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How to Create a Superior Accounting Firm

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Dec 22nd 2017
CPA
Columnist
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Unless you’ve been living under a rock for the last few years, you know that accounting as a profession is in the midst of a radical transformation.

To make that transformation will require a mindset shift, as Martin Bissett discussed at the recent QuickBooks Connect 2017 conference in San Jose, Calif. According to Bissett, the superior accounting firms “control the BBC.” And no, Bissett wasn’t referring to the venerable broadcasting icon from his UK home.

The BBC we need to control are the Beliefs that govern Behavior which creates the Culture of a firm. Let’s parse this out and try to apply it.

What are the Beliefs of a firm?

Bissett noted that many accounting firms are stuck in old ways of thinking that won’t work in the future. Accountants tend to be risk-averse, so their fear of failure can be enough to prevent changes that might ultimately lead to greater success.

However, the standard beliefs about accounting are changing. When he began working with accounting firms in the UK 20 years ago, audit was the largest form of new business. Now audit has nearly disappeared for smaller firms.

About 20 years ago, most accountants believed that value came from the time put into doing the work. Now an increasing number believe that value comes from the improvements to a client’s business.

Pricing strategies are shifting from hourly rates to values based on the outcomes created. Advances in technology have expanded the territory of potential clients from the local area to the world.

Beliefs in turn give rise to Behaviors

The youngest generation in firms have different beliefs from the older firm owners, and there has always been conflict. While the younger accountants ask “where should the practice go?” the older ones prefer that the practice operate as it has for years.

Today’s tech-savvy firms embrace technology as a tool that helps them serve their clients better.

Those Behaviors govern the Culture

The culture of a firm defines how it operates: how clients are treated at every step. How employees are treated. And how a firm is seen in the larger community — its reputation. As Bissett pointed out, “even the most prevalent culture gets destroyed as the behaviors that govern are being changed.” To underscore this point, he showed a slide of the old industrial row houses that once predominated in northern England, but which are slowly being demolished. 

I myself spent time at a firm that did not "control the BBC." The beautifully framed mission statement in the break room was worth about the amount it cost to print and frame it.

The beliefs implied by the mission statement were rarely discussed. This meant those beliefs never became part of our behaviors, or how we did the work. With no one modeling those behaviors, the culture implied by that mission statement was never created.

During my time there, I saw opportunities to serve clients better get lost in the rush to get the work out the door. The probing questions that needed to be asked — and which were implied by that lovely mission statement in the break room — were never asked. Instead of being effective with our clients, we were required to be efficient, which, as Ron Baker said at another session at QB Connect, is not what our clients want: we must be effective in our relationships, not efficient.

As Bissett explained, accounting is moving from a model that Baker calls the Professional Service Firm to the Professional Knowledge Firm. Under the Professional Service Firm model, firms earn revenue by capacity management, efficiency and cost-plus pricing.

That model depends on compliance work to keep the capacity of a firm humming at full tilt, while efficiency improvements enable the staff to get more work done in less time. But efficiency improvements mean that fees based on the time required to get the work done will drop. Then more work is needed to keep the hamster wheel of efficient production spinning to generate enough hourly fees to keep revenues intact.

Today’s improvements in AI and cloud technology mean that accounting as a profession will completely transform within the next five to ten years. When that happens, firms can no longer rely on a steady stream of compliance work to return enough revenue. Until that happens, though, that steady stream of recurring fees lulls firms into complacency against change.

In contrast, a Professional Knowledge Firm creates profits through capital management, effectiveness and pricing on purpose. Advisory work will be the cornerstone of their service offerings.

In today’s knowledge economy, the capital to be managed is the intellectual capital of the owners and the employees of a firm; the social capital of a firm’s reputation in the community and its relationships with customers and vendors; and the technological capital of the firm’s equipment and proprietary systems.

According to Bissett, the firm of the future will have a symbiotic relationship with the businesses they serve, with both sides learning from each other. Artificial intelligence, blockchain, and technology will replace pure compliance work.

The firms that flourish will provide advisory services first and accounting services second. Changing to a new business model will take a leap of faith. But our clients will move on without us.

Can we use Bissett’s model to reverse engineer the firm of the future? If we want a culture that values service to the client and that helps businesses grow, then what are the behaviors we need to create that culture?

As we move from an emphasis on efficiency, we need to learn to be effective. This means learning to ask probing questions. It means taking the time to look — and really look — at a client’s business to understand how it works and what small changes could leverage huge leaps towards their goals.

What are the beliefs we need to change in order to create those behaviors? We believe our clients are fee-sensitive, so we don’t offer additional services that could transform their lives and businesses. And some accountants I’ve met don’t believe that what we do has the power to transform the businesses and lives of our clients.

Firms that bill by the hour believe we are selling our time, but as Bissett pointed out, businesses don’t buy our time. They buy the outcomes that our services provide.

According to Bissett, education is the key to changing all of this. Beyond the accounting training we learned in school, we also need continuing training in technology, communication and higher level advisory services.

Accounting will change, whether we are willing to change or not. My question to readers is: will your firm be an agent of change or a victim of change?

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Liz Farr
By Liz Farr
Dec 28th 2017 02:42

Thanks Saurabh!

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