Hitendra Patil, head of customer success at AccountantsWorld and a four-time member of Accounting Today’s Top 100 Most Influential People in Accounting, joins us to discuss his new book, The Definitive Success Guide to Client Accounting Services. One of our most popular podcast guests, Patil covers in this episode the proper leadership mindset, the services of which clients are most in need, the guidelines for pricing client accounting services, and more.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

A few years ago, our guest today – Hitendra Patil, head of customer success at AccountantsWorld and four-time member of Accounting Today's Top 100 Most Influential People in Accounting – appeared on one of the most downloaded podcasts of our history on the topic of client accounting services. Now, from a selfish perspective, that might be reason enough to have him back on. However, the real reason is client accounting services and their importance to CPA firms continue to grow and evolve, and Hitendra just released a new book on client accounting services titled, appropriately, The Definitive Success Guide to Client Accounting Services.

As I said in the intro there, we previously recorded a very successful podcast on the subject of client accounting services. That was a few years ago, and you've since come out with a new book titled The Definitive Success Guide to Client Accounting Services. For context, what are client accounting services and how have they evolved and developed over the last few years?

[Patil] What exactly is client accounting services? I'm going to say CAS throughout, instead of client accounting services. So, CAS, it's still one of the top five questions that accounting professionals ask. What exactly is CAS? Another way they ask it is, how is CAS different than what I'm doing now? CAS is simply for you, the professional accountant, to do most of the client accounting while clients can still perform some business functions. We have the cloud and collaborative accounting solutions and other software. For example, it could be writing a check, creating an invoice, and things like that. Those are what I call business processes. Because it's all on cloud, it's all shared collaboratively. The client can do it themselves.

But the accounting part of every transaction needs to be done by a professional accountant and CAS is essentially a package of multiple services. Just to give you a little perspective, in perhaps the largest CAS survey in the accounting profession that I did with CPA Trendlines almost a couple of years ago, and it is still on, and I'm still getting responses, we found that CAS firms on average offer roughly double the number of services than non-CAS forms. What it means is there are needs that clients have and if you don't fulfill those needs, somebody else is going to do that. In the meanwhile, technology has progressed by leaps and bounds. AI and whatnot has come into picture, automation, OCR. Along with that, what happened is the client's expectations have shifted more than from a data or information-sharing point of view. Clients seem to expect far better insights and inputs into their business decision-making when it comes to CAS.

Again, in the same CAS survey, we've found that nine out of 10 firms said CAS is important for their future. In other words, technology is also enabling smaller firms to offer profitable client accounting services. If you go 3, 4, 5 years ago, this number could have been very different. And this was possibly the first time that we actually took the pulse of the market in terms of what kinds of firms are asking or intending to offer CAS. By the way, all those firms of almost all sizes responded to this our way, including solo practitioners. Yet, nine out of 10 funds say gas is important. It has evolved. The firms are recognizing the importance of CAS and the clients are also seeing and experiencing different benefits of CAS. I'm sure we will talk about it in the next few minutes.

What sort of mindset does the leadership of a CPA firm have to exhibit in order to excel in client accounting services?

[Patil] It all starts with the mindset, as we all know. I think the mindset that lays the foundation of CAS success is that of providing positive impact on clients' businesses and hence on to their lives. Accounting is just a medium to do so. You're delivering your impact through whatever you know, whatever you learn, your education, your technology, your people, all your resources put together. If your clients call you up before they make a business decision or at the time they are doing so, it means that your CAS offering is successful. It means that thinking of helping your clients make better and timely business decisions is the key to your CAS mindset.

The easiest way for this mindset implementation at your firm or even revisiting your original mindset that you began with, why did you start your accounting practice in the first place? It surely was not just to make a living. Maybe that was the initial thought, but you did not just create a job for yourself when you started on your own as a firm owner or a partner or leadership. You essentially believed that you have the competency, the knowledge, the education, the experience, the wisdom that can help others have better financial and business lives. Isn't it? So, CAS is about living that purpose, truly, every day.

What are the accounting services clients are in most need of? What are the services they seem to most want? Is there a difference between their wants and their needs? In other words, are CPA firms fully aware of what they seem to need most assistance with?

[Patil] I won't really go into fundamentals here. There's a lot of data and details that I have in the book on these services. But essentially human behavior science has proven that people are willing to pay more for their wants than their needs. Something they have to do because of external compulsions is always looked upon as a cost-conscious kind of a lens. But when it comes to accountants' clients, if such clients have not experienced the value and impact of the insights that CAS can deliver to them, clients may not even know what they should want. Once they experience what they have been missing, as long as it provides relevant value to them, they will start wanting it. There is a distinct difference between what's the want and what's the need.

For example, I know there is a small client, maybe a mom-and-pop shop, they will definitely want to keep their costs down in terms of what's the total cost of accounting compared to let's say their total revenue of the year or total profit of the year. They're going to say whatever is essential by law, just let me do that. I don't want anything else. Versus growing firms and businesses, their wants can be very different. Again, from that same survey that we did and 10,000-plus responses came in, 3,000-plus detailed responses, from that we figured CFO and advisory services, cashflow management and cashflow planning, tax planning, budgeting, some of these are the top services that are in demand in terms of what the clients want. They might need it, but they may not know. The moment they see the value, they kind of start wanting it.

Again, bringing the little fundamental into the picture, most of the services that I mentioned here, those are based on the current-or the future-driven business decision-making. It's rarely the rear-view mirror service that is in demand in terms of CAS. That is where CPA firms should focus. The gold mine lies within their own client mix right now, whatever they have. As long as you're curating and discovering their common questions and things like that, you should be able to find out what their wants are.

Many times, I've experienced people telling me … accountants – again at AccountantsWorld my whole role is dealing with accountants day in and day out, so I have lots of discussions literally daily with many different sizes of firms … and many times what they say is that sometimes I say a normal thing which I think as a CPA, this is what I do every day. This is what I see. This is what I explain to my clients. And suddenly the client goes, "A-ha, I never knew that you could figure that out." Those are telltale signs that, look, there is a gap that client cannot fill because the client is not a professional accountant in the first place. They don't have the technology and the experience and the processes that you have to uncover that insight for them, which is useful for the client.

How important is it to be able to communicate the value of client accounting services and how does a firm best do that?

[Patil] Years ago – I think five, six years ago when my first book was published – before that I gave it to one of my clients, a CPA, an award-winning CPA 10 years in a row, the best CPA in town in the city award, a good-size firm. I said, "Okay, can you just give me a little feedback on this book manuscript?" A couple of days later, he just called and said, "Why are you making me talk in terms of words? I'm a numbers guy. Ask me numbers and I'll tell you." That is quite a challenge. It's not easy to communicate the value of what you do to your clients. If your client ever says or even prospects for that matter, "Oh, I can't afford your services or it's too expensive." Essentially, it's not about the price. It's about the gap in what you're thinking is of value and where the client is thinking in terms of value. Communicating value is quite a challenge.

If you go to your existing clients and show them some new reports and say, "I'm going to charge you more now because we are offering CAS," there will surely be huge resistance because the additional value in CAS is not in the reports but what the clients can do with the insights in those reports. Clients are not professional accountants, so they won't easily fathom what to make from those numbers or insights that they see. As a professional, you want to connect the dots between the insights related to the business situations of the client. In other words, helping clients make sense from the numbers and the trends, but from a business decision-making standpoint. It kind of hovers on the consulting advisory services zone, but it is a bit different. It is more about practical, tangible, frequent, decision-support insights. The more you communicate the underlying insights, the more your clients will remember to call or email you when they want to make their business decisions.

That's on the client side or the external side. CAS communication starts within your firm. You want your partners and your staff on board first. I know one of the firms told me, I still distinctly remember, that they had a little bit of a net-worth tax practice, meaning their tax clients were high-net-worth tax clients and they're making four-hour return on their time was significantly higher. This hard bookkeeping is equal to CAS and it won't get as much money. Why should we do that? But that's not the case. Ultimately, even tax planning comes or emerges from within those books and the way the transactions are happening. Essentially, it's not just recording a transaction into an accounting software, but also trying to think in your head, "Why did the business owner make that decision or not make that decision?" Hence, this transaction came to be and hence these numbers came to be what they are.

So you want your partners and staff on board first that on the surface of it, it might look lower for hour return. Again, hourly pricing is a different subject matter altogether. But the kind of insight that you can land upon when you're handling business transactions for the client is very, very critical for everyone at the firm to understand. So you start within.

Then, your CAS communication to your existing clients will be different than that with your prospects. You will figure out the difference quickly if you're started your CAS or you're already a little further on the insight in your CAS practice progress. Actually, what your clients ask you frequently and commonly is what you will communicate with your CAS prospects also. Something like, "Most of our clients rely upon XYZ insights that we deliver them every week or month. Here is what those insights look like and here is what decisions that client makes based on these insights frequently." That gives a little bit of experience to the prospect, even non-CAS clients. "Oh, I'm missing out on these things. If I knew this, maybe I would make a little better progress in my business." Communication is critical, but relevant communication is what you need to keep in mind.

Becoming a provider of client accounting services, it isn't something that a firm is going to be able to do overnight. What are the steps a firm has to take to prepare for such a transition?

[Patil] I get asked this question many times. From my experience of working with firms of all sizes, I see that CAS is not really a transformation of the firm unless you offer purely tax preparation service and nothing else. It is always perceived, "Oh my God, this is going to be a huge project. It's going to turn our firm inside out," and things like that. It is not like that. Even then, you still have, if you offer tax practice or tax preparation services, you still have a captive audience for CAS in your business tax clients. Which, again, I'm trying to say here is you don't have to really think that you're going to start from zero. You already have something. All that you need is to take a little bird's eye view and see where you're going toward.

To prepare your firm for CAS, again based on several experiences that you've had, you will typically follow a very logical sequence. If you did not start your CAS practice still or maybe you're already offering some of the services, but not all of the services that you should be offering under the CAS umbrella, then you follow a logical sequence. You don't decide on your pricing first. Instead, first you take a look at your technology stack. Is it collaborative enough for clients to self-serve some information needs as well as to do some business transactions? It's really important. A technology stack that is locked into a desktop environment will never allow you to offer CAS profitably. It just doesn't help sharing information. If sharing information has to be a manual exercise, download PDF or Excel, email, then it's a massive problem surely in terms of time taken and enhanced profitability.

The second thing that you do is, does your CAS team have adequate skills to identify insights and then communicate those effectively to your clients? They might be a fantastic, experienced bookkeeper, for example, very efficient. But are they able to connect the dots between information points that they see, compare with previous few months, see the trends? What would be, again, the same story, the business decisions? These were the business decisions that the client took or made. Hence, these are the numbers that are showing up on the books or maybe they did not make. So, one is identifying insights and how do you communicate those effectively? That's your second thing.

I think it takes a bit of time to practice this internally. The best thing to do here, as I always suggest, is take your partner who generally deals with your clients, to discuss these business kinds of discussions and just let those staff shadow those discussions. Shadow, meaning just be there, don't say anything. Be a fly on the wall and try and absorb as much as you can during those discussions without taking any notes. Then, go back and make notes. What did you learn? If that comes from memory, you have the battle won there. Because now you remember, instead of making notes during the meeting. These are tactics that you can use, but, suffice to say, you need those skills.

Then the third thing is – this is pretty much visible, but sometimes invisible – most of your competition uses similar technologies, the same softwares, more or less, the top, whatever you take, 25, but the technology that most of the accounting profession uses. So, similar technologies, maybe similar location, similar reports, and things like that. How can you differentiate? Your people and your processes are your key differentiators at sort of CAS systems. Only after you change your CAS processes and have them find better duplications, find if you're entering the same data twice in two different softwares, and things like that, and then our every touch points kind of cohort in some sorts of insight, even if it's a simple email, your weekly cashflow report is ready. It's not just sending that report. What do you see in that? What do you want the client to pay attention to? Spend those five minutes extra and make that process to include these kinds of insights, so all those interactions. Only after this technology upskilling and your processes are ready, then you come to defining your CAS pricing.

It's interesting because you touched on pricing to a small degree early in the answer. Let's dive into that: Is there a guideline for pricing of client accounting services? Does it vary depending on what services you offer or maybe another type of value proposition? What are the basics?

[Patil] Pricing is definitely one of the biggest decision forecasts, and it can make or break your profitability. Fortunately, we have some real good insights from the profession. I have shared several of the details on this subject in my CAS book. An entire section is devoted to CAS pricing. It is difficult to share all those in this short podcast, but let me share some quick pointers here.

A fixed fee or flat fee is number one among CAS forms in terms of the method for pricing. That is followed by, number two, a mixed method of fixed fee and hourly fee. Then comes the value pricing method. Even though you don't really want to bill by the hour for CAS, you may still want to compute your costs to know what is your service’s production costs. It is not just to ensure that you keep adjusting your pricing to be profitable and palatable to your clients, but also to include a price revisit clause in your agreement.

When you take a new prospect and they give you maybe last two months books or whatever you are getting for prior information. From that, you see, let's say, they have 150 transactions on an average in a month and there are some asset-heavy transactions and things like that. Then, you say, "Okay, maybe our costs will be this much." Then, you see, oh, actually they hired a new marketing person and they have new funding and they actually are buying a different company in the same profession. Hence, the number will go up in six months’ time to maybe 600 transactions. What do you do then?

In such cases, you are always telling the client, "Look, based on what you said, what your transactions are, based on the information you provided, we are going to start with this pricing. We will talk to you after 90 days, give you enough data from your own books to see what the trend is. Then, we will fix the pricing for the rest of the year. When the year ends, we will also take a look at the trend of your growth and all that and we adjust your CAS pricing. God forbid, if your business slows down and if your work reduces, we will also reduce our price. There's both ways." More or less, the customer’s prospects should be able to see the logic and reasoning behind it and be able to accept that.

Then you definitely want to see what type of service components you are including. As I said in the beginning, CAS is essentially a package of services. You need to know and you need to have a handle on what exactly is going to be your price if you include, let's say, 12 things in a package. In that case, let's say, advisory, it requires a partner with significant experience to spend key hours to look at things and work out and advise. How are you going to build that up in your pricing? You've got to have some kind of a mechanism behind you.

I know for sure, some people, some firms, calculate based on per transaction in terms of cost. I would definitely recommend not to think in terms of cost-plus kind of a pricing, although that is important from your profitability point of view. Why I say that is, let's say you hire two new staff members and they're learning. Your cost of production is higher because they are slow. If you haven't picked up the processes, you don't want to bill inefficiencies of your firm to your clients, and that can make it very, very difficult. But, again, this is from one client point of view, you look at and review. Overall, let's say you're offering services to 60 clients. What's happening with all those 60 clients put together? That's another thing that you would want to review in terms of your own CAS pricing and profitability.

What are the essentials of an efficient marketing/sales operation for client accounting services? What do they have to be doing?

[Patil] We actually have some real insights from our survey here in terms of which are the most popular marketing methods for CAS firms and which are those that the non-CAS ones can use. Across the segment, referrals are still the number one source of getting new clients, but it's with a twist. Firms are actually proactively seeking referrals, not waiting for them to come in. I remembered my discussion with one of the top 100 firms. Even they get most of their clients from their existing clients’ referrals. But there is somebody who actually tracks every client of theirs and how many referrals they've given in, let's say, a quarter. Then, they actually reach out to that client. "Hey, in the last quarter, you did not give us any referral or you gave us only two referrals whereas our other clients are giving us 6, 7 referrals every quarter. So, we believe there is something wrong in the way we are servicing you. You may not be happy and we are really concerned."

It becomes like, okay, actually you should be concerned in any case if somebody is not referring a client to you and you believe you've been delivering great service. That is what I mean by proactively seeking referrals. Some of this also turns into an online kind of thing. This is one of the most effective ways that I've seen people getting referrals and that is in terms of reviews and testimonials that your existing clients can go and post online and especially Google reviews. Google, essentially, treats every business as a local business. Anybody searching your kinds of services in, let's say, 20, 30, 50-square mile area from your office. If you have more Google reviews, you will show more on the top of the list. That is how you start getting new leads and queries from this. Essentially your current, happy clients are your salespeople and are your marketing people. You've got to make sure that you don't miss out on this resource.

Then, I have several examples of how accountants have created really thriving, vibrant Facebook groups of all the things. It's free. You don't have to pay anything to anyone. They might go after you for your advertising, and we will reach your message to more. You don't have to do that. What some of these clients do, and I found the common way that they're doing it is, they generally focus on some client niches or industries. For those industries and niches, they create those specific Facebook groups. In that, they keep posting, once a week, some kind of a content that is useful to the types of clients that you want to attract.

What happens is slowly the algorithms start showing that content to the right people. Then they come to this group and they say, “Oh, this is the question I had in mind. Great. I found the answer. Let me bookmark this group or become a member of this group." As long as you're posting at least weekly a little insight, doesn't have to be big-time research or anything. It could be just a simple and common question asked by most of your clients in that niche or industry and what is the answer. You'll tell what, and you'll possibly give some information, but you want the reader to come and ask you, "How do you do that, Mr. or Miss CPA?" That's where you get your new revenue opportunity. That has worked phenomenally well.

I have one of our really favorite customers at AccountantsWorld, a small firm in Indiana, 20-plus years in practice. For 15 years or so, mostly clients in Indiana. And then, after all this smart marketing, now they have clients from 21 different states.

Just because of these two Facebook groups that they run for the two different niches that they are working in. Their profitability has gone up. The number of clients has remained the same. They're making 75% more profit, which means they're selling more to each client than selling to more clients. This is what can happen in terms of the impact of this marketing. The key for your firm to see what is a good marketing and sales operation and what is not is to ensure that you're periodically measuring the effectiveness of your marketing and sales processes to keep experimenting, tweaking, and enhancing your marketing and sales efforts. Essentially, you look at just a few KPIs or metrics, numbers, how many new discussions you had with prospects. That's the number one key. Unless you have a discussion, you're not going to sell, unless somebody can really go to your website and simply subscribe to your services. Most of your sales are coming through discussions. That's the number one KPI to measure. Let's say you have six discussions in a month. You want to double that. To get those 12 discussions, what do you want to do? How are you getting those discussions in the first place? So those are the kinds of metrics that you will keep reviewing to make it more successful for your firm.

You mentioned the idea of continually reviewing. How vital is that? This isn't a one-time process, right? How vital is it once you take the dive into client accounting services to ensure that you continually take a look at your firm's performance in that area?

[Patil] Interestingly, CAS generally results in filtering your better potential clients to pay more attention to. Not just because they're going to pay you more, surely your impact of your knowledge and experience will be much more than the value or we keep building for such clients and the majority of your CAS clients should and will experience business growth, and that can increase your work volume and hence the fees can become less profitable if the work volume goes up. You are unreliable for your firm if you don't review what you're doing in CAS. So, periodically review, and you must agree to this in advance with the CAS client. Make it like an engagement letter term, and bring it to their attention that we're going to review this periodically every three months, whatever that period is. It's a must.

Also from the point of view of the value you deliver and how clients are perceiving it, experiencing it, it is even more critical than your pricing for your CAS success. Having a mechanism to create, for example, a repository of the most common questions clients are asking or they should be asking is a really important tool to enhance your CAS practice. Which means you've got to review and seek questions from your clients. That's when suddenly you will say, "This is a common thing most people don't seem to understand. Maybe our reports are not insightful enough or not expressive enough, hence these people have these questions." Those are, again, gold mines that can simply arise out of those questions.

Based on what I found after speaking with many CAS firms, initial three months pricing review for new prospects that you sign up and at least an annual service and pricing review seems to be the most common practice now amongst firms of all sizes. Again, the point is you've got to review not just from the client point of view, but also from the process point of view. You need to put in place some sort of mechanism to measure and analyze your cash profitability. Some of the things that you will initially find is you're touching the same information multiple times, but you're fetching the same information multiple times. Once done, used many times might be the mantra for your firm in terms of process efficiency gains and things like that. These are just small pointers, but I guess you'll get the point.