By Randy Johnston
The need for advisory services among your clients and potential clients has increased notably during the COVID-19 pandemic. Though this need has always been there, we saw it jump to the foreground this spring and summer. While we were in the thick of the 2020 tax season, the demand for federal Paycheck Protection Program (PPP) and Small Business Administration (SBA) loans stopped halted tax compliance work in its tracks as we needed to respond to our clients’ requests for help.
Practitioners set aside their tax and audit work for weeks to assist clients with loan applications, furlough decisions, stay-at-home orders, and more. Later, more advisory work arose as we grappled with how to handle repayment or forgiveness of the PPP loans and how to return appropriately and safely to work.
Much of this advisory work was reactionary – it was not a planned service offering. Unfortunately, some firms decided to give valuable advisory work away because they believed it was the right thing to do. Others will never get paid for their advisory work because the businesses they were trying to help simply shuttered from a lack of cash flow during the COVID-19 pandemic.
The point is that advisory opportunities arise almost every day with small businesses, and that advisory work can be more strategic than day-to-day accounting services. Work with clients to make investment decisions, open new locations, grow (or, perhaps just as important, not to expand), make wise hiring decisions, see market trends, and develop new product and service offerings.
CAS Is Not CaaS
Many CPA firms have embraced the vision of client accounting services (CAS). Although bookkeeping services are not as structured in the U.S. market as they are around the world, CPA firms have developed successful bookkeeping practices for small businesses. Other firms provide higher-end controllership and outsourced CFO services. This is a good step, but more firms should begin to incorporate more advisory services.
A much better name for this vital practice area would be client accounting and advisory services (CaaS). CaaS tends to be more visionary, while CAS work is more operational. Both are management-oriented, but advisory work takes more forward-thinking and flexibility. Further, advisory work requires more knowledge of business fundamentals. CAS leverages existing accounting knowledge and feels more like compliance. CAS makes the compliance work more manageable, including monthly financials, as well as compliance forms like 941s, W2s, 1120s, and 1065s.
Most clients want guidance from an outside professional adviser. It is challenging to run a small business, and it is easy to be distracted by external sales attempts, false trends, and pursuing the latest great idea. Many small business owners are entrepreneurs that love to do what they do, but they may not be that good at making the right decisions to run a small business well.
What Are Advisory Services?
In a conversation with Will Hill, senior product manager - tax professionals advisory at Thomson Reuters, he suggests, “There are no common advisory services.” He went on to say that many advisory services represent engagements to be compensated for business advice we already provide on a less structured basis and that was previously given away for free. Our conversation went on to cover services such as business entity restructuring, merger/acquisition, succession planning, and other advisory work. The key point was that the professional should speak first about their “why” and then ask the client to describe needs and issues in their business.
Try to keep in mind that client advisory services are forward-looking, while client accounting services are backward-looking. The CPA who controls the accounting will be the first to see the advisory opportunity and will have the best chance of winning the engagement. Don’t lose sight of the ethical separation of accounting and advisory work required in some jurisdictions. A note of caution: there has been concern that some CPA professionals are stepping over this ethical line and that some will not maintain the appropriate level of independence between advisory engagements and their audit practices.
K2 Enterprises has built new client advisory content that is being offered through the PICPA.
Here are some potential advisory services to consider:
- Family Office
- International Services
- Investments and Retirement
- Future Value of Investments
- Investments Needed to Achieve Goal
- Monthly Investment Accumulation
- Present Value of an Ordinary Annuity
- Years to Become a Millionaire
- Mortgage Comparison
- Mortgage Loan Refinance Analysis
- Mortgage Qualification
- Other Loans
- Standard Loan Payment Schedule
- Apartment Property
- Commercial Property
- Business Finance
- Personal Finance
- College Savings Planner
- Debt Repayment
- Gross to Net Paycheck
- Net to Gross Paycheck
- 401(k) Contributions
- Marital Dissolution
- Business M&A
- Real Estate
Advisory Services to Consider in 2020 and Beyond
Many of you have business and management services available today, but you are responding to ad hoc requests from clients. What if you could proactively offer engagements that were value priced? Could these advisory engagements be more interesting and profitable than your compliance engagements?
Writing this blog reminds me of just how many third-party add-ons and other advisory tools there are to discuss. Perhaps they will appear in a future column. For now, here is a brief list of some areas where CaaS tools are available:
- Accounting software
- Payroll software
- Third-party add-ons (providing specific solutions in inventory, eCommerce, manufacturing, expense reporting, customer relationship management, human resources, etc.)
- Integrated CaaS suite
- Dashboards and BI
- Budgeting and forecasting (including cashflow)
- Advisory-centric tools
- Integration platform as a service tool
- Document management
- Sales and use tax compliance
Small-business accounting tools have changed so much, and the demand for CaaS is stronger than ever. During the AICPA’s Engage 2020 on June 9, Jorge Olavarrieta, vice president of product management at Intuit, asked the rhetorical question, “My practice is successful, why should I change?” He followed up with three critical considerations: technology enables automation, accountants’ impact on small business, and everything has changed (referring to the effects of COVID-19 on small businesses and firms alike).
When it is snowy and icy, it can be hard to see out of the windshield. When conditions are bad, I do not pay as much attention to what is behind me as I do to what is in front of me. Compliance work is looking in the rearview mirror. Advisory work is looking out the windshield. The COVID-19 pandemic is a “winter storm.” Do you want to be looking out the rearview mirror instead of focusing on what’s ahead? What do you think your clients would say?
CPAs are educated on the regulations. You have been exposed to dozens or maybe hundreds of clients. You understand the compliance functions of tax and audit in accounting. Many have used their background to specialize in wealth management, fraud, litigation support, and more. Many in the profession are choosing to offer CAS. However, the need is growing for CaaS. Do you have the skills or desire to help your clients improve their businesses? Can you step up beyond bookkeeping? Can you take on the controllership, CFO, or advisory role? Small businesses need your help now, like no time before.
Randy Johnston is executive vice president of K2 Enterprises. Johnston develops and delivers technology-focused learning opportunities for accounting, financial, and other business professionals. He can be reached at email@example.com.
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