Due to fierce competition in the accounting industry, some CPAs may feel pressure to compete for business using pricing alone. However, this is a losing battle in the long run: Competing on price will lead to the need for more clients to cover expenses. With more clients to serve, CPAs will have less time per client to provide quality services that can retain existing clients, generate better margins, and reduce the immense pressure to add clients.
This juggling of multiple clients can also leave CPAs overworked and stressed out about the firm's future. That's why it's important to consider transitioning your firm from one that offers only compliance-related work, such as taxes, payroll and general bookkeeping, called "Type 1" services.
Offering "Type 2" services—those that go beyond compliance and add value to the client—not only deepens relationships with existing clients, but can also make the firm's services more attractive to the types of clients most coveted: Those who pay on time and can afford to pay more for valued services.
Type 2 services provide opportunities to deepen existing relationships through upselling, or selling more expensive versions of existing services, and through cross-selling, or providing new services to existing clients. Type 2 services also can bring in new clients looking for the services you previously didn't offer.
With the incredible amounts of data and information available to CPAs, businesses have more resources than they know what to do with. As there are more inputs coming to business owners for decision making, they really need to have the 'so what' explained to them clearly to help them make those decisions. That's where accountants offering business advisory services can come in.
What are examples of Type 2 services, and how can a firm benefit from offering them? Here are three:
Financial and management planning services: Instead of simply offering financial statements to businesses, CPA firms can also advise owners seeking to improve their financial and operational performance. Due to their complexity, financial statements are often an underutilized resource. Most business owners will look at sales and net profit, but you may be able to quickly read between the lines on other parts of the financial statements and give some meaningful, actionable advice.
This can be related to reducing expenses or increasing revenues, or it could be providing more industry-specific advice that the CPA has gained from working with other clients. You have the domain knowledge, as a CPA, to convey the following message to your clients: "Because of my extensive knowledge in that industry, I've helped clients like you improve their bottom lines by incorporating some industry-specific best practices."
While many small CPA firms are generalists and may lack industry-specific knowledge that allows them to provide this advice, there are financial advisory software tools available that can help by converting the financial statements into narrative reports. These reports analyze the company's financial condition and offer tips, and they also provide industry comparisons or benchmarks so clients can determine how better to compete.
Forecasting services: While financial and management planning services often use historical financial data to examine and guide a client's business, CPAs can also offer forecasting and projection as Type 2 services to provide forward-looking data. This involves taking the client's existing financials and showing what can happen in best-case and worst-case scenarios, as well as in in-between situations. For accountants trying to develop these services on their own, it could involve hours of additional work to set up the scenarios, but some forecasting applications automate the process. Offering these services can allow clients to model working capital scenarios and to make operating adjustments as necessary. It can also help them determine how new capital (from a loan or equity, for example) can affect expenses and growth opportunities.
Succession planning services: Small and large CPA firms often have clients who are curious about the value of their business as they consider options for succession planning, but many firms don't offer this service because they don't have the background or certification. Clients may be paying thousands of dollars to a business-advisory firm to receive a valuation estimate, but they may prefer to use their trusted accountant, especially if the cost is competitive. Certain tools use the discounted cash-flow method to help CPAs estimate the value quickly and efficiently. For example, regarding succession planning, you could tell a client, "Here's what your company would be worth if you wanted to hand it off to family or sell the business."
Indeed, market research firm IBISWorld recently forecast that pricing competition in accounting will escalate in the coming years as new firms are established and as outside industries, such as management consulting firms, try to take on some work historically performed by accountants.
Freeing your firm from price competition may allow you and your staff to think more strategically. This can be a crucial hedge against the inherent risk that comes with serving businesses. For example, companies in industries that have a high failure rate could expose the accounting firm to more risk of slow payments.
Type 2 services can help you target the right kind of client—the one you want in the future.
In addition, Type 2 services can help accounting firms retain existing clients being courted by huge, compliance-only firms that use their size and efficiency to offer services more cheaply. With the cost of acquiring new clients well above the cost of retaining one, offering Type 2 services can save not only time otherwise spent on marketing, but also money.
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