10 Obstacles CPAs Face in Consultingby
If you or your firm is thinking about expanding to consulting, be sure to consider the obstacles that CPAs often face when growing an advisory practice. While some of these challenges take time overcome, many of them can be easily fixed with strategic planning, putting you on a path toward winning consulting engagements.
Many small to mid-sized CPA firms are thinking about transitioning to consulting to stay relevant and profitable amidst the increasing changes to the industry. With audit and accounting margins decreasing due to competition and advances in technology threatening the industry, many firms are turning to management consulting services for an additional source of revenue.
However, audit firms and accounts who pursue consulting may face many challenges. To succeed at consulting, one must understand why the nature of the consulting industry can be challenging for CPAs, why so many accountants fail at consulting and what can be done to ensure success.
1. Lack of Capacity
Most audit firms underestimate the bandwidth required for expanding to consulting and related services and fulfilling consulting assignments. Many of these companies pursue consulting simply as a means of using their resources more effectively beyond audit seasons. However, these verticals demand standalone approaches and efforts.
2. Lack of Commitment
CPAs transitioning or expanding into consulting tend to see the venture as a means of generating new revenue without committing to the new opportunities it provides. Unlike audits or other compliance requirements, consulting services need to be sold to business owners, and they cannot be sold effectively unless businesses feel they receive sufficient value for their money.
3. Competitive Landscape
The consulting space is just as competitive, if not more so, as auditing, and there is no statutory body restricting competition. As more and more CPAs transition to consulting, the level of competition in the market increases, making it difficult for new firms to survive. Even if an established consulting firm manages to get regular work in such a competitive environment, adjusting to rapidly changing regulatory requirements and compliance standards can be a challenge.
4. Client Expectations
In an audit engagement, the expectations of the client as well as the auditor are pretty straightforward, but this is not the case in consulting gigs. The benchmarks that define expectations in a consulting engagement are dependent on the stature of your firm, market conditions and the overall bargaining power of the client. Most audit firms suffer from missed deadlines and dissatisfied customers as a result of not setting proper expectations.
It is important to ensure smooth communication with clients right from the beginning and set realistic goals and expectations. Create a written contract outlining the scope of the project to prevent future misunderstandings. Setting clear expectations will help the client understand your role and what deliverables they can expect.
5. Data Breaches
As cybersecurity threats continue to loom across sectors, businesses have become increasingly reluctant to allow small firms access to their data, creating yet another hurdle for CPA firms that are just beginning to expand to consulting. Even the leading strategy and consulting behemoths face cyber threats and have endured reputational damage and client losses as a result. However, these firms have the capacity for multi-million dollar data protection and cybersecurity budgets, whereas small firms do not.
6. Unpredictable Markets
Consulting businesses often face uncertainty from market fluctuations, shifts in customer behavior and fluctuations in client volume, all of which can lead to unstable income. CPAs entering the consulting landscape might experience cash flow problems fueled by late payments, unexpected expenses and inconsistent business.
Taking steps like specifying payment terms and dates in the contract, asking for a partial upfront payment, supporting multiple payment options and setting aside some savings for emergency funds will help to keep a business thriving amidst these challenges. It’s also important to balance serving existing clients with finding new opportunities. Some of the most successful consulting firms devote a few hours per week to networking.
7. Scope Creep
Scope creep occurs when a client asks for time and deliverables not agreed upon in the original contract, and it’s one of the biggest challenges consulting firms face. It can be tempting to deliver what’s beyond scope without asking for more money as a way to build your reputation, but it can quickly have the opposite effect.
Scope creep generally arises from poor communication and results in resentment on both sides due to missed deadlines and lost time and money from doing more for free. To avoid the risk of this happening, it is best to specify expectations and deliverables in your contract and then follow them professionally.
If you do deliver something for free, create an invoice detailing the task to help the client understand the value you are providing. While it is difficult to say no to a client, the costs of additional jobs can quickly add up and threaten your business goals.
8. Focusing on Costs Over Value
When transitioning to consulting, a common mistake most firms make is focusing too much on costs and ignoring value creation. A cost-cutting strategy can squeeze too much out of a business and limit the growth potential. Asking the right set of questions can help you to identify the most profitable customer segments, locations, product lines and channels, thereby giving you meaningful insight into several business areas.
9. Lack of Skills
Audit firms don’t always possess the right talent to make the move to consulting. If a firm plans on transforming, its team must evaluate and upgrade their skills and capabilities. It is important to identify skills and put the right people in the right roles. Hiring additional employees and training and transitioning current employees can help fill any gaps. The firm should also consider transforming the work environment to meet the demands of today’s diverse workforce.
10. Lack of Strategy
When it comes to offering a new service, most firms make strategic plans, but fail to enact them. CPAs who are just embarking on consulting might get too busy serving clients and ignore these documented plans. A well-planned strategy that aligns with the business’s goals is the key to success; execution of the plan is even more important. Failing to do either can lead to defeat.
There are many reasons accounting firms fail to reach their full potential when they enter the consulting landscape. However, while some of the challenges may take time to overcome, many of them can be easily fixed. If you find one or more problems with your consulting business, rest assured that you can address them and improve your chances of success.
Bryan Kesler, CPA is a passionate CPA exam mentor with a mission of helping all CPA Candidates struggling to pass the CPA exam find success. As a business owner and licensed CPA, his priority was to find a firm that could manage his accounting and provide him with CFO services. He...