During my travels in the eastern half of the United States and Canada providing consulting services to small businesses, it never failed to surprise me when I heard repeatedly from clients that their expectations were for their public accountants to provide organizational performance improvement services to them as part of their ongoing relationship. But when questioning these small business owners as to whether basic analytical, planning and profit improvement activities were being provided by the CPAs, the answer was always a reluctant no. Having had an earlier career as a public accountant, I explained to the business owners that the consulting services had not been contracted for with the CPAs, and that the CPAs had primarily agreed to provide compliance services, including the preparation of the annual financial statements and entity income tax returns. I further explained that having obtained a Master of Science in Accountancy degree and having taught at several colleges, it was clear to me why their public accountants were not offering management consulting or organizational performance improvement services to their small businesses.
As you know, an accounting education is primarily focused on the recording, categorizing, summarizing and reporting of financial data in a manner that reflects the standards prescribed in Generally Accepted Accounting Principles, which are developed and published by the American Institute of Certified Public Accountants. This mission is no insignificant matter. Without public accountants available to report financial information in a standardized way, third-party users, including banks, vendors, and government agencies, would not be able to get a clear and unbiased view into a company's financial performance and condition. So having been trained to report financial data, the public accountants have mostly focused on compliance services as their primary domain.
Training and Skills
However, as I have provided consulting services to clients over the past decade I have often reflected on why public accountants do not weave management consulting services into their service mix. It is clear that accountants have much of the training, analytical skills, and core competencies necessary to help businesses solve their performance problems and increase the profitability and value of their organizations.
The world of business today depends greatly upon data to measure performance and gain insight as to what types of products, processes and personnel provide value to their organizations. As a former accountant I know the trap that I and many other professionals can fall into. That is, accountants, as professionals and experts in the field of accounting and finance, often assume that their technical and problem-solving skills are possessed by many others. In other words, they often devalue their level of knowledge and expertise because it has become somewhat familiar and easy for them; therefore they believe others must possess these skills as well. This belief is obviously not true. Having worked alongside consultants who do not have sound financial backgrounds I can tell you that the lack of the kind of in-depth financial knowledge that CPA's possess puts them in a league of their own in the consulting arena. The connection between a business's performance on multiple levels in an organization and the resulting impact on the financial results is a relationship that is unambiguous to accounting professionals, but often unclear to non-financial professionals: it is more difficult for them to connect the dots.
Having this insight into how businesses work and how their performance is reflected objectively in financial data and reporting is a large prerequisite to becoming an effective management consultant. Another way of describing this condition would be to label it as financial literacy. I have often told clients that their financial statements, particularly when viewed over a multi-year span for trends, really tells a story about the company's successes and failures, financial strength, and resilience to future unknown events and economic conditions. Having an individual who can teach a client not only how to read and interpret financial data, but also how management's decisions and actions can affect the organization's performance for the better, is an invaluable and essential resource.
Where Accounting Ends and Consulting Begins...
In explaining how my role as a management consultant differs from my former role as a CPA/public accountant, I have shared with clients that since public accountants are primarily focused on compliance services, the use of clients' financial data usually stops with the publishing of the annual financial statements and tax returns. They may view the financial statements and tax returns, and therefore the data within them, as the final product (you could refer to the report generation or compliance process as data manufacturing, and once the data is manufactured, the process is complete). It is understandable that the public accountant would view the data this way. And it is important that they do take this prospective as compliance providers, because without accurate financial data, consultants and other users of financial information cannot tell how well a client's business is performing, or how serious the financial condition of the company might be. In fact, without reliable financial information, organizational performance consulting services cannot be delivered because there would be no way to measure the impact of the steps in the improvement/consulting process.
But as a management consultant, this same financial data is generally where my services begin. Consultants do not view the data as an end product, but instead as a resource and a starting point for organizational performance improvement. Financial data is like a language for business, and it translates the company's activities, and successes and failures, into objective code that measures the true economic results. Therefore, in order for public accountants to add consulting services to their skill set, it will be necessary for them to view data not only as an end product in the compliance process, but also as a resource for performance measurement and improvement.
Why Would a CPA's Client Want Him to Provide Organizational Improvement Consulting Services?
There are several reasons why it would be an advantage to your clients for their CPA to provide consulting services to them. They include your knowledge of the organization and its products and services, your understanding of the owner's temperament and management style, the trust that the owner currently has in you, the level of quality that you will be able to provide once you have been trained in sound consulting techniques, and the flexibility that you will have in the pace at which you deliver the services and facilitate change.
Your Knowledge of the Organization
In your role as a public accountant you have observed your client's business over time, albeit from afar (not intimately as a management consultant would). You have therefore arrived at some possible conclusions as to why the client's business may not be performing to the standards that either you or he thinks is possible. However, because your observations have been somewhat casual or indirect, your conclusions may or may not be well-founded. So you will need to do the due diligence involved in the business analysis process. But even though your assessment may not be correct, you have at least become familiar with some of the managers and employees, and you will also have a preliminary idea as to what the owner thinks the problems are derived from. Of course his observations and beliefs will need to be vetted too. So although you will not know the true causes of the company's problems, you will know that one of your first goals will be to confirm or dispel yours and the owner's perceptions of the organization's limitations.
Products & Services
Likewise, after having dealt with the client for a few years you may have an idea as to the general level of quality of the products and services that he provides. This may be through your own experience or through the experiences of friends, neighbors, or fellow business associates. This awareness will give you a head start in assessing the organization's image in the marketplace.
The Owner's Temperament & Management Style
Having a general idea as to the owner's temperament and management style will enable you to adapt how you communicate with him regarding issues and possible operational changes. You will not need to explore these aspects of the owner's behavior like you will need to with a new client. This will take a level of uncertainty out of the contract negotiations.
The Owner's Trust
After having dealt with the owner over a few years you will have gained a level of trust with him regarding your integrity, that is, doing what you say you will do for services at an agreed to price.
Quality Expectation
You will have already demonstrated a level of quality and consistency through your compliance engagements, so the client will know what you consider to be quality services, both in terms of technical performance as well as timeliness. This will provide you with a certain level of credibility right from the start.
The Pace of Change
Although there may be some accommodations required to adapt your consulting practice around your tax/high season schedule, you will be able to deliver the services at a pace that is comfortable for the client, enabling him to learn and adopt concepts at a rate that does not disrupt his business in a negative way. That approach is not always adopted by out of town consultants who prefer to concentrate the consulting services over a shorter period of time to meet their own control and travel expense needs.
Will Your Reputation as a Public Accountant Positively Impact Your Image with Referral Sources?
Commercial loan and workout officers at banks and commercial attorneys continue to be leading referral sources for not only compliance services, but management consulting services as well. Having already demonstrated a level of professionalism and quality with these individuals will serve you well when they become aware that you will be providing organizational improvement services.
If you were one of these referral sources ready to recommend an accounting firm to a client, would you refer the client to a firm that provides only compliance services, or one that provides organizational improvement services as well? Most likely the latter, because although the client may not need improvement now, there will be some comfort in having him served by a firm that can deliver the improvement services at a later date, if needed.
At Client Performance Solutions we have a well-structured, effective and efficient model for transferring management consulting skills to CPAs. The process is progressive and involves not only the technical requirements, but also the interpersonal aspects of facilitating and promoting positive organizational change in small businesses.
In Summary
So based on all of these reasons, would a CPA make a great candidate for management consulting services? Yes! CPA's can make a smooth transition into providing organizational improvement services, and they definitely will be able to help the small business improve its profitability and value!
By Clint Strout, Principal, Client Performance Solutions, LLC
Clint Strout, Principal Client Performance Solutions, LLC
Mr. Strout has been a CPA, controller, business analyst, strategic planner, college instructor, small business owner, and management consultant. He has observed public accounting firms and their partner/owners for over 35 years. Learn more at WWW.ClientPerformance.com.
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