Traditional CPA firms are facing extreme financial pressure to pay staff and partners a competitive salary. Expenses are rising, competition is fierce, and margins tend to be shrinking. Over the years, firms have expanded into various management and technology consulting areas as well as financial services to address the issue.
Firms have had great success over the years in purely compliance services, but is that enough? Which way should a firm go — a focus on more compliance services, or venturing into offering more true consulting services?
He said: There is a significant difference between consulting and compliance services — the way they are priced, marketed, the staff training, and even the business model all come into play. I’ve seen too many firms try to manage their consulting services as if they were compliance services. This is a big mistake. So, let’s clarify the basic difference. Consulting usually entails custom work, whereas compliance or less customized advisory work is usually based on research that’s already been done and is more repeatable, e.g., audits.
She said: A major difference is, of course, the fee that consultants can charge versus what auditors or tax preparers charge. Consultants have convinced their clients that their services have a higher value.
Consultants are also specialists brought in to solve a problem that the client needs addressed. In many cases, they help the firm implement the solution. Good consultants bring years of specialized expertise in their field, combined with a perspective of having worked on similar problems at other firms.
He said: Let’s not forget that they also have the advantage of being able to focus on just that problem, and look at it with fresh eyes. Consultants also can make an unpopular recommendation that would have been political suicide for anyone in the organization to suggest.
She said: There’s tremendous value in that! Let’s drill down a little more and look at some of the issues that consulting and advisory services face within the firm. Most firm professionals agree that developing and measuring performance of consulting versus compliance services are different. We could argue that some are the same but some are different and in order to keep and develop people in the right way, MPs need to be aware of the differences.
He said: Let’s look at the big three — pricing, utilization and profitability. Pricing is usually higher because there are fewer competitors in consulting. Clients have a problem, they need to solve it, and they want someone who has done it before and can help them too. Consulting engagements are usually not repetitive, so consultants need to spend more time marketing and selling, constantly refilling the pipeline. Hence utilization is usually lower for consulting than for compliance services.
Finally, profitability from consulting services is normally higher than compliance services.
She said: Let’s not forget competencies, training and people. It can take a long time to become a good consultant. Many consultants have MBAs, and operational and finance experience, rather than accounting or tax. Like all professionals, they learn on the job. We like to say that learning takes place at the engagement level.
Finally, consultants are different people than pure compliance-oriented professionals, who usually have a set of rules to follow, while consultants usually have to solve a problem that is more abstract or gray, which makes many people who are used to working in black and white uncomfortable.
They need to be given an opportunity to explore with various tools and methodologies when dealing with client issues. This requires a new set of tools and an open mind.
They said: Firm leaders must begin to acknowledge that they cannot develop and manage the consultants in the same manner as they manage the compliance professionals.
The metrics for billable hours will be different depending on the type of consulting practice the firm has. The key to any practice area’s success is, of course, the bottom line and not the top. As the focus in the profession shifts into more of a consultative role as trusted business advisors to clients, firms must be open to hiring, training and appropriately measuring and compensating those who are not built like the traditional CPA has always been built.
It will take work to determine the best way to manage this change, but it will be worth it.
