Most firms would like to add another zero to
the annual fees their top 100 clients pay by adding additional advisory
services to their client’s agreement.
To some, this sounds impossible. I encourage you not to resist what is
transpiring in the global business world.
According to a study by KPMG LLP and HfS Research, a leading analyst
authority on global business operations strategies, the finance and accounting
business process outsourcing services will surpass $25 billion globally in 2013
and grow at a compounded rate of 8% annually through 2017.
Outsourced accounting services (OAS),
business process outsourcing (BPO) and management advisory services (MAS) are
all terms firms have utilized to increase services. The trend in business is to "mesh” or "source”
in order to:
- Pay for what you need, when you need it
- Experience fixed-fee pricing
- Access broad-based resources from a bench of talent
- Experience convenience and collaboration through a web-based
Joseph Schumpeter, a Harvard Economist,
coined the term "creative destruction” referring to how technology and market
conditions commoditize industries.
Accounting services are not exempt.
All industries go through various stages starting with emerging, growth,
status and depleting phases. Twenty-five
years ago most firms did some sort of write-up work that included services
ranging from general ledger, payroll and accounts payable. They may have utilized a more sophisticated
name such as Financial Reporting. These
services became commoditized due to the personal computer and software like
QuickBooks in smaller businesses.
Another cycle has occurred in our industry due to technology, scarcity
of talent and the desire by business owners to "mesh” or "source” these
services due to the economics. In-house
systems are expensive to maintain and staff often are underutilized.
The Internet or Cloud, as the industry
refers to the new technology, offers a collaborative platform that is much
cheaper, better, faster and easier. Even
Intuit, an industry leader in small business software, has been
challenged. Their desktop software,
QuickBooks, runs in the Cloud (hosted) via emulation and their QB Online
version is not as feature rich as their desktop software. Some might say Intuit did not invest early enough
in new technology. While you cannot
contest their market share, accounting firms should select a platform that will
enable them to offer collaborative services at multiple levels in order to
benefit from this growing trend. The
levels of services are:
- Level 1 – Transactional
Services (bookkeeping, tax returns & financial reporting)
- Level 2 – CFO Services (financing, budgeting, cash flow & data analytics)
- Level 3 – Planning Services (strategic, succession, technology, & talent development)
Most firms have done a limited amount of these
services in the past, but it has not been as profitable in most situations due
to issues such as, inadequate bookkeeping skills at the client’s office,
version control (multiple version of the software), licensing and hosting
requirements, lack of integration of applications, file transfers and the
timing of year-end corrections and adjustments for tax reporting.
Creative destruction typically allows
industry transformers (new players) to enter the market and accounting is no
exception. One challenge is for firms to
stay informed and utilize platforms that meet the needs of their clients. The leading platforms we see firms using
today are AccountantsWorld, Bill.com, Intuit, Intacct, Net Suite, Sage and Xero. This is a global market and development will
continue at a rapid pace. CPA’s should
not discount the importance of the ecosystems surrounding these leading
platforms. You may also be surprised to
learn that reporting tools, dashboards, work papers, workflows, project
management and CRM are all available in the Cloud. Development in the ecosystem is at an all-time high. Why? Because there is less friction in the Cloud
and developers are able to develop applications that will integrate accurately
and easily reducing the number of databases most firms have struggled with in
the past. The pressure is on for
software developers to open their proprietary databases. Many of these platforms are coming from
outside the United States…a global economy.
If you want to learn more, blogs are a good
way to communicate with peers. Another
way is through a community like The Producer Circle TM, which is a community of business and IT savvy
thought leaders focused on providing improved client accounting service and
achieving firm growth and profitability by leveraging technology and the Cloud. You can learn more at www.boomer.com/?page=ProducerCircle.
Firms who are providing these services
through a variety of Cloud-based platforms are reporting some interesting
- Clients are increasing services in all three levels (Level 1 –
Transactional, Level 2 – CFO and Level 3 – Planning) and readily accepting
value creation agreements with payment terms that improve or eliminate
firm issues with accounts receivable and work in process. Most firms are
assured payment by ACH on the first of each month or work stops.
- The client’s books are accurate and timely which reduces the time
required during the traditional busy season for tax return preparation and
other reporting. With accurate
financial information, it is much easier and faster to deliver CFO and planning
services. A CPA’s involvement in
the production processes is generally more efficient than trying to
correct errors at a later date.
This is a basic principle of Six Sigma – drive out errors early and
at the lowest possible cost.
- Bill payment and payroll can be directly integrated into the general
ledger allowing firms to provide these services, source the service, or
allow clients to utilize the available tools in an integrated accounting
- Client referrals are increasing in various industry niches such as
medical, not-for-profit, churches, real estate, property management,
hospitality and service industries.
Interestingly, most firms admit they "fall into a niche” rather
than plan for a niche or market segment.
- Clients appreciate the reduced investment in technology
infrastructure, the security of a system hosted in the Cloud with offsite
backups and access to a professional bench of resources.
- The ability to integrate affordable systems like CRM, Project
Management, Workflow and Inventory/Point of Sale brings tools to small
business that only larger businesses could afford.
- Firms experience an increase in profit margins over their old processes
and systems. Once a solid team is developed,
the revenue per full-time equivalent increases rapidly and above that of
traditional accounting services.
- Firms are able to attract and employee remote workers who only need
a browser and Internet connection.
This type of arrangement works best with experienced personnel.
- The more services a client utilize, the longer the life cycle and
greater the value of a client.
- The business model is more like the "Blue Man Group” than "Siegfried
and Roy”. Standardization of your people and processes rather than creating a service that is all about one or two partners.
The challenges for firms range from
leadership to how to package and price these services. The old hours times dollar model does not
work. Firms also must change their value
proposition and marketing message focused on a collaborative team approach
where clients have access to as many resources as they need and when they need
them. These services are best delivered
by teams that include:
- Entrepreneurial leadership
- Client representatives (marketing and sales)
- Business analysts (processes, technology & accounting)
- Project management and administration
The easiest way to take advantage of these emerging
trends, avoid commoditization and make the necessary changes in your firm is to
focus on your best clients. That is
where the extra zero comes into play. Look
at last year’s fees for your top 100 clients.
Add one zero to their annual fees and then brainstorm about the services
your firm could offer to provide 10 times the value. Your biggest challenge is taking the time to
think about the opportunities and the required changes in marketing, staffing
and profitability. Your peers who are
transforming their firms to this model are experiencing growth, increased
profitability and the ability to attract and retain quality people. As Kurt Gödel’s law states; to understand a
system, you must get outside of the system.
This may simply require outside coaching and assistance for many
multiple partner firms due to the change from independence to advocacy. Don’t be afraid to "mesh” resources for your
own firm! Firms will continue to do both
types of services, but the growth is coming from advisory services in most
firms. Gaining and maintaining
confidence in the new service line is critical.
It requires change.
Okay, so you can’t add another zero. You can
only multiple current revenues by 2, 3 or 4 times. Most will view that as a successful start. Regular client meetings will uncover many new
opportunities. Also, don’t forget about
filtering the clients who don’t meet your new criteria. They will only take time and resources that
distracts you from serving your top clients.