Many firms understand the importance of using a value-add approach to improving client service and for developing new business. One often overlooked area is in providing financial analysis to small business clients. Most small businesses lack the resources to support a financial analysis expert. They will rely on their CPA, accountant or financial advisor to inform them of any problems, when it comes to managing the finances of their business. Although quite often we are engaged to provide specific services such as tax, write-up, assurance or payroll services, in most cases our clients assume that we are also keeping an eye on the rest of their finances. This often leads to an expectation gap in client service. Most advisors would like to spend more time filling that gap by providing business advisory services to their clients, but existing workloads may get in the way. The key to being able to leverage business advisory services is being able to link the financial performance of the client’s company to its operations. Normally this means not only gaining an understanding of the clients business and controls but also periodically monitoring and preparing financial statement analysis to provide the linkage between the two. This is often where the expectation gap begins to grow. We may have gained an understanding of our clients operations but then we never find the time to monitor and analyze the performance.
Business analytics and financial analysis software provides a solution to reduce the time needed to monitor and analyze the client’s performance. This type of software uses a combination of expert system technology (a type of artificial intelligence that emulates a body of knowledge), industry data and analysis, and financial dashboards to perform a financial analysis of the client’s historical financial statements. The advisor can then take that information along with their knowledge of the client’s operations and provide meaningful and valuable information to their clients. This is actionable information that can be used to prevent or detect problems in the clients operations as well as improve upon existing processes and procedures. Business analytics software also provides a useful segue into providing next step advisory services and consulting engagements. In analyzing the financial statements, business analytics software may detect that the receivables aging and collection rates are skyrocketing. This is an opportunity for the advisor to step in and provide a solution, possibly engaging the client to reengineer the receivables function and related controls. Also these same business analytics tools can then be used to perform what-if analysis to evaluate the impact on the financial statements of alternative recommendations that the advisor may propose. Many advisors find these engagements to be more lucrative and satisfying than traditional accounting services.
The typical value-add approach will begin at the completion of the various compliance services that we currently provide to our clients. At the completion of an audit or once the tax return has been prepared the next step will be to analyze the clients annual financial statements. This provides the benchmark for monitoring future performance. This first step is where many firms hit their initial roadblock in the value-add approach. There may be some initial hesitation or resistance because it may not be clear at this point how the time spent on developing the financial analysis will correspond to future fees and revenue streams. One technique that can be applied here is using sample analysis that can be provided to a wide range of clients to test the waters and gauge client interest. Once we are confident that we have identified the appropriate client base to provide our value add approach to we can then expend the time and effort of creating custom financial analysis.
The next step will be to establish a program of regular performance monitoring reviews. This can be done monthly or quarterly and ideally will correspond with the clients other monitoring procedures such as budget reviews. The purpose of this is to provide a structured recurring monitoring service. Once this has been established you are now in a position to create a formalized engagement. A formal engagement letter with your proposed fees can be issued or the service can be included as part of the engagement letter for existing services. Right now, you might be thinking to yourself, “but my client doesn’t even have a budget, much less regular budget reviews to schedule performance reviews around”. Voila! You have just uncovered the next business advisory service you can provide for your client.
The preceding statement is a great example of how the value-add approach grows from being a performance monitoring service to an advisory service. In the course of analyzing client’s financial statements and discussing the results with clients, new advisory service opportunities can be uncovered. This discovery process is what drives additional client value and ultimately more firm revenue. To fully leverage this discovery process, the persons charged with presenting financial analysis to clients should spend adequate time reviewing the results of the analysis before ever sitting down and meeting with the client. Any problem areas and recommended solutions should be identified prior to meeting with the client so that the recommendations can delivered in connection with the performance review rather than as a follow up. Once again this does represent an initial up front time investment but this is time spent that your client will gladly pay you for.
The value-add approach bridges the expectation gap and with the use of business analytics and financial analysis software can be done in a matter of minutes rather than hours. By letting software do the mechanical process of financial analysis the advisor can focus their attention on linking that analysis to the clients operations and providing meaningful recommendations. Once you have accomplished that you have created a business advisory service that your client will truly value and appreciate, strengthening your position as their advisor.