Tomorrow’s Firm—Think Big, Think Advisory

Paul Thompson | August 22, 2016 |

Around the world, many accountants working as or in small- and medium-sized accountancy firms (SMPs) are swapping notebooks for golf clubs at this time of the year. It’s the end of the busy season and time to relax, a chance to focus on the life part of work-life balance. But in addition to recharging, it’s also a time for the leaders of the profession—whether they work at professional accountancy organizations or accountancy firms—to reassess the bigger picture by taking stock, and reflecting on, what the future holds for our great profession. How might it evolve to ensure it retains and reinforces its greatness as the provider of essential services that sustain and strengthen business and society? For the leadership of accountancy firms, it’s an opportune time to consider whether, and if so how, to grow the firm—what are the opportunities, and what are the obstacles that might be in the way of realizing them?

Advisory

Increasingly, firms are turning to advisory services as a way to differentiate and generate new revenue. Advisory and consulting services revenue growth was up in 2015 for 32 percent of SMPs according to the latest IFAC Global SMP Survey. Furthermore, as a recent Gateway article explains, 44 percent of respondents forecasted that fees from advisory and consulting services would increase in 2016, a greater percentage than for any of the other three service lines.  

The revenue growth in advisory and consulting services is striking especially in larger practices. Earlier this year, the International Accounting Bulletin released its World Survey 2016 based on fee income and staff data of accounting networks and associations globally. This survey indicates that advisory services have been the star performer for professional services firms in recent years, and this is unlikely to change anytime soon. MGI Worldwide also notes that medium-sized firms are beginning to earn significant revenues from services that were virtually non-existent a decade ago, such as cyber security, data analytics, and regulatory advice.

Making the shift from compliance and number crunching, to advisory and consulting services, is not to be underestimated. Before a firm embarks on the journey, it needs to map out the best route. According to Amy Vetter, Global Vice President of Education and Head of Accounting USA for Xero, this demands addressing five key questions which I’ve refashioned as steps in making the transition:

Step 1. Find a Champion

Management-level advocacy and endorsement is critical. There may not be a partner available to run the advisory practice, but there must be at least one senior-level staff member prepared to champion the shift to advisory and consulting. Most importantly, the leader will need to have visible passion and commitment as his or her success in leading will rest heavily on whether the team feels the leader’s excitement. A common mistake firms make is qualified commitment, where the leader is asked to wear two hats: managing existing client work while launching the new advisory practice. Starting up a new service line requires time, energy, and focus. If a firm is serious about it, then the leader should be free to focus his or her efforts on building the new service capability and building enthusiasm among other staff.

Step 2. Identify Suitable Staff

Do staff members have an interest in advisory and consulting services? The right people will need to have, or be able to acquire, the right skill set, both technical and soft, for advisory work. But they will also need to want to do it. The end of the busy season marks an opportune time for firms to conduct performance reviews and set goals including asking staff whether there are new areas that excite them. Firms can make or buy, that is either identify staff within the firm that are interested in and suited to advisory and consulting services, or recruit from outside. Auditors will likely have honed the right skills for a smooth transition into advisory work. They’re used to reviewing financial statements for anomalies, asking questions of the client, and have accumulated expertise and insights from having worked with a broad range of clients. Shifting to advisory is a natural evolution of audit work: instead of delivering a report, they can now discuss with the client the report in the context of improving their organizational performance.

Step 3. Promote New Service

One might be tempted to kick-start a new service with much fanfare but a steady and deliberate build-up is likely to prove more appropriate. The firm needs to create a succinct and smart business plan and undertake market research. This will likely demand attending conferences and talking to potential clients, referrers, and other firms. Before making any announcement, the firm should invest the time to understand the target market, the service being rendered, and how to deliver it.

Give the advisory and consulting services leader appropriate time and space to develop the plan, avoiding setting key performance indicators (KPIs), like chargeable hour or revenue goals, until things get off the ground. Internal engagement will be key to success, so allow time for education and questions before going out to clients. Vetter offers various options for staff engagement:

  • Review the firm’s client list and discuss possible targets. New IFAC research indicates that SMEs most likely to purchase business advice are larger, younger, carry higher levels of debt or intend to obtain new funding, and exhibit higher growth rates or intentions to grow.
  • Identify specific strategies that can help cross-sell advisory and consulting services and share those ideas across the firm. For example, suggest that tax or accounting managers flag client problem areas as they review financials and discuss these with the client.
  • Conduct “lunch and learn” sessions with managers across the firm to demonstrate what the solution looks and feels like. They likely have clients that will benefit from the service.

Step 4. Encourage Participation

The right incentives will need to be in place to encourage participation and cross-selling. The best way to start up a new service is to sell it to existing clients rather than seek new clients. However, this raises sensitive questions like how will an audit or tax partner that refers a client to advisory services be rewarded? There must be appropriate reward for those who have built the client relationship and gained the client’s trust to consider new avenues. An expanding relationship will also invite concerns from the main client manager about their involvement including how they will be kept informed once an advisory project is underway. This holds true whether the referrer is someone from inside or outside of the firm. Have upfront conversations with those referring business to agree to how and in what detail they’d like to be kept informed about the project to ensure they feel comfortable. The firm will need to be flexible in how it works.

Step 5. Seek Outside Help

Many small firms don’t have a surfeit of resources to commit to doing some of the market research and planning legwork. Fortunately, there are outside resources available, such as firm growth programs, that can help firms develop a change management plan to move into advisory services and identify the necessary steps to achieve their goals. Firms can also decide to hire an outside advisory practice to work with them on their initial few clients until they are ready to go at it alone.

What about real life case studies of practices that have made the transformation? Well in July 2016 I was pleased to find myself presenting at an event entitled “Changing SMPs Business Model” hosted by the Malaysian Institute of Accountants (MIA) and Malaysian Institute of Certified Public Accountants (MICPA). My fellow panelists each explained how their practice made the transition (the box below summarizes these). 


BDO
By Tang Seng Choon, Head of Audit, Partner

BDO in Malaysia started off with a strong audit base of well-trained personnel supported by cutting-edge audit tools and a robust methodology to service a wide range of audit clients across various industries. Our core audit base enabled us to continuously invest in talent to provide tax compliance and advisory services to our existing audit clients, without compromising either audit quality or professional independence.

We also simultaneously invested in our people and infrastructure to provide contemporary services, including data analytics, IT systems review, data imaging, vendor selection, business process advisory, and business solutions outsourcing.

This lockstep approach facilitated cross-selling of services that gradually expanded our portfolio of non-audit clients before further investments were made in building capacity to provide other advisory services, thus migrating BDO from an audit-centric firm into a full-fledged audit, tax, and advisory services firm.

We believe that sustained talent management, combined with a targeted approach to quality growth, represent key ingredients to executing a successful transition to offering non-audit services.
 

CHENG & CO
By Prof. Dato’ Dr. Chua Hock Hoo, Managing Partner

Professional businesses in the financial services industry at large often share some similarities when we analyze their growth and expansion trends over the years. The critical factor is growing and moving the business dynamics in line with the ever-evolving needs of customers—whom the firms serve with great dedication. This is exactly how the Cheng & Co Group ventured out of its core domain and started its non-audit-oriented business.

Today, we take pride in ourselves as a dynamic accounting firm with an increasing number of tailored services and solutions. We are able to provide our valued clients with a one-stop service center concept as per our mission, i.e., the “One-Stop Professional Centre with Innovative Solutions for Excellence.”

Our journey began some years back when a client sought our assistance to be listed on Bursa Malaysia, the Malaysian stock exchange. The process was not smooth sailing as several obstacles were encountered by the client including the industry that they were in (considered to be a ‘sunset’ industry), lack of merchant bankers that were willing to work with them to overcome their challenges, and a low price-earnings (P/E) ratio. The challenges faced by this client, however, did not deter our spirit as we saw this as an opportunity to venture beyond Malaysia and seek a listing for the client through the flourishing IPO market in Taiwan.

Landing in the Taiwan capital market was only decided after we had evaluated other options including Singapore, Hong Kong, and London. This valuable experience taught us a lot about capital markets, which are best suited for aspiring small- and medium-sized enterprises/industries (SMEs/SMIs).

Additionally, from the experience with the Taiwan capital market, Cheng & Co Group gained more insight into the emphasis the Taiwanese authorities place on good governance. This experience led us to better understand how Enterprise Resource Planning (ERP) goes a long way in helping SMEs/SMIs establish and maintain a solid foundation in terms of internal controls, financial reporting accuracy, etc.

Our foray into a non-audit line of business came about as we assisted a valued client. From that point onwards, we deepened our knowledge, and today we understand to a great extent how lack of funds to support the rapid growth plans of an SME/SMI can be crippled if it does not find a suitable market in which it can list its business and become a global entity. Today we understand the fact that the sky is literally no longer the limit!
 

SALIHIN
By En. Salihin Abang, Managing Partner


SALIHIN
started in 2002 with the goal of becoming the preferred national accountancy firm in Malaysia. Although at the core of its strategy was to offer a full array of accountancy services, it relied on traditional audit as its primary service in its early years. Moving toward its strategic goal of becoming a High Value High Income Firm by the year 2020, means we have had to expand our services from typical audit to non-audit services. This led to expansion into the areas of corporate finance and transaction advisory, taxation, Sharia auditing, and Sharia advisory.

The transition to offering both audit and non-audit services was propelled by a well-crafted capacity-building initiative, investments in technology for automation of business process, intensified marketing and branding activities, as well as networking efforts. It was also supported by building the necessary infrastructure. The main challenge was the view amongst potential clients that SMPs were unable to deliver up to expectation. We overcame this by consistently delivering high-quality services without compromising our integrity.
 

The IFAC Global Knowledge Gateway has useful practice management resources such as those on strategy and planning and business development.

Please share your story

If your practice has made the transformation described above we’d love to hear from you using the comment box below. We might cite your story in a future version of this article.

Paul Thompson

Director, European Federation of Accountants and Auditors for SMEs

Paul Thompson is EFAA Director and a consultant dedicated to thought leadership and development of the global accountancy profession. From 2004 to 2016 Mr. Thompson worked for IFAC latterly as Director, Global Accountancy Profession Support, a role that extended to overseeing the IFAC Global Knowledge Gateway, research and innovation, and activities in support of small- and medium-sized practices (SMP) and professional accountants in business (PAIB). Mr. Thompson also serves on the SME Implementation Group, an advisory body to the International Accounting Standard Board (Board), and is a member of Nottingham University Business School Malaysia’s Industry Advisory Board (IAB), an advisory group providing strategic advice to the Business School. He advises developing professional accountancy organisations in Europe and Asia. Previously Mr. Thompson worked for Touche Ross & Co., London before going on to lecture on corporate reporting and analysis at universities in the UK, Singapore, and Malaysia. He has a number of publications in academic journals and the professional press in the areas of ethical finance, corporate reporting, corporate governance, integrated reporting, practice management and the future of the profession. Mr. Thompson graduated from the University of Warwick with a bachelor of science in accounting and financial analysis and is a fellow of the Institute of Chartered Accountants in England and Wales. Mr. Thompson is an internationally ranked masters distance runner. See more by Paul Thompson

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