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Accounting firms making the move to advisory services need to start small

David Wilkins  Content Manager for Tax & Accounting at Thomson Reuters 

David Wilkins  Content Manager for Tax & Accounting at Thomson Reuters 

Leaders of small and midsized accounting firms have heard it for years: the profession is changing and to survive and thrive, they must shift their offerings from tax compliance services to business advisory services.

This transition from the technical and tactical to the strategic and consultative is a tall order that requires accounting firms to assess and potentially revamp their customer relationships, operations, technology, and business development activities.

A key to making this transition less daunting is to start small, says Charles Hylan, a managing director with The Growth Partnership, a consulting firm that advises the tax & accounting industry. The first step, Hylan advises, is to identify and target the subset of the firm’s customers that represents the majority of the firm’s annual revenues.

“Let’s not try to be all things to all clients,” Hylan says. “Instead, let’s be all things to the 20% [of clients] who are 80% of our revenue.” At The Growth Partnership, for example, 14% of clients provide about 75% of revenues, and the agency is structured to build deeper ties and deliver added value to this group, he says, adding that these accounts are shepherded by partners or other senior-level managers who are responsible for understanding and supporting the clients’ long-term strategic priorities.

Defining advisory services

For accounting firms making this transition it’s important to define precisely what constitutes an advisory service. Hylan’s definition is simple: advisory services are everything a client does that is not core compliance — for example, tax preparation, audits, and reviews.

advisory
Charles Hylan

When accounting firms set out to select the advisory services that they plan to develop and offer, Hylan advises they focus first on “traditional” tasks such as wealth management, financial planning, outsourced accounting services, payroll, tax strategy, business valuation, or expertise within a specific industry sector. In these early days, firms steer clear of non-traditional services that are more challenging to deliver such as cybersecurity guidance, technology management, human resources consulting, data analytics, and risk management, he explains.

Once firms define their services and potential offerings in this way, they often find they are already delivering more advisory services than they realized — or account for. “When you look at your bill codes, you have to define what is advisory and what is not,” Hylan says, adding that it’s crucial to train the team to input time correctly in order to generate an accurate measure of advisory work and track its impact on revenues. With that information, a firm can establish a growth strategy, goals, and metrics to monitor as they make the transition.

Culture shift

The accounting profession is built upon a few longstanding beliefs that must be challenged to successfully deliver advisory services, Hylan says. These include misconceptions such as:

      • cross-selling is pushy;
      • CPAs are trained to find past mistakes, not to recognize new opportunities; and
      • The compliance nature of the work encourages practitioners to look backwards, not to the future, as they serve their clients.

The transition to an advisory practice requires a new mindset. Hylan cites a survey of accounting firm clients in which nearly two-thirds of respondents said improving business management was a top concern for them, which suggests that they want more than compliance services from their accounting firms. This means that offering expanded advisory services is not being pushy — rather, it’s fulfilling an obligation to respond to customer needs.

“This is what your clients’ want,” Hylan says.

For the firm, this shift also reduces seasonal capacity challenges because a smaller percentage of the annual workload is tied to the tax-reporting calendar. The shift also produces team members who are well-rounded, trained to think critically about the client’s operations, and deliver a wider slate of services. And they’re also more likely to find their work engaging and rewarding, thus increasing firm loyalty and decreasing costly turnover.

Heightened engagement

Once an accounting firm has identified those clients it wants to provide with advisory support, Hylan recommends the firm be systematic in establishing and maintaining “professional intimacy” with those clients. This strategic approach should include:

      • The team — Ensure that a senior member of the firm is leading each of these accounts and determine who else will support the relationship;
      • Homework — Study the client’s strategic plan, market dynamics, competitive landscape, and its one-, three- and five-year goals;
      • Major interactions — Meet with the client (ideally face-to-face, but video conferencing will do during the pandemic) to revisit the client’s strategic plans and “what keeps them up at night” to ensure the accounting firm continues to provide relevant guidance and services; and
      • Minor interactions — Create regular connections by sharing timely or pertinent information with clients, leaving after-hours voicemails, or sending a birthday card or hand-written notes with the goal of deepening relationships and strengthening the firm’s reputation for thought leadership and its focus on the customer.

It’s important, Hylan notes, for accounting firms to ensure that team members have the time and processes necessary to make this happen — and that they are held accountable for using them.

Getting this right, he says, enables the firm to migrate from compliance to advisory services, deepen client engagements, increase cross-selling, reduce revenue seasonality and fee sensitivity among clients, and train team members to think like partners.

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