In my first article we examined the opportunity and need for accountants to offer structured business advisory services beyond the ad hoc advice offered at the compliance meeting. Revenue potential – we looked at the rule of fee flexibility which highlights the further budget clients have for services that solve problems and deliver value. I also looked at some of the basic sales steps to position yourself as business advisor and then a look at the importance of following this up in your engagement letter.
As water down the mountain follows the path of least resistance so do accountants default to delivering compliance services which do not require the effort and persuasion that is often the case with advisory services that go beyond these ‘must have’ services.
Back in the 1980s most accountants embraced computers as they delivered the ability to mechanise our processes segueing from hand-written to keyboard driven. Today, as compliance is being increasingly digitalised our core revenues are threatened like never before. Yes, we have embraced cloud-based solutions but the providers of these services are also positioned themselves to go direct to market and in so doing by pass the accountant. Governments worldwide have either embraced online filing or, most certainly, are processing plans to maximise the opportunities online reporting provides.
Covid has only hastened this transfer of service provision.
Tomorrow’s practice – the audit
Tomorrow’s practice (if not today’s in some countries) will see audits delivered remotely – this has happened in the UK, Australia, USA and many other countries while it was not possible for staff to attend client’s premises. In most countries an audit is no longer required for every company. As a consequence this has become a specialist service. Mandatory rotation can only serve to further shake up the marketplace. The experience in many countries has evidenced that the audit has become more of a commodity (sorry, I use this term but strongly disapprove the common use thereof) driven by price. It is not a service that many companies ‘enjoy,’ as it is mostly mandated by statute as opposed to consumer choice.
Tomorrow’s practice – tax and financial statements
These are already being fulfilled by technology solutions so this will inevitably result in compliance being more and more specialised with the result that future service providers will, most likely, become technology companies – although not necessarily being developers of technology.
What does this mean?
I think the answer to this question depends largely on what strategic approach you take to the market. It will inevitably mean greater investment – in applications and staff training. Margins may well reduce as technology companies look set to establish rates that are not driven by hours or human interaction. However, while it might appear on the surface that our core service is ebbing away I find the opposite to be the case. Let me explain…
“I have no interest in filing online, and besides are my numbers correct?” As I think you may be aware I am the founder of an accountancy business in Bristol, England. There were 55 of us serving about 850 clients. So, you can imagine I was well accustomed to completing hundreds of tax returns. But, the fact is I have engaged an accountant for the past 20 years to prepare and submit my personal tax return. Why? I am more interested in my business rather than spending time on the taxman’s website. Then there is VAT. In the UK we are required to submit VAT returns online using a Cloud based application. My wife continues to maintain our records on Excel. Guess what? I have had to adjust my online records for each of the last six returns as these were not as accurate as my wife’s records.
My prediction: I am convinced that many clients will require the intervention and blessing of the trusted accountant before they press ‘submit’.
In the UK with Making Tax Digital (MTD) it is intended that in April 2023 (per HMRC):
- Under MTD it is proposed that the Self-Assessment tax return will be replaced by five new reporting obligations made during and after the tax year.
- This measure is due to commence on 6 April 2023 for self-employed businesses and landlords with business turnover above £10,000 (Me – a minimal amount I am sure you will agree).
- Your first tax return under such a system is due in the fourth month of your accounting period, you will then have to file with HMRC every three months. For example, if you have a 31 March or 5 April year end, your first return will be due on 31 July 2023 or 5 August 2023 (full details of deadlines to be confirmed by HMRC).
- If you are not already using software for your record-keeping/accounting, you will need to learn how to use a spreadsheet or some type of accounting software or App.
- You will need a reliable internet connection and a facility to store your electronic data.
The effect of this? Threefold:
- There will be a swift move toward being much more timely
- Accountants will become much more of an internal team member for the business owner, and
- As our value increases so will our revenues – maybe three times current levels, possibly more.
Key Action: Wherever your business is based – being up to date is going to be more important than ever.
Key Test: Your lock up MUST reduce.
Key Concern: How readily will we move from historical to real time reporting and will clients leave us dealing with filing at the last minute?
Let’s move on to look at specialisation and advisory services.
A few basics:
There are two types of specialisation:
- By industry, or
- By service
Many firms have clear and robust services by [industry] sector. There are well over a hundred that I have identified and so I am sure there are far more. When you specialise by sector you are expected to be an “inch wide and mile deep.” You will have significant industry knowledge, being up to date with industry issues, trends, benchmarks and so on.
Examples of your activities: You might write articles or blogs for the industry; you will have staff who also have specialist knowledge; you might also speak on these industry platforms; you might conduct industry surveys. Your website will clearly evidence your expertise.
Most importantly, your prices will be higher than other firms who do not specialise. Not less. You will also provide services that go way beyond the compliance services – that is one of the key reasons clients appoint an industry specialist.
These are services that can be [mostly] delivered across the board to all clients. They can include services such as client accounting, payroll, management accounting, wealth advisory, business planning, business funding, corporate finance and so on. Some of these services will, most likely, be delivered by either a specialist team (e.g. management accounts, client accounting, corporate finance and so on) or an individual. However, in the case of the latter, if this is the engagement partner, it is essential that any non compliance service is agreed as a separately priced service with a letter setting out terms of the engagement. This is to ensure that there are clear engagement parameters and to avoid this being seen as a component of the compliance service.
Trusted business advisor
As I have mentioned in an earlier article SAICA (South Africa) surveyed members some years ago and confirmed my empirical evidence that accountants generally only meet with clients face to face, eyeball to eyeball for about 60-75 minutes in a 12 month period. During that time there is minimal scope for giving substantial advice other than on an ad hoc basis. Yet, worldwide we claim the status of being the ‘trusted advisor’. I am not wholly convinced that we have ever lived up to this status but am totally convinced that we can be not just clients’ trusted advisor but the most trusted advisor.
Key Action Questions:
- Does your engagement letter provide for you to deliver additional service for which you will price separately?
- Does your owner team outwork setting up separate meetings with clients to discuss non-compliance service and advice?
- Are these services priced appropriately?
- Does your website highlight your primary BCS – Beyond Compliance Services?
- Does your website include testimonials from clients who have been the beneficiary of these services?
Key Action: At your next partner meeting why not brainstorm all the additional services that you are able to deliver and indicate a suitable range of prices?
- Being able to reap the harvest afforded by the rule of fee flexibility (clients have a potential budget of at least 50% of what they pay for compliance – provided they receive value)
- To demonstrate to clients that you have service of value that is relevant to them and driven by their needs as opposed to those of regulators
- To assist you personally in developing a greater sense of career satisfaction
- To stretch your talents and abilities.
- Clients will be under served
- Service that the client requires may be offered to them by other accountants
- Your firm stagnates at a time when the world is evolving more than ever before
- You lose out on revenue growth
Key Action: Having identified the services why not agree individual partner goals for service and revenue?
My next article in two weeks
I will take a closer look at what I call ‘one step’ advisory services. That is those services that clients will 100% expect you to be able to offer.