5 ways firms can solidify their business foundation
If you own a house, you know what it means when you start seeing cracks in your walls or your floors. Even the most ornate home, supported by the sturdiest frame and maintained with the utmost fastidiousness, is not immune to the damage caused by a foundation sinking on ground softened by the passage of time and intermittent flows of rainwater.
Some, if not many, accountants are starting to see cracks in the walls and floors of the profession we call home. For almost 100 years, we have built a towering mansion of profits and prestige on a foundation of financial attestation and taxation work. That foundation has been under assault in recent years as a slow but steadily accelerating flow of competition, automation, and changing client needs is eroding the ground on which our profession stands.
Because we have layered so much success on our foundation over the years, it is hard for many people to see the cracks, much less understand how extensive they are becoming. Fortunately, it is not too late for us to take action to stabilize our foundation and lay the groundwork for future growth.
Here are five action items that might help us challenge the present beliefs and assumptions underlying our business models.
Traditionally, accountants have provided value by inputting business data and reporting on historical results. Today and into the future, success will rely on the automation of data inputs, freeing up accountants to provide value via real-time interpretation of data. I like to refer to this as the subject matter experts that connect the dots.
Let’s inventory our clients and related services to see how much of the value we are generating today is tied directly to data input and historical reports.
Compliance services have served for nearly a century as the revenue foundation for most firms, but the value of these services is decreasing in our clients’ eyes. We see the price wars every day, with firms continually underpricing one another on a slippery slope errantly called distinction. There is nothing distinctive if all we compete on is price.
It’s evident that automation and new competitors will continue to drive down the overall value of compliance work. What if we measured how much of our present business model is strictly compliance, where we provide no other services? This is how we begin to quantify our risk. What is the plan to bring more services to these clients that help stabilize our foundation? We know that the more services and higher value services we bring to individual clients, the more loyal they are and the stronger our foundation is.
Most CPA firm business models today rely on cost-plus pricing based on the number of hours each task takes. How far can we ratchet up billing rates for the automation of tasks? When automation reduces manual time by 75%, do we quadruple the hourly billing rate? How do we capture the increased cost of technology and the time it takes for us to implement and continuously learn new technology? As our services grow in impact and worth, can we capture our worth by using the foundation of time? Is this a major crack in our foundation?
How skilled are our partners and managers in pricing the worth of our services? Is this a soft spot? One course of action might be to pair partners or any team members who price work with pricing champions, defined as team members who are skilled at pricing. Pricing is a skill, and we can capture more of the value we create when we grow this skill. Numerous consultants to our profession are providing training for pricing skills for professional services.
Cybersecurity is — and will continue to be — the No. 1 business risk. In addition, cybersecurity affects every merger-and-acquisition transaction today. That makes cyber a vast field of opportunity for assurance work, internal control work, and advisory work. Some firms could offer advanced cyber risk assessments and remediation. For smaller firms, this can also be a great opportunity to create alliances to help clients with these needs.
Do we have someone to champion the development of this team or service and capture these opportunities? What certifications, skill sets, and resources do we need to seize this enormous opportunity?
A great place to start finding out is the AICPA Cybersecurity Resource Center. It has many excellent resources, including the recently published CGMA cybersecurity risk management tool.
Clients are desperate for help with digital transformation. Are they pursuing these services from competitors other than CPA firms? Can our foundational skills capture this market opportunity? Clients are constantly engaging for strategic services and critical problem-solving today. They want to have conversations on how they can use their data, organize it, and solidify their business foundation. What is our plan to be able to extract their data, clean it, analyze it, and provide a dashboard that provides better insights and real-time information? Something as simple as helping clients automate accounts payable can be a great first step into larger conversations on data analytics.
Today, with exponential change and new competitive business models, our clients cannot run a successful business only by looking backward at the last 30 days’ profit-and-loss statement. The era of being a well-paid historian is quickly coming to a close.
Maybe our foundation is as strong as when we started our present business model. Maybe we have only a few soft spots. Or maybe we’re just blind to the erosion that is eating away at our foundation. One thing is for sure: If we continue to make sure our foundation is strong, we have more opportunity today than ever before for our profession to thrive. It requires some hard change, new services, and a growth mindset, but the fields to expand our foundations are wide open.
The point is, for us to achieve this future success and abundance, we must be diligent in assessing our current foundation and the degree of erosion that we might have. Two cautionary thoughts: A serious erosion leading to major cracks or complete disruption can happen very quickly today, and restoration projects on foundations take time. Remember, the No. 1 enemy of future success is past success. It’s not the time to just gaze at our pretty hardwood floors of success. It’s time we looked underneath also.
— Joey Havens, CPA, CGMA, is the executive partner at HORNE LLP, where he leads the 500-employee firm’s strategic visioning for culture, growth, and client experience. Learn more at hornellp.com. To comment on this article or to suggest an idea for another article, contact Jeff Drew, senior editor, at Jeff.Drew@aicpa-cima.com.
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