Shifting the focus of your practice to introduce a greater emphasis on consulting services is a story most accountants have heard many times before. For years, small- and medium-sized practices (SMPs) have been urged to consider broadening their service offer to include more business consulting as traditional compliance activities like tax became increasingly commoditised.
And while it may be a familiar tune, the song is getting louder and more insistent as the profession faces an increasingly competitive and globalised business environment and rapidly changing client needs and expectations.
SMPs around the globe face a similar challenge to evolve and grow their business. As Stuart Black, managing partner at Chapman Eastway and Australia’s representative on the International Federation of Accountants (IFAC) SMP Committee notes, the decline of traditional audit work in many Asian and European countries means accountants are being pushed towards offering advisory services.
Despite this, preliminary results of IFAC’s 2012 SMP Quick Poll found 42 per cent of respondents saw their future growth coming from new clients, not existing ones. “It shows many accountants are not particularly good at growing business from their existing clients,” Black says.
While many SMPs are reluctant to move away from traditional compliance work, their clients are transforming themselves at such a rapid pace they may have little choice.
“The majority of future growth for Australia will be from Asia, and Australian businesses need to cater for this and so do accountants,” Black notes. “The big end of town is now all global firms, but many people have not realised the drip-down impact this is having and not all accountants realise how globalised their clients are becoming. Even in smaller practices, many clients have overseas interests.”
Globalisation is also eroding the ability of SMPs to service their clients cost-effectively, according to Peter Knight from Knight Partners, an SMP specialising in business consulting.
“There is an increase in the outsourcing of technical aspects of the profession,” Knight says. “This will grow through tax simplification and introduction of e-lodgement without receipts. It raises questions about how firms will meet their commitments for staff, leasing and equipment.”
He points out that Australian-trained accountants working in South-East Asia can provide outsourced compliance services at much lower prices, undercutting the income from traditional compliance activities on which many practices are built.
“There will be an increase in price pressure on accounting fees in a tougher economic environment and this will lead practices to look harder at offshoring,” Knight says.
Failure and reluctance of SMPs to move away from traditional compliance work will lead to offshoring of work.
Given this backdrop, SMPs should be rushing to add business consulting to their service offer. So what’s holding them back?
While acknowledging such a move can be challenging, John Haylock, practice performance manager at Banklink and author of Absolute Certainty, believes many practitioners fail to realise they are already providing consulting services to their clients.
“Accountants have always consulted but it is about the type of consulting they have done,” says Haylock. “Historically, it has been in areas where they can apply technical expertise such as whether to buy a car or lease. The real issue is when it goes outside their technical expertise into the marketing and business development area.”
According to Haylock, many practitioners are reluctant to broaden their consulting service as it requires a different approach to traditional compliance work.
“Doing business development and marketing consulting is about asking questions not giving advice and answering questions. Accountants can be reluctant to ask questions, but they have to be the best people in the world to hold people accountable to their business plans,” he says.
By comparison, the world of compliance can seem very safe and familiar.
“Traditional compliance work is relatively low risk as it is comfortable and you don’t have to go looking for it. You don’t have to step outside your boundaries. Consulting forces people outside their comfort zone and to take risks,” Haylock says.
Knight agrees it can be a difficult and believes many SMPs lack the time to make the transition. “There are 10,000 accountancy practices in Australia and 93 per cent of those are one to two partners. So there are 9300 firms out there continually flat out doing compliance,” he says. “Lots of accountants are technically very good, but are too flat out to be giving business advice.”
Making the switch
Despite the initial discomfort, Haylock believes many business consulting services are more in line with traditional compliance work than many practitioners realise. These are also services that clients actually want.
The rewards from helping to grow a business are significant and there is personal satisfaction as well. It also strengthens relationships with clients. Haylock
“You are meeting an area of customer demand, as high on the list of customer requirements is advice on growing their business. This is in constant demand from clients,” he says.
Knight believes not offering appropriate consulting services means clients are not receiving the help they need to grow.
“It is easy to get caught up in the numbers and the tax and not look at the business’ performance,” he says.
Knight believes accountants are uniquely positioned to help. “Accountants can translate complex finance information into a language people can understand. It is about taking a broader view of accounting and converting it into a language and ideas people can use.”
And the rewards are not just financial, according to Haylock. “The rewards from helping to grow a business are significant and there is personal satisfaction as well. It also strengthens relationships with clients.”
The benefits also extend to the practice’s staff. “It helps attract and retain staff as they want to work in an entrepreneurial environment,” he says.
According to Knight, many practitioners wrongly believe broadening their offer to include business consulting is difficult. “You don’t have to learn new stuff to do consulting, as you have the skills already. You don’t need an MBA to get into this area.”
He believes the only thing holding back many practitioners is themselves. “You need to have the guts to do it.”
Haylock agrees the first step is making the decision. “You then need to make a commitment to do it and have someone hold you accountable for it. You need to plan and commit and then see it through,” he says.
“Successful practices often work with their own business coach to hold them accountable.”
Practitioners also need to look dispassionately at their own practice and see it as clients do. “From a client perspective, many firms focus on what they do rather than how they do it. When you talk to clients, service levels are not great as there is slow job turnaround and uncertainty over pricing. This leads to clients not respecting accountants as business advisers,” he says.
“You need to up your own customer service if you want to do business service consulting, as you need to show you are running a good customer service business. It is a mindset issue.”
Knight finds clients welcome the opportunity to access consulting advice and are happy to pay, as they can see real value in the services provided.
“We sit down with the client at the start of the engagement and outline the range of services we will provide,” he says. “These include a risk and SWAT analysis of the business, which clients love. Price doesn’t come into it.”
The process also involves helping clients set goals and monitoring their progress through the calendar or financial year. “You set goals and milestones and this leads to three to four other meetings throughout the year. You can also address business activity statements during these meetings.”
Taking this approach to advisory work allows practitioners to use their existing compliance skills in a consulting framework. “The consulting model is a cracker for accountants,” Knight notes.
Accountants can provide invaluable assistance to their clients when it comes to applying for any one of the numerous Australian Government grants on offer.
For companies involved in exporting, the Export Market Development Grant (EMDG) scheme offers significant financial assistance for qualifying individuals, partnerships, trusts and companies with a turnover of up to A$50 million.
The EMDG scheme is administered by Austrade, and accountants can play an important role in helping clients prepare the correct documentation and financial records required to win this type of grant.
Practitioners can also assist clients with claims under the new Australian Government research and development (R&D) tax incentive, as preparation of appropriate documentation and correct assignment of eligible expenses are vital under the new regimen.
Accountants can assist in establishing an information management system to collect the necessary documentation, account for staff time and record each phase of the client’s R&D activities.
Practitioners can also audit the prepared documentation and expense claims to ensure compliance before submission.
Counting carbon costs
With Australia’s carbon pricing scheme now under way, a valuable opportunity has opened up for practitioners looking to expand their service offering.
Carbon pricing makes careful monitoring of energy costs vital in almost every type of business, whether it is a manufacturer or simply a warehouse with a cold room, explains Malcolm Borgeaud, managing director of Carbon Credit Corporation (C3).
“The key is energy equals cost and carbon pricing is designed to push the pricing of energy up and make renewables more competitive,” Borgeaud says.
“As energy increases in cost, it becomes a business issue and businesses need someone to look at these costs.”
Borgeaud believes accountants are extremely well placed to provide these services to small and medium enterprises (SMEs). “It gives you an extra club in your bag if you can evaluate the costs and expenses in relation to energy,” he says.
Most practitioners already have the necessary expertise to do this type of work and only need to update their technical skills for the area.
“It is about collating information, organising it and reporting on it, which is what accountants do every week,” Borgeaud explains.
“Once they have the information they can drill down into it. There are so many opportunities out there where they can help clients evaluate costs and pinpoint areas where they can make savings.”
He believes this service is well-suited to SME clients, as they lack the internal management accounting resources to perform such an assessment.
“The average practitioner can come in and offer these services especially to under A$5 million businesses.”
Although C3 is an accounting firm specialising in environmental consulting and carbon emissions, Borgeaud believes any practice can benefit from increasing its skills in carbon accounting and the development of appropriate management strategies. “Forget about the environmental argument, this is about energy equalling cost and about looking at ways to measure and reduce those costs,” he explains.
Practitioners can also provide advice to clients marketing products as environmentally friendly and carbon neutral, as these claims require independent emission verification and purchase of carbon credits if the business is not to fall foul of Trade Practices Act requirements.
Moving into consulting
According to Peter Knight from Knight Partners, there are five key steps to taking the plunge into consulting:
- Assess your current skill set
- Identify possible areas to move into
- Identify your rollout plan try a “friendly” client first
- Acquire additional skills as needed
- Sort out the necessary administration procedures
Accounting for intellectual property
Yet another consulting opportunity is advising SMEs on the value and significance of their intellectual property (IP). Practitioners can advise on whether or not the IP can be formally identified as an asset, what value can be ascribed to it on the balance sheet and how to treat it from a tax perspective.
They can also assist with the sale, purchase or licensing of IP rights.
According to the Australian Government’s IP Australia, many local companies do not recognise their intellectual property as separately identifiable intangible assets, instead including them on their financial statements as goodwill.
These assets should be separated into identifiable and unidentifiable intangible assets so that the IP owner can more easily assign value and achieve financial benefits from them.
If IP is classified as identifiable it does not have to be amortised according to the rules applying to goodwill, which may have an immediate impact on both the profit and loss statement and balance sheet.