues, less clients, and it then frees up party time, as Jeff was talking about, to invest in the advisory services that you didn't have time to do before.

Dan Hood (41:12):

There you go. Excellent. I want to open it up to any questions people may have in the audience, but I also want to, John, I said you're here. I want to bring, because you've talked a lot about, particularly about finding clients for starting up clients for a startup wealth advisory practice. I don't know if you want to just talk a little bit briefly, sorry, I know you were, but you've talked about when you try out a new product or new service line, trying it on your best clients, your favorite clients or on smaller clients, so larger versus smaller clients. Can you just talk a little bit about that choice and that thinking?

John Napolitano (41:44):

Yeah, great question. A lot of practitioners, knee jerk to small clients cause they think my risks are lower if I screw up, no big deal. Yes it is. Cause the small appliance have a pain in the ass that make everything a big deal. The bigger ones really love you and they're going to cut you some slack. So I like starting with the bigger ones. The second is you can more easily identify who needs what. Cause you have all the frontline data, you have S K one, etcetera, so you know exactly where the gaps are. So it's going to be easy for you to poke holes in their existing team and try and solve for where the gaps are.

Dan Hood (42:21):

Excellent, thank you. I was thinking, wait, I've read in John's column repeatedly. He's talked about that, so I wanted to bring that in. But if anybody has any questions, just raise your hand, let us know. Otherwise I've got more questions that I'm going to pepper these guys with. Put it this way, any questions you have, just raise your hand and I'll get my attention. But I want to return back to as firms are thinking about this, I like to your point particularly very much early on just talking about not just the industry specialty, but the types of clients within that. So entrepreneurial or startup versus established or people who are looking to grow versus people who are like, I'm comfortable where I am. I just need my services. Do we have any other further thoughts on that? Because I think that's like how do you identify what kind of clients you want to work with in that perspective? Sort of the emotional aspect of things

Loren Fogleman (43:04):

That, that's actually a really interesting question and it's very easy to answer is that typically your best clients are either just like you personality wise or they're the opposite of you. So think about your clients and your favorite clients. Are they similar to your personality or the opposite of your personality? What I found for me was my clients tend to be the opposite of my personality, which is why I gravitated towards county professionals is because they know what they want, but they need the handholding. Whereas I'm quick to be able to see ways to connect your vision and the steps to be able to make it happen.

Dan Hood (43:39):

Excellent.

Bob Lewis (43:40):

Okay. And quick question for the audience. How many have a CPA firm right now and how many are making more money than they've ever made in the past?

(43:52)

People have been a little shy about the money part. The issue is fear a lot when they start looking at the advisory side because they're like, I'm already making enough money. I get comfortable. I'm making a lot of money. Do I want to take the time to invest some of that money into an arm that I think I need to go into? And I will tell you right now you're making a lot of money. Capacity shortages are rampant. But if you're not beginning to invest in the advisory side, you're not going to be able to attract recruits. You're going to be more and more forced to offshore and you're going to have more and more capacity issues. And when it comes time to actually merge your firm or sell it, because if you don't have a succession path, you end up with people like us who have to take your firm and go, I can't sell this because I don't have enough interest from parties that would want to buy it because your infrastructure's not there. Just the fear is a big thing. We run into firm with firms because they get comfortable. So Jeff.

Jeff Phillips (44:47):

There's 31 million small businesses in the us. It pays to think about who you want to work with Loren, like you said, because you really truly can work with whatever that demographic or profile or psychographic or description or just industry that you want to work with. Because I think there's such a large client opportunity out there. We don't have to say yes to everybody because that pain in the neck client that you're talking about is taking up too much of our time.

Loren Fogleman (45:19):

And one more last thing I'd like to just add is think of what happened to the travel agents industry when Priceline first came on the market. What it is now compared to then is so different. And I want to say that's going on with the accounting professional right now also with AI, offshore technology, is that if you don't differentiate yourself by adding in the advisory services, then you you're going to become extinct at some point because there's something either technology wise or someone offshore cheaper that can do the same thing for you as far as the compliance side. So the way to remain relevant is really thinking about how can you make yourself priceless to your clients because you're helping them with something that they deeply care about. Nope.

Jeff Phillips (46:09):

Sorry.

John Napolitano (46:09):

So I have a question for you. You mentioned moonshot. So could you give us an example of what you know after?

Loren Fogleman (46:21):

Well, I think that you have to actually speak to your clients and find out what their moonshot is and then help them, show them how you can show them how to do it cheaper, faster, make more money and save more money. So those are some of the things to think about is for you, a moonshot might be actually going into the advisory space, but maybe you're doing it in a way that's a little bit different than everybody else. So you're innovating on how advisory is currently being offered because you found something that is even going improve upon it. Similar to Uber versus taxis, that's a great example of moonshot thinking where the concept was already there, but then they went ahead and took away all the problems related to taxis, which was metered rides. You're standing in trafficking, you're still paying the meter's, still running. So they took away all that and created transparency. So think about that for you with your firm as to how you can maybe take something already there, which is the advisory and make it even better. And I think that subscriptions is the way to go. If you want to get some more ideas about moonshot thinking, you ought to check out Baker's newest book on Time's Up and that might give you some insights.

Bob Lewis (47:33):

Hey John, I'll give you a quick example of, to me, a moonshot bringing in investment banking into your firm. So now you can start to sell the businesses you've previously been giving to the brokers to make huge amount of money. That's a moonshot. That's a game changer.

John Napolitano (47:47):

Yeah, I love that idea. Cause so many companies are in transition. Cause you see the age of arms, right? Yeah. And consulting value.

Jeff Phillips (48:03):

My favorite example of a moonshot thinking is this firm, if you know them, they're in Fairhope, Alabama, Hartman, Blackman. They're now called Aviso. I think they changed their name. Yeah. Cool name. Yeah, they got a cool name. But Dennis Sharon's our managing partner in about six or seven years ago. He said, we're going to work no more than 40 hours a week during busy season. Across from me, the managing partner, down to everyone in the firm. And of course everybody said that's the most ridiculous thing I've ever heard. Well, the story is about a 30 minute story, but the headline is, is they just about have pulled it off and they averaged 44 hours a week during the 2023 busy season. Now they've transitioned their pricing, their strategies, they're more of a subscription based. So it's a really neat story. By the way, at my firm, we can't use the word advisory because I'm tired of people talking at me about advisory and not explaining what it is. So we actually use descriptions of services that we're providing to our clients so that you don't get to hide behind that word. We'll get back to it, it'll be allowed later, but just we're currently on a temporary prohibited using that word.

John Napolitano (49:16):

Prohibition.

Dan Hood (49:17):

That's awesome. Alright. I think unless anybody has last minute things they want to throw in, I think we're at the end. There's a little bit of a break and then where we're headed after this is out onto the foyer out there, we're going to have to meet the expert session, bring any questions you got, we'll be grilling a bunch of people up on the stage. There's also going to be cocktails after that out on the foyer. Chance to meet again, to talk to the sponsors, the exhibitors out there. There's a lot of very cool tools. So I recommended you do that. Meet us out there in five, 10 minutes. All right. Thank you all and thank you.