David: How can I show up with the advisor relationship to someone who I’ve only been providing compliant service for many years. So they buy into this advisor mindset, client’s provider. How do you make the transition. For this question we’ll start with Steve and go to Angie and then next we’ll go Angie, Steve and back and forth. But Steve, you know in this instance, how you approach this question? How can they begin to communicate? How can they show up to move into a type of advisor status?

Steve: That worst thing that accountants can do, and this I do sadly see quite a lot, is basically to hide behind the fact, well we haven’t done it before, we don’t quite know how we’re going to introduce this subject with our clients going forward so we won’t bother. And so that inertia just continues. That’s a self-fulfilling and destructive prophecy. So you have to sort of break through that. And I think it involves actually some upfront candor with your client and saying something like, “We took a long, hard look at what our … ” So when you’re talking to a preexisting, long-established client, “Look Dave.” In my role plays, the other person, the client is always called Dave. That just happens to be your name as well, David.

“Dave, we took a long, hard look at what our clients really wanted as accountants and what they were telling us is they wanted us to use our skills with numbers in more valuable and insightful ways so that we could help them make better decisions and get better results as a consequence. So we’ve refocused the energy, the efforts, the services within our firm to meet those kinds of needs. Let me show you what I mean.” Now that’s a great sort of opening script to sort of explain the transition, not to hide away from the fact that you haven’t done this stuff in the past, to sort of acknowledge it in a nice gentle way, but explain that you’re moving practice forward and you’re responding to the needs of clients.

And then what I would say is that … And I love that phrase by the way, “Let me show you”, because as soon as you actually demonstrate something to them rather then immediately talking about it, the much sooner you’ll break through their skepticism. Words are easy. If you say, “Well we can help you in an advisory and consulting kind of capacity”, those are just cheap words. They’re vibrations in the air. They really don’t count for anything in most clients’ minds. What you’ve got to do is root it in a reality that they understand, that they see, that they perceive, that they experience. And the best way of doing that is by actually giving them a taste of it. “Let me show you what I mean”, and then you move to some kind of easy, simple but high-impact initial piece of advice, consulting advisory advice, that grabs their attention and then begins to establish the starting point for the ongoing conversation. I’m sure we’ll come back to what some of those deliverables, what some of those starting point might be, but in principle I think that’s a great way of attacking that question.

David: Yeah, and I want to follow-up with examples of deliverables. I know that the question that’s coming up … We’ll dive into that in a second, but I want to ask Angie the same question which is, for somebody that is a compliance-based firm, how do they begin to either mindset shift, action shift. How can they start to feel like they can make that transition to being more advisor-focused for their client base? What are some things that they might need to think about or set up in their firm as they’re making that transition?

Angie: Sure, David. Well I definitely agree with what Steve talked about in terms of changing the conversation. And I think it really comes down to being more comfortable with questioning versus telling or knowing. So what I mean is as practitioners, most people are trained to know the answer. So when you’re working on clients on compliance type services, you’re paid to be the expert and you’re paid to know the answer. So your meetings feel a lot different then they would if you were taking more of an advisory approach. So my advice would be, change the conversation. And Steve mentioned having a meeting with the client and saying, “Id like to look at your business maybe in another way.”

Those weren’t exactly your words, but I would just suggest having a different kind of meeting and invite the client out for coffee or tea or for lunch and ask questions about personal and professional goals. “What’s going in with your business? Tell me everything that’s on your mind.” Open up conversations like that so that you are being fed information around what the pain points or situation points are so that you are then able to offer a suggestion which might be a consultative or advisory kind of relationship that might be that you’re referring a center of influence into the relationship that has expertise and areas where you don’t, but you’re still providing an advisory kind of relationship to the client.

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Speaker 1: What is the advisor mindset and what if you seem to be, maybe common deliverables that have come up amongst or other firms the you work with?

Speaker 2: That’s the million-dollar question. I think that the difference between being an advisor to your clients and just being very compliance driven had to do with the way that we serve them and direct them. And I’ll tell you that out business is becoming more and more complex. I just got back from two weeks in Tokyo, Beijing and Shanghai and I was speaking at conferences there and we were talking about how the world is getting smaller, businesses getting more and more complex and more complicated. So if you think about who we’re serving and what we’re doing, we are serving business owners and business leaders and we are helping them solve problems so that they can grow their businesses and they can be more profitable and they can deal with all of the complexities of doing business internationally and they can deal with margin and regulations and all of the things that go with running a business.

So sometimes as financial people or accountants, we put ourselves in a box and we think, “Gosh, my role is simply to complete a tax return or complete an audit.” And that’s what we’ve been taught and what we’ve worked on, and the reality of it is that’s not exactly what business owners need business owners are starving to death for advice around how to run their businesses. And again, you don’t have to know all of the answers, but if you take yourself out of the box and you think about, “For my clients, how can I help them retain and recruit staff? How can I help them project financials and make decisions that will impact they’re bottom line for three to five years. How can I help them come up with ways to be more innovative?” Those are the kind of things that they’re looking for.

Now, does that mean that you as a CPA have to know how to solve all of those problems? Heck no. There’s no way. There’s no way that we can all be experts in every area. But if you shift your mindset and you are able to look at your client holistically and look to them for ways to solve their problems, you are acting as more of an advisor. And in terms of just the kinds of services you might offer, I tell my accounting firm clients to take a look at when you worked with a firm, maybe you worked with a startup company and you worked with them for 10 or 15 years. And you may not call that advisory kinds of services, but you helped them grow their business. You helped them overcome obstacles and challenges. What are the things that you offered? And if you start to look at different kinds of consulting, whether its strategic planning or cost reduction or different things like that, in terms of the way you helped your businesses be successful, that’s the first clue in what kind of advisory services you can offer.

Speaker 1: Perfect. Yeah, it’s interesting that you go down this pat to dig into their business a lot more, to see it on every angle. And I love the point of, you might already be doing advisory work, you just don’t really realize it just yet. Or it might have been one-off projects that had a lot of value, didn’t realize it was advisory. Steve, you’ve worked with a number of firms internationally as well. When somebody comes to you and they’re trying to understand one, what does becoming and advisor look like or mean, and what are some of the deliverables you see firms introduce? What’s your typically frame of reference or perspective when a firm comes to you with that question?

Speaker 3: I’ll come back to deliverables in a minute. I’ve got some very specific ones what hopefully will translate across the pond. Just to step back slightly, I am a 55-year-old charted accountant here in the UK and I’ve been in the profession for almost 30 years. I’m completely and absolutely passionate about this profession. I sweated blood to joint it. And I sweated blood [inaudible 00:04:23] because I believe that the account profession can make a profound difference to businesses and through businesses, to the world. But what was really interesting to me was that over the many years that I’ve been working with accountants, there’s this huge confidence crisis in the profession, certainly on this side of the pond, i.e. the, “We’re only accountants. How could we be advisors?”, crisis of confidence is what I’m talking about.

So I started just over two years ago an 18 month research project because what I wanted to do was look specifically at the difference that accountants are actually making so that we can try to address this confidence crisis, but also focus in on the services which accountants can readily and easily and quickly and simply deliver that will make the greatest difference. And the end result of that was a book published earlier this year, “The World’s Most Inspiring Accountants.” In fact, it’s a bright yellow book. It’s this one here. And it features 62 case studies of accounting firms from every continent in the world, including lots of firms from the states and Australia and Europe and elsewhere.

But what we were specifically looking for were case studies of the different that accountants had made to their clients. And actually, what we found was the different that accountants are making, regardless of which country they’re in is absolutely profound. It’s life-changing profound in terms of the success of the business and the success of the lives of the people running those business and the wider state [inaudible 00:05:51] groups that they touch. So the main reason for doing that research was to provide a body of evidence to fully account impression, to say, “Look. Wait a minute guys. What you are doing is making a profound difference. So stand tall and start going out and doing more of it.” That was the first insight from that.

What we found, and what was extraordinary in the findings was that I’d did not involve putting on Superman’s red underpants and becoming some kind of business advisory management consultant guru. Actually what we found was that the core skills of the account profession throughout the world, our core skills with numbers can in themselves make a profound difference. Now, rather than merely using them to keep the score of decisions that were made two years ago, transactions which happened in a 12-month accounting period, but actually use them for forward focus purposes. And the process that seems where we as accountants can make the greatest difference, and I would call it advisory because if it changes businesses, if it changes results, if it changes lives, if it changes the world, that’s not just compliance is it? It’s actually very simple.

It’s us as accountants using our core skill with numbers to restore rationality into the business decision-making process.

Whether they’re small businesses or large businesses, most businesses do not make fully rational, fully informed decisions, and as a consequence they get sub-optimal results. They get sub-optimal profits, sub-optimal cash flow, they work too hard, the businesses are not worth as much as they want them to be, it’s frustrating, customers service isn’t as good as it should be, and so on and so forth. And yet, what we found in the research was that when we as accountants use our skill with numbers to help restore rationality into the decision-making process, and that’s a very simple causal chain there. Number one, we help our clients get better, more robust, more reliable data.

Of course, cloud accounting and all that wonderful new technology that’s out there makes getting better data easier than ever before, but easier for us as accountants, as skilled professionals, to sort of mash all that data.

Second element of that is to wrap around better analysis on that better data so that it’s not just numbers but it’s numbers that make sense. It’s numbers that help. And to use that better data and that better analysis to help our clients learn to make better decisions. Because when they make better decisions they’ll create better results, they’ll build better businesses, they’ll enjoy better lives and we’ll collectively experience a better world. And what we found was that alone, that process alone, and there are lots of advisory elements in there, but the joyful thing, the really good news for the profession is all of that is rooted in the skills we already have, the competences we have, the confidence the we should have, and crucially, the credibility that we have in the eyes of our clients.

One of the biggest mistakes I think that accountants make is that they think they have to put on Superman’s red underpants. They think have to be some kind of consulting guru and that’s frightening to them, but it’s also not very credible in the eyes of their clients. And the reality is that we don’t have to do any of that stuff. We need to root out deliverables in our core skills with numbers, restoring rationality and we will make a much greater difference than we then we did to imagine. And then crucially, and I’m sure this links back to what Ron Baker and others would have been talking about,because we can then use our skills with numbers in a way that makes more of a difference for our clients, in other words creates more value for them, adds more value to them, we can then also build according to that value.

Whether you value the price in a strict sense or whether you merely increase your other prices to reflect the fact that you are now more valuable. Either way, we can share in more of that value that we create with our clients. So that for me is the key sort of big picture inside which is, we can do this. This doesn’t require us to completely re-skill ourselves. It requires us to marshal our skills in a more meaningful 21st century way. We can by all means look up what those services are and those deliverables are, but until we understand and buy into that principle, we’re never going to do what it takes to really succeed.

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Speaker 1: That’s a quick follow-up question and I believe I know where the answer’s going, but one profit center is this affiliate model. We’ve seen this work, obviously, in major accounting platforms or various software companies. They’ve got advisor status, or they have this program where you can get affiliates or commissions, or things like that.

For your service referral, different world. We’re now back into service and we’re going away from software for the tax providers, for the payroll, whatever. Those relationships, are they purely we’re going to refer you the right types of clients if somebody comes to you? It’s this unspoken, or maybe it is, or some sort of written referral agreement, or you actually get a percentage or some sort of payment for then giving that lead or cross-selling that service in some way?

Speaker 2: For us, part of this is strategy, part of it is personal. I prefer to have that more casual exchange. I’ll refer you clients that I think are a good fit for you, and in exchange I hope that you refer clients to me that you feel like are a good fit for myself. Part of any of those partnership programs or other is managing the overhead and making sure that you have ways to measure the performance, and who should get paid what.

Part of that just adds to the complexity. So, if that’s not something that’s easy to manage or easy to measure or if it’s something that’s going to put an undue load on the firm, I’d argue that it’s not worth the time unless it’s going to be a very material profit center for you.

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Speaker 1: A follow-up question there is when you went down that road, what were some of the challenges, and how did you think about how to onboard and bring on this team of a dozen people or so under your umbrella, so it all fit in your client wheelhouse?

Speaker 2: Yeah, and it jumps back to what you were talking about this one session, two sessions ago. It’s in the culture. It’s all about culture. The acquiring firm, Dan and myself in our advisory business, was bringing in a bookkeeping business, which had three, four, five times the number of people. It already had its own culture. Our goal there was to not break the culture, while also navigating it and directing it into a culture that embraces the history, the growth lab family feel, but also, makes changes to that. Brings it into the 21st century, in many respects. Uses jetpack work flow. Uses other systems that were not part of what the firm was used to, what the people were used to. There’s a lot of aspects of managing people that we had to navigate. This flows in … As you were saying, they have an A session. One thing, just on our profit centers, that we always keep front and center, is we try to build the factory, we call it. Build the factory before we find the customers. Make sure that you know when you walk into that first customer, that you can deliver and you have good confidence on it about delivering a good quality product. We’ve probably all done it both ways. Client comes and asks you for a different service. You’re a good salesman, doesn’t say no. Then, you’re behind the eight ball until you catch up and deliver a good quality product. What we’ve tried to do, and part of the acquisition for us, was building the factory so that we could really deliver a quality product. We could go out there to the market knowing that we had the people, the processes, and the management systems in place to be able to deliver what we said we could.

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Speaker 1: What if the transition over the transition period is being pushed to one year, instead of a longer time frame because of health reasons or we’ll say reasons like that then cause it, is that just not a good deal to then pursue? Is there other ways to then de-risk it, I guess there’s some creative problem solving and deal structuring that can go on there, but what sort of questions have to come up if someone’s trying to push for a faster, for whatever reason, buy out period?

Speaker 2: Yeah, well I was going to say I’m all for fast closings because in my estimation time kills all deals, okay, if you have to wait too long. Do you understand?

Speaker 1: Yeah, that makes perfect sense.

Speaker 2: I was going to say I lost you there for a second.

Speaker 1: No, no, no, no. You’re saying time kills the deal but at the same time I imagine there’s a bit of anxiety of saying “Oh my goodness, I don’t want to close too quickly. I want to make sure this is a good fit.” They’re saying we can only do a year. I imagine that then adjusts maybe the pay out, maybe the multiple then changes because of that as well and I imagine then it’s a matter of reviewing that.

Speaker 2: No absolutely the multiple would change, you know, and again it’s on a case by case basis and we haven’t run into the health issue too much, but I’m sure it’s certainly a viable thing that happens, I am sure, but yeah, you would have to structure it so that your client retention and your multiple would be fair to both parties. We like to say a good deal is fair deal, so you’re not going to pay an outrageous multiple if you only have a one year client retention, it’s just not going to happen. You got to remember though making the decision to merge is often the last and most important business decision many of these small firm owners are going to make in their entire lives, all right? It’s, you know, people sort of chuckle when I tell them that sometimes it’s easier to merge a $15 million firm than it is to merge a $400,000 firm, and the reason being is a $15 million firm it’s a financial decision, whereas the $400,000 firm, maybe some man or woman has nurtured this for 20 years, it’s so emotional, and they’ve got one foot on the dock, one foot on the boat, they can’t seem to make a decision.

That’s why sometimes we prefer to enter into the larger mergers because it’s based on financial rather than emotional.

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