Jun 18, 2020

The CPA’s Role in a Post-COVID Economy

In a podcast related to their feature in the summer 2020 Pennsylvania CPA Journal, Paul Epperlein and Erron Stark of ADP in New York City discuss the CPA’s role in helping both their clients and their employers navigate the complications of rebuilding businesses after the coronavirus outbreak. They explore the needs of small business, the particulars of change management, and the long-term benefits of handling clients with care during trying times.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

The coronavirus outbreak has had an impact on all aspects of daily life and the accounting world has been no exception. In the summer 2020 Pennsylvania CPA Journal, Erron Stark and Paul Epperlein of ADP in New York City sought to delineate the best ways CPAs can aid their employers and clients in recovering from the impacts of COVID-19, with the aftereffects ongoing and set to be long-lasting. The authors join us today, going in depth into their feature, discussing current best practices as well as the road ahead. Erron, Paul, thanks for joining us today.

Why is it that CPAs are so important to businesses during challenging times such as the coronavirus pandemic?

[Stark] I think one of the old adages in my 14 years working here at ADP and working with accounting professionals is they have always been perceived as the doctors to a business. It would apropos that, during this type of pandemic, this type of crisis where everybody's looking for some type of consultation, a business would be overly reliant on their consultants in the form of their accountant. To really help guide them through all of the different complexities that come with keeping their business stabilized. Recognizing the appropriate KPIs in order to keep their business afloat for some organizations.

It’s the lucky few that have been able to accelerate through this pandemic and then be prepared for when the rebound comes. Hopefully that is sooner than later, but the accounting professionals are all the masters and subject matter experts in those areas. I think that they have, in some cases, always been viewed as number crunchers. But I think what we've really seen during this time period is that they are so much more than that.

We can talk through some other areas, but ultimately I think that it has shown that the vitality of a business is dependent on having a really good accountant and accounting partner that can help them identify all the different ways to navigate their business. I think that the opportunity in this pandemic that surfaced is the accounting professionals have really shined and have helped their clients, especially in the small business community, be prepared as best as they possibly could.

[Epperlein] Great point, Erron. The only thing I would layer in there is business owners have kept influencers of their business and key advisors of a couple of different shapes and form around them forever. That could be bankers. It could be benefit brokers, financial advisers, lawyers, but the CPAs are the ones that are there more than any of them. A lot of those other ones – lawyers, benefit brokers – are kind of trigger-event-based needs in terms of working with them.

Certainly, bankers are more consistent, but CPAs are the ones that are being looked at more than ever. And Erron said it really well, don't just crunch what happened. Don't just crunch my numbers and tell me what happened. Start to predict the future for me and help me set up situations where I'm more prepared. Hopefully never for another pandemic, but I'm more prepared when emergencies happen as unpredictable things happen to my business and make me more financially prepared for that, and let's limit some of these risks.

I think CPAs have also been on a journey toward doing more outside of audit and tax, that whole umbrella of advisory services. I think a lot of people probably have been recently shaken up being like, "Oh, wow, I don't even think we're on a journey anymore. We were supposed to be there. Now we're late. We're late." We have to call them and say, "We're late."

Otherwise, someone else might say, "Well, I'm already there. What can I do for you?" The explosion is happening just talking to the CEO of Withum in New Jersey. The year-over-year growth numbers he is talking about from an advisory perspective, even during a pandemic, was shockingly impressive.

We talk about small businesses here because they are particularly affected by coronavirus. In what ways can CPAs be of importance to the health of those businesses and what perspective can they offer? What's their role?

[Epperlein] I think that if I'm a small-business owner, I'm looking to my CPA to help me kind of almost classify myself, like, where am I in the midst of this situation? Am I literally desperately trying to keep the lights on and what measures can we put in place legally, financially, and from an HR perspective?

Because a lot of the decisions being made are decisions that small-business owners probably never thought they'd have to take into consideration. Things like furloughs, things like leaves of absence. You can work with your banker and your CPA and certainly ADP, and this is a huge component. I think Erron will talk a little bit more about that, to run the right report, to get the right loan that you are due by the government, and then run the right report to prove that you spent the money the right way so that it's forgivable.

But I think that sometimes it’s more than that and, again, I hate to keep going to advisory services, but as CPAs start to do more, they're starting to do more inside of human capital management and HR advisory. Small businesses actually need that more than ever. ADP certainly compliments that really well just kind of inside of our small-business payroll package with some great opportunity to get some HR guidance, so to speak.

But I think right now it's, "Hey, am I keeping the lights on, am I treading water, or is this an opportunity for my business to thrive? How do we capitalize on that?"

[Stark] I echo all of those sentiments and I would also just add, one piece has been the complexity that has followed with this particular situation that many small businesses are navigating through. It's not just about whether or not I open or whether or not I can or can't open just based on the capability from the government allowing me to. There are certain components, and speaking to one particular thought leader in the accountant community, where depending on what states that they're in and how much capacity that they are allowed to provide, it may not even be beneficial for the business owner to open at that juncture.

Having somebody that can help them understand those things, even though emotionally they feel, "I want to open because this is my lifeblood in my business." You need that advisor that's going to be able to coach you through the actual technical components that will hopefully put you in the best position for success when the time comes for you to be successful.

I think that's really been one of the biggest areas that I've seen owners flock to their accountants for guidance around. Not to mention the amazing complexity that has followed with the recording. I've been on endless amounts of calls, listening to all the different nuances that come along with the PPP lending and what is or isn't included and what permutations of calculations need to be considered for the application, for the forgiveness component.

I would say even for some of the moderate experts this is challenging, let alone the layman that is a subject matter expert in their respective profession and not accounting. Without that particular adviser at their side right now, it would be almost impossible to take advantage of what our administration has created during this pandemic.

In your feature, you talk about the importance of transparent communication between CPAs and clients during challenging times. Why is that transparency and – I think this is really important – that directness so vital?

[Stark] The conversations that I've been privy to, the reason that I've seen that transparency be so critical to the conversation between the accountant and the client, is that there really is no gray area right now. If there's any room for uncertainty, and if a poor decision is made during this particular situation, it could be detrimental to the vitality of that business. I think, for an accountant, there are some very difficult conversations that are happening right now.

But at the same time, I think this is where accountants are looking for even their own guidance, right from partners and other subject matter experts, to help round out how they approach their clients when it comes to not just the accounting component of this but as it relates to the HR side of this too. Because those two worlds have been blurred even further during this time period, where being able to guide somebody, and Paul had mentioned it a minute ago, between whether or not I have a reduction in force, or I have a furlough, what type of capacity do I really need to run my business?

Those are all extraordinarily sensitive conversations and you have to be on one side of the coin versus the other. You can't be in between. I think those conversations need to have that level of transparency to be super-crisp with the guidance that is being delivered. That way, the business owner has very clear marching orders as to how they can successfully manage through this time period.

In the article, you talk about the importance of change management and how it could be sort of a double-edged sword. Are there ways for CPAs to help their clients manage change? Then, how about best practices for managing change in their own firms?

[Epperlein] It's funny you said that because I was actually thinking more about the firm. I think we covered some of the change management just in terms of furloughs, layoffs, leaves of absence, and just making sure that you're any size business, under a few hundred employees where the HR role is a big question mark. I think that's why we've seen so many HCM organizations that offer that assistance thrive over the last decade being able to have an easier financial model as you grow to get some help on the HR side without hiring.

But for firms themselves, if you look at how firms have verticalized pretty aggressively over maybe like the last five to seven years – that could just be throwing a dart at a wall – but as firms have started to vary, obviously, and, from a marketing perspective, verticalize and show that they have deep insights into specific verticals, and that's why those customers should work with that CPA firm.

What happens to the hospitality division right now? Maybe in the short term, they are flooded with questions about PPP loans, forgiveness, cashflow management, risk procedures. Hopefully some of that is billable, but I think that's been kind of like a double-edged sword where you don't want to possibly hurt your client's feelings. I think there was a lot of uncomfortable nonverbal communication where you're doing a lot of work and you're not sure if you're going to be compensated for it, but you know this is critical work that needs to be done and will probably lead to retaining your clients.

But is this client even going to be here in 60 days? I think that was like a tightrope for a lot of CPAs. I applaud the ones that did that work regardless, not knowing whether they would be compensated for that. But I have seen firms back to the vertical point, moving people to areas that have opportunities. So if there was the specialty manufacturing or logistics or distribution, a couple of areas that actually have, I don't want to say thrived, that doesn't feel right, but just ended up in the right place at the right time where other businesses were not able to be in business.

I've seen kind of little nimble SWAT teams being built and shifted around to capitalize and support the activities that were happening there. I think you need to keep in mind when you are verticalizing, either making sure that folks have multiple … like a major and a minor from a college perspective, where, "Hey, I'm going to be full-time auto, but I'm also going to be ready to rock with manufacturing should they need my help."

I think we used to see that on the audit side. They would assemble different teams for larger engagements. But I think you have to have like a cross-functional team ready to be put wherever the action is, so to speak.

One line in the feature states that CPA firms should weigh their fees “as an investment.” You addressed this a little bit, but what does that mean exactly?

[Epperlein] When I look at CPA firms, I see firms that have been looking in the mirror over the last few years as advisory services continues to grow. The ones that are challenged, actually all of them in some way, shape, or form are challenged because they haven't really spent a whole lot of time with selling skills and being comfortable selling. I've done a lot of work with firms like the Visionary Group out of Chicago and we look at different revenue opportunities inside of firms and where the revenue comes from.

It's typically only like 10% of any firm are folks that are outwardly and successfully capturing new business. So if firms are growing on average 6% to 10%, or whatever it is, a year and not so much of it is coming from new business, well, then we would have to imagine that just retaining a big book of business, and especially through merger and acquisition, that's one way of grabbing a lot of customers at the same time. Then they have to know who you are, know what you do, and they have to decide to stay with you.

So if staying with me is where I'm going to get most of my revenue while we learn to cross-sell and share customers outside of tax and into advisory and outside of audit, possibly into outsourced accounting or whatever it may be, then it just becomes really critical that, in a time of absolute need, you ask yourself, "Well, hey, is putting a full-court press on an outstanding client engagement bill of X dollars really what's most important to the long-term financial reward of having this customer?"

Again, back to the conversation with them that they said that, I think, they were down about 3% in collections, but they fully anticipate getting them. It was just a matter of needing more time to do that. If you're just not going to give ... I mean, everyone's giving everyone more time to do that. So I hope it was a strategy for most firms to say, "Hey, let's extend all receivables by 90 days because having these customers is really critical to being able to keep our own lights on."

A lot of this feature concentrates on what we're talking about here, how steps taken during the crisis can benefit firms in the long run. One of them is handling clients with care. CPA firms themselves, as you've talked about, they may be financially hurting through this. It could be tempting to fight for the fees. But the better long-term approach could be to go a little easier. Does handling with care mean other things as well, such as more frequent communication? What falls into that?

[Epperlein] We at ADP have an advisory board and we actually asked them this very same question as it relates to how they are handling this very sensitive and empathetic time in dealing with their clients, understanding that from a financial perspective many of them are strained and to expect that they're going to drive revenue for their firms. There's two schools of thought that we've heard. One is, "I'm going to be altruistic right now, help my clients. That way, as the economy rebounds, as my clients get back to whatever the new normality will be, I will be viewed as this invaluable asset that can never be replaced. In the long-term, it will secure that client for me, which will end up bringing back the profits in that type of long-term effect."

However, there has been another school of thought, or the flip side to that is, "Hey, during this time period, I am helping you and your business potentially obtain funds that are going to help your business accelerate or maintain the level that we're at today. Because of what is needed in order to do that effectively, efficiently for your business, there is a cost to that and there's a premium for that."

Those that have deployed that type of approach have actually seen a very positive reaction from their clients. Albeit that they had to balance that with sympathy and empathy. At the same time, their clients have been extraordinarily appreciative of the fact that, "Yes, you were able to do X, Y, and Z and, because of that, I was able to obtain A, B, and C. It warranted the cost that you presented."

I think that there's a learning opportunity there for potentially that other school. Because the one risk that first group takes is if I'm overly cautious with really putting a price tag on the value that I bring to my clients today, there may not be a client tomorrow that I might be able to recuperate that from which could have a detrimental impact to my firm long-term. It was an interesting conversation and dialogue with our advisory firm. I think that the latter group, albeit that it may be more uncomfortable, had the more viable approach for a firm both short- and long-term.

If you could sum up, what do you think the CPA firm approach should be as we navigate, hopefully, the conclusion – to some extent, because this is going to be going on for a while – of this crisis and what they should be concentrating on as we move forward?

[Stark] I think their competence should be at an all-time high as far as their worth to the businesses that they serve. It's not to say that they should take advantage of the situation, but I think Paul was stating it very articulately where the ability for a firm today is to expand upon the valued services that they provide to their clients. If there are certain clients that don't necessarily agree with that, then there may be a risk of losing that particular client.

However, I think the engagement and the clientele that they will eventually have by taking that path will be more profitable. Honestly, from an experience perspective, probably a better experience, not just for the client, but also for the firm. They will eventually wake up one day with a book of business that they are prideful to work with. They don't feel that they're being pressed because of the price structure that they have. They feel like they have a client base that values their services and the advice that they bring.


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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.