It seems like everyone today is telling those of us in the accounting industry that we have to switch and focus on advisory services — but no one is telling us how. Vendors are also providing solutions that they claim will enable us (accountants and bookkeepers) to provide advisory services. However, it takes more than just technology to become a good advisor. What exactly does it mean to be a good advisor? It means that we help our clients make better decisions.
Donny Shimamoto will present the session, Adding Advisory Services to a Compliance-Focused Firm, at Accountex USA 2017.
Enabling Clients to Make Better Decisions
To prepare to provide advisory services, you first need to shift your mindset from a historical (compliance) perspective to a more future-oriented perspective. Pragmatically this means that you have to switch from analyzing the past and telling your clients what happened, to helping them make better decisions about the future. This doesn’t mean giving up historical analysis; it means drawing the insights out from the past to help drive future decision-making.
I like to use CIMA’s decision-making model (see graphic below) to understand how to drive better decision-making and truly have an impact on your clients. As accountants, many of us are comfortable gathering data, generating reports, and analyzing the numbers (the first three phases in the decision-making model). However, if you stop there you aren’t really having an impact on your client. You need to continue to the next phase of pulling the insights out from the analysis — and then ensuring that your client is using that to help drive their actual decision.
Sometimes that actual decision has already been made. In cases like this, we need to follow the same process of gathering data, analyzing it, and providing the insights to help validate (or invalidate) a direction or influence the execution of that decision for the best outcome. If the decision is one that is executed over time, part of the influence phase is also tracking the data over time and analyzing it to ensure that the execution of the decision is having the desired impact.
As the decision-making model shows, this is a shift outside of many accountants’ comfort zones since it is a shift from technical (financial accounting or tax) skills to more commercial (business and management) skills. However, this shift also provides a lot more value to clients as it positively impacts their ability to meet their goals—whether individual or for a business.
Adding Decision Support to Bookkeeping
Let’s look at how the above applies for a bookkeeping client that is having cash flow issues. You perform your standard compliance work of preparing the monthly financials, which includes an accounts receivable aging analysis. As part of the aging analysis you show the client which customers are most behind and tell the client to go collect from those customers to solve the cash flow issue. Done. Problem solved, right? No. You’ve really only told the client what has happened, you haven’t helped them ensure that the problem doesn’t recur in the future.
I would take my analysis further and look at the customers that are slow to play. Is this a recurring pattern? Are the customers that are slow to pay consistently slow to pay? If yes, then you may want to recommend a customer-focused intervention, like tightening up credit provided to that one customer or requiring the customer to provide a deposit or retainer for purchases.
Or is this a problem that is widespread among a majority of customers? If yes, then you may want to recommend a change to overall customer credit policies, like requiring credit checks and enforcing customer credit limits based on creditworthiness, or setting deposit or retainer requirements based on the type or work or product being sold. Or is simply a payment terms issue? If the client isn’t enforcing payment terms or is providing too long of a period for payment terms, could they shorten the terms that they provide to customers so that customers pay faster?
These are the types of insights and options you can provide to clients to enable them to make better decisions around their customer-related policies. It’s really about taking your analysis one step deeper and looking at the underlying causes of the problems and providing options that can meaningfully impact the situation in the right way.
Adding Decision Support to Tax and Audit
One of the easiest ways to add decision support to tax and audit clients is by using benchmarking. Benchmarking is essentially taking your client’s end-point financials or tax return and comparing them to a base of similar individuals or organizations. From this analysis, you can extract the insights that can drive improvement of your client’s financial outcomes. There are multiple vendors that provide a database of financials that can be used for benchmarking. Industry associations and groups also often have a survey or database of information that you can leverage for benchmarking for clients in a particular industry.
In the tax context, this may be benchmarking against other similar taxpayers and seeing what type of deductions or activities they may be engaged in and seeing how your client compares to them. This doesn’t mean that your client should be the same as all of the others, but it provides a starting point for looking at what similar taxpayers are doing (or not doing).
For example, you may run the analysis and see that other similar tax payers have a lower tax burden and higher deductions from investments than your client. So then the question is should your client be changing their tax strategy to better manage investments and timing of loss realization? This leads toward tax planning services (rather than just tax compliance) and improving the decision that your client is making to help manage their investments and future tax burden.
In the audit context, you can do benchmarking against other similar organizations, not just around the financial statements but also around key performance indicators (KPIs). Building upon the bookkeeping example above, if a client has cash flow issues, you could use benchmarking to analyze their accounts payable days outstanding or write-off percentages compared to organizations of similar size in the same industry. You may perhaps find that your client has a greater number of days outstanding or that their write-off are higher than other comparative organizations.
If you work with other clients in the same industry, you could look at other clients and see how they are managing customer credit and collections and share some of these options with the client that is having the cash flow issues (de-identified, and assuming that the other clients’ practices are not proprietary, remember to always maintain confidentiality of your clients’ business practices and intellectual property). Since we have to be careful of independence issues with audit clients, remember to always provide options to clients and to not step into the design of controls or management decision-making in the way that you provide these insights.
Advisory Services Doesn’t Mean Revamping Your Entire Practice
Providing advisory services to your clients doesn’t mean that you have to change your entire practice. In fact, doing the compliance work and having the deeper operational understanding of what some clients are doing and whether it is producing effective outcomes for them is what allows you to provide other clients with options and to share information about what works and doesn’t work.
The following Accountex USA 2017 exhibitors support the delivery of advisory services:
Finagraph (business reporting and benchmarking)
LivePlan (business planning and reporting)
Prophix Software (business planning and reporting)
To add advisory services to your practice, start first by shifting your mindset from “How do I get these financials or tax returns done?” to “What insights can I draw from these financials or the tax return?” Ask yourself how you can leverage those insights to help your clients make better decisions that have a positive impact on their success. By doing so, you’ll not only help your clients succeed, but you’ll also position yourself as an advisor who they can’t do without.