The Practice of Tomorrow–How to Remain Relevant
As highlighted in Firms of the Future–Building Advisory Services there is a general consensus that small- and medium-sized practices (SMPs) need to re-evaluate the services they provide. This may involve changing their business model to include or expand business advisory and consulting services.
Research indicates that, irrespective of jurisdiction, accountants, and especially SMPs, continue to be the preferred advisors to small- and medium sized entities (SMEs). SMPs have an in-depth knowledge and understanding of their SME clients and are therefore well-positioned to provide a range of value added services. IFAC’s literature review on The Role of SMPs in Providing Business Support to SMEs—New Evidence explored both the supply and demand for business support from SMEs and highlights the associated potential for future revenue growth from business advisory services.
Of the over 6,000 SMPs who responded to the 2018 IFAC Global SMP Survey 86 percent provided some form of business and advisory consulting services. The range of services is wide and diverse, including corporate advisory, management accounting, business development and restructuring services. Advisory services are predicated to have the most substantial growth in the next 12 months with the majority of small practices (51%) anticipating moderate or substantial fee revenue increases in this service line, compared to tax compliance & planning (40%) audit and assurance (36%) and accounting/ compilation (36%).
Members of the IFAC SMP Committee recently discussed this topic with representatives from around the world providing their own experiences, tips and good practices for how firms can transform. To respond to client’s demands, practices should focus on three main areas – Professionalism, Firm Structure and Business Model and Technology Tools. There are tremendous opportunities for practices to be innovative and transform, especially due to the environmental and technological shifts.
A key framework is the International Code of Ethics for Professional Accountants, which sets out fundamental principles of ethics for professional accountants and distinguishes them from other consultants or advisers). Professionalism underpins all of professional accountants’ activities. SMPs can promote their values including integrity, diligence, trust and putting clients first and be clear that they are providing professional advice and services.
Firm Structure and Business Model
SMPs need to re-consider their firm structure and business model. There are a range of different options for transitioning and providing different services, which includes recruiting specialized talent to focus on a niche area, merging or acquiring a new firm and training existing staff to equip them with new skills.
It is clear that a new service cannot be provided without sufficient expertise and knowledge. A firm may decide to recruit a new partner who specializes and has strong experience in one particular industry or sector. This would enable them to understand client’s issues in that area and importantly bring added-value from their exposure to a range of similar businesses over the years. Combining one practice with another, either through a formal merger or informally through a referral process and ‘business partnering’ provides an immediately available resource for existing clients and a new revenue stream.
Adding additional experienced expertise to a practice can also help with talent attraction and retention, which continues to be top challenge facing many SMPs. In fact, 54% of small practices have difficulty attracting next generation talent. However, cross-training staff in new service lines provides valuable learning experiences and can be combined with on-the-job practical involvement. Even starting small, with basic tasks, is beneficial expertise which will grow quickly over a just a few years.
In considering what types of services to provide to clients, it is important for the firm’s leadership to be open to new opportunities whether internally or externally driven. All staff members should be actively encouraged to provide suggestions for potential new service lines, as they are often closest to the clients. Communication training and encouraging a more client centric mindset can often help staff to listen and fully understand the client needs, so the appropriate service can be scoped and delivered. This shift helps staff focus on the practice’s value proposition and level of fees charged (please also see Three Ways to Effectively Manage Fee Pressure).
External opportunities may take the form of new technological developments, emerging activities or sectors, or changes in legislation to provide specialized advice. To appeal to younger generations who strongly value working in an ethical, dynamic and sustainable organizations, firms could focus on service lines which have some element of public service or environmental and social impact. In this rapidly changing environment, small firms can usually make faster changes in strategic direction to take advantage of new opportunities and significantly benefit from being more agile and adaptable.
Fully utilizing a range of technology is critical to future success. 28% of SMPs plan to allocate more than 10% of total practice revenue over the next 12 months to technology investment. As automation and digitization continues to impact business, clients will require advice on how to effectively implement technological solutions. For example, to reduce administration costs around generating and processing invoices, chasing late payments, payroll etc. SMPs can provide valuable advice on what tools can make any business process more effective and efficient.
SMPs should also develop and implement a technology strategy for their practice. This may include utilizing practice management software packages to assist, for example, in timesheet, billing and monitoring recovery rates or a customer relationship management package to help the provision of services or implementing a client portal. In a recent publication Developing a Technology Strategy we cover five steps to embed technology in a firm.
Going forward, the higher value work will be future focused based on analysis, interpretation and insights, compared to lower value historical tasks such as inputting data, verification and conventional reporting. Technology tools provide an opportunity to provide information to clients in real-time. For instance, visual dashboard reports can be easily and quickly generated to enable a meaningful discussion with clients on a monthly basis with current figures. Practitioners in some jurisdictions have specialized in becoming virtual CFOs - utilizing the cloud enables them to service a number of businesses and provide appropriate, relevant advice, around the clock.
Approaches to Advisory Services
There are a number of different approaches an SMP can adopt to provide advisory services. The firm can focus on improving a client’s entire business by considering the whole strategy and future direction. The firm can interpret and provide insights on both financial and non-financial information and provide informed advice to help improve the businesses decision-making and general processes. This is where listening and understanding the client’s needs is critical and is complimentary to the deep knowledge and expertise the firm has on the nature, culture and operations of the business.
Conversely, a firm might focus on basic financial number interpretation, involving a review of the annual financial statements and monthly management accounts. This may include an explanation of what the figures mean to the business and could progress towards more detailed analysis and forecasts with the development of year-on-year trend analysis, budget versus actual models, cash flow forecasts etc. to enable advice around managing working capital and profits.
The Global Knowledge Gateway includes a number of additional articles and videos on building advisory and consulting services:
- Transforming Challenges into Opportunities
- Firms of the Future–Building Advisory Services
- What Makes a Successful Advisory Accounting Firms?
- Tomorrow’s Firm-Think Big, Think Advisory
- SMPs can Add Value with New Services
- The Future of Small Practices & Service Offerings
- Relevant Service Offerings – Practice of the Future
- New Services for Accounting Firms: It’s about Reliance, Not Compliance
- Excelling in the New Business Area
- 5 Steps to Being an Anticipatory Accountant