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The Boomer Bulletin - 2012
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Packaging, Pricing & Naming Trusted Advisory Services

Posted By L. Gary Boomer, Thursday, February 9, 2012
The CPA is the most trusted business advisor, yet many CPAs continue to focus 
on transactional rather than advisory services.  Why?  Old habits are often hard to break and change is difficult.  Transactional services have become commoditized and the hours required to produce them have been reduced or eliminated by technology.  This is bad for the accountant that is focused on transaction work and good for the trusted advisor who is able to provide value at a higher level while leveraging the technology to complete the transaction at a low cost to the client.  Contrary to popular believe, manufacturing is still strong in the US from a revenue perspective, but jobs have been eliminated or reduced due to technology and lower labor costs in other countries.  The same is happening in accounting, but it is providing tremendous opportunities to those who know how to package, price and name advisory services.

History can be a great teacher, but often the students don’t listen or pay attention.  Let’s look at traditional transaction type work such as write-up and payroll.  Many firms abandoned these services with the advent of the personal computer and programs such as Intuit’s QuickBooks.  Little did they realize the struggles that would ensue with clients utilizing technology they did not have the accounting skills to operate.  Accountants also lost control over the technology platform as individual clients purchased software and technology from multiple vendors.  Thus the start of problems associated with versions, licensing, file transfers and reconciliations.  Vendors told the clients/consumers they didn’t need accountants if they utilized their software and often competed directly for this transactional work.

There is good news on the horizon for accountants who wish to package and price advisory services for value rather than by the hour.  Cloud computing is the enabler that allows accountants to eliminate redundancy, improve efficiency and take over the platform while offering their clients a uniform and standardized system accessible by both the client and the accountant.  The software vendors can’t offer the accounting expertise or the efficiency of a firm that can provide both the transactional services inexpensively and the advisory services the clients value and are seeking in today’s market.  The economics behind this evolution date back to Adam Smith and the division of labor.  Is the client better off sourcing transactional and advisory services to the accountant who has developed an efficient system accessible from anywhere at any time or should they try to do it themselves?  Most entrepreneurs and good business people will opt for focusing on what makes their business successful and sourcing both the transactional and advisory services to the accounting professional.  Until now, the accounting firm had to rely upon vendors who did not operate as partners, but acted as competitors.  What is the difference between cloud computing and the client server model?

There are several:
  1. The client and the firm do not need to invest in as much technology and can share resources through virtualization.
  2. The firm can standardize and private label the platform used by many clients while maintaining the current version on hosted virtual servers.
  3. The technology allows the accountant and client to share transactional data as well as advisory reports 24/7 in a secure environment.
  4. The accountant does not need to waste valuable time traveling to and from the client’s offices.
  5. The accountant’s market is expanded from local to global with access to the Internet.
Most accountants I know would gladly change to a platform that allows them to provide both transactional and advisory services.  The challenge is how do we make this a viable business model by packaging, naming and pricing these services other than by the hour?  My advice is to first think like the entrepreneur rather than like an accountant.  The value to the entrepreneur comes from the elimination of a danger or the ability to focus on an opportunity.  One of the dangers to an entrepreneur when it comes to accounting is the ability to attract and retain quality bookkeeping and accounting skills at a reasonable rate whether it is part-time or full-time.  A competent bookkeeper will cost the client in excess of $50,000, plus the investment in an in-house system can be significant as well as the maintenance.  What is the value to the client of eliminating these dangers and sourcing with a trusted advisor?  I can assure you it is more than most advisors will charge billing by the hour.  Next, what is the value of the client’s time to focus on revenue rather than payroll, accounts payable, general ledger, receivables and financial reporting?  Again the value to the entrepreneur is generally greater than the value in the eyes of the accountant.  The value only grows to several $1,000s of dollars per month as the size of the business grows.  The new jobs in the US are being created by small companies of 25 employees or less and government.  The government sector is going to change as they are forced into employing technology and reducing their size due to the current inefficiency and related labor costs.  This leaves entrepreneurial companies to provide the economic stimulus the country is looking for.

CPAs can capture this opportunity that will provide increased margins and monthly cash flow plus act as a pipeline for advisory services.  The first step is to survey some of your entrepreneurial clients and propose the cloud computing solution.  Get their reaction.  Sell tickets and then produce the show rather than build something that doesn’t meet the client’s needs or wants.  Second bundle and price these services on a monthly basis.  Utilize a fixed price agreement that narrowly defines the scope of services and responsibilities of both the client and the accounting firm.  Be sure to include a change order clause because it protects the client and the firm.

While naming may not seem important, it is very important to the market and potential clients.  He who names the process owns the process.  Clients will always buy from the supplier who can name and graphically demonstrate a process.  Naming is tricky and should utilize the talents of a professional marketer (division of labor).  I suggest you follow Dan Sullivan’s naming process and start with "The” as it connotes exclusivity.  Next use a technological word that describes your process and finally protect the name by trademarking it e.g. The Cloud SolutionTM or The Entrepreneurial SystemTM.  Graphically define your process.  A picture is worth a thousand words.

Now for the tough part, pricing.  Again value the advisory services from the client’s perspective.  Define your target client in terms of an ideal monthly fee and a minimum monthly fee you are willing to accept.  Define the criteria for accepting and retaining a client.  Go beyond the monthly fee and use criteria such as:
  • Does the client take our advice – are they coachable?
  • Will they refer us to other clients that meet our ideal profile?
  • Will the client increase our capabilities?
  • Respect – do we respect the client and do they respect our people?
  • Does the client appreciate our services and promptly pay our bills?
Your pricing will change over a period of time, but your criteria for client acceptance and retention may remain static.  This requires time to think and a plan while assigning responsibilities internally and to the client.

I suggest you consider a pricing matrix, as it is generally more acceptable and easier to close with than quoting hourly rates where the client feels they are assuming all of the risk of the engagement.  Clients like to know the monthly amount in advance and it should provide the firm both with improved cash flow and margins, especially with experience and focusing on process improvement.

Change orders are an important concept and should be addressed in the fixed price agreement.  Ironically many firms have change order clauses in their agreements, but few firms capture significant revenue due to the fact they fail to execute change orders prior to completing additional work that is beyond the scope of the fixed price agreement.  This is a function of awareness and training.  Often it is the staff accountant or manager who recognizes the opportunity in the field rather than the partner.  Don’t be afraid to offer an incentive to your staff for recognizing opportunities and executing a signed change order.

Some of the services beyond traditional accounting (including payroll) and tax work  (income, sales, payroll, and property) for small business are bill payment (back office), document management, records retention, budgeting and other CFO services, strategic planning, HR management, training, compensation planning.  This menu of services can start in a limited format and expand based upon client requirements.  Many of these services can be provided through the cloud or elements of the cloud can be used to gather (aggregate) information as well as deliver information.

Think of a client portal as not only a place to deliver documents, but also to aggregate client information before starting the engagement.   Leverage the fact that much of the information you need for the project is already in digital format from other systems.   Many firms are experiencing the fact clients will provide more timely information through the use of a secure portal.  In fact, many clients are requiring the use of a portal in order to insure they do not violate state and federal privacy laws by sending sensitive data via email.  Portals can reduces the inefficiency of starting and stopping on projects.

Innovation comes from combining what you already know with new capabilities (knowledge and technology).  You should think about your client’s dangers, opportunities and strengths as you develop new services.  Value is created when you reduce or eliminate client dangers, leverage their strengths and help them focus on their greatest opportunities.  This requires leadership (direction), relationships (confidence), and creativity (new capabilities). Don’t get caught in the trap of trying to focus on too much.  Focus on no more than their three top dangers, three top opportunities and their top three strengths.

The following action plan should enable you to start quickly, test the market, and grow your revenue stream quickly.
  1. Think - Brainstorm using a mind map to identify client dangers, opportunities and strengths.  Identify the obstacles and develop strategies to overcome the obstacles.
  2. Plan - Develop a written one-page plan listing your strategic objectives, initiatives, dues dates and responsible parties.
  3. Grow – Test the market with your best clients – check writers; they are the only opinions that matter.
In addition to these three steps I would recommend avoiding committees, unless you want to design a camel.  Seek input from clients.  There are entrepreneurs who make it happen, people who watch it happen and those that wonder what happened.  The upfront investment and risks are relatively low, especially compared to commoditized services where the risks of litigation are often high and the competition fierce.  Be an industry transformer.

Tags:  trusted advisor 

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