Back in the days before BlackBerrys, Internet and a rapidly shrinking world, certified public accountants were, by and large, tax preparers.
That was then — this is now.
The CPA of the future eschews being boxed in. He or she is expanding from tax services to business advising.
“I’ve been preaching for 20 years that CPAs need to broaden their base of services,” said Rollyn Wild, president of Advisers Investment Management Inc.
A large part of his business is providing CPAs with the “investment piece of financial planning for their clients.”
Instead of expanding an accounting business vertically by adding more clients who need tax preparation, CPAs should evolve and expand horizontally with more services.
Wild likens it to an upside down pyramid that needs to be righted.
He recommends that accountants change their business model. Instead of offering a single service as “taxman,” they can transition to a “more profitable business model” that offers a broad variety of services to the largest number of clients, as a “trusted adviser.” Then they can offer several services to a moderate number of clients and the single service of tax preparation to the fewest number of clients.
“They need to become trusted advisers across more areas to their clients — instead of just (doing) tax returns,” Wild said. “Then the adviser and client become more valuable to each other.”
One local company has made the transition from tax firm to an all-encompassing service for its clients. Two long-standing accounting firms have merged, adding two additional partners in the process.
Jerry Hilderbrand, president of Hilderbrand & Associates P.C., and Martin P. Sanders, president of Sanders & Associates P.C., merged their businesses, and added Loni Woodley as a partner and David Auer as managing partner of the newly formed Auer, Woodley, Hilderbrand & Sanders LLP.
Auer has 25 years of experience as a tax attorney and CPA, specializing in estate planning and technical tax planning. Woodley has 22 years of experience in audit, tax and management advisory services, including 10 years with a national public accounting firm.
Sanders has operated his own CPA firm for 12 years, and Hilderbrand has owned a CPA firm for 25 years in Colorado Springs, specializing in litigation support services and general tax compliance.
Sanders and Hilderbrand decided to merge their separate practices and add partners because they could read the writing on the wall of the future.
“Both of us realized we needed younger blood and different skill sets to offer our clients,” Hilderbrand said. “We wanted people in here with us to drive that wagon of expansion.”
The firm helps clients whose businesses are going through different growth phases, or need an exit strategy, or whom to go to for refinancing or downsizing. It’s certainly not the one-stop tax-only shop of yesteryear.
“The CPA firm of the future has to be highly proactive throughout the year, so clients can make decisions as tax laws are changing,” Auer said. “A tax advisor is a strategic business partner that a client has access to 24/7 all year.”
The government has evolved from one major tax change every few years to several major tax changes in every year, “each of which has significant impact for small businesses,” Auer said. Small business owners cannot afford to merely meet with a tax “preparer” once a year. They need a relationship that will help them become and stay financially fit.
“Taxes may be the necessary evil that clients have to do, but we can help them with cash flow, legal risk and financial risk management as well,” Auer said.
Many small business owners don’t put enough emphasis on financial management — and making sure their business/financial numbers are accurate so they can understand their business.
“When we get out of this recession, and companies start to grow, business owners need to have intimate knowledge of those numbers — and not just compile them to give to their CPAs for tax season,” said Jeff Schneider, president of EFA Services Inc., which provides financial management for venture and technology companies.
Without reviewing timely and accurate numbers on a monthly basis, small business owners are at a strategic disadvantage.
And without proper accrual accounting, business owners don’t know if their trends are up, down or flat. Or they can lose potential investors, Schneider said.
One company in need of investment capital made the mistake of having its financial statement prepared on a cash basis solely for tax purposes. The sale of a large piece of equipment was not yet recorded.
“But it should have been recorded on an accrual basis, to show they made a large sale,” Schneider said. “It provided inconsistent information to potential investors.”
Had it been done correctly, the financial statements would have been consistent with the company’s business plan.
It’s just one more reason why business owners and CPAs need relationships that are all-encompassing.
Schneider’s business, EFA Services, is an example of the trend toward broader-based accounting and financial services.
Schneider identifies three aspects of financial management: Accounting process, accounting practice, and financial analysis.
Most business owners stay on the first level, “worrying about payroll, taking the money to the bank, accounts receivable — things that have to be done or they won’t be in business long,” Schneider said.
But “accounting practice” — recording transaction according to generally accepted accounting principles — is necessary in order to have timely results and know what’s happening to one’s business.
And, finally, “financial analysis” is both “what kind of decisions do you make based on accounting information, and making forecasts and budgets on what the future will be for the company,” Schneider said. “It’s the use of the accounting information.”
The next generation of CPAs will be holistic business and financial advisers to their clients.
“Clients don’t always know how to use financial data to make good business decisions,” Auer said. And that’s when he and his firm will have the answers.
For instance, if a client owns a lot of real estate, Auer and his partners can show him or her how to separate the bad investments from the good, which could involve creating different or new business entities, to better manage the real estate, reduce risk and craft a personalized business plan.
“Auer is a businessman.” Wild said. “Auer and his generation will be on the forefront of this transition.”
Although some CPAs are inherently reluctant to join the frontier of the future, eventually it will be a matter of survival.
“Change is painful — but it’s for the best,” Wild said.