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The Two Elements of Future-Focused CAS

In our last article, we decoded CAS – client advisory services – and uncovered some of the reasons why this offering has grown at more than double the rate of traditional accounting services in the past few years. Given its popularity – and its profitability – it’s obvious that CAS should be an area of focus in your firm.

But there’s a problem: CAS is so broad as to be almost undefined. Depending on who you ask, CAS can include everything from bill payment and payroll to “outsourced CFO services” – a term almost as broad as CAS itself. Furthermore, many of the CAS offerings suggested by accounting industry leaders are backward focused: they look to solve problems today’s business owners experience using yesterday’s approaches.

If your firm is to make the most of the demand for CAS, you need to offer future-focused advisory services. And the best of these services can be integrated seamlessly into your firm’s current offerings.

What you DON’T need

For too long, the accounting and bookkeeping industry has focused on helping business owners by teaching them to think like accountants and bookkeepers. We’ve educated them on the need for checks and balances. We’ve taught them how to read and interpret their financial statements. We’ve even created magnificent tools to display key performance indicators in their businesses so they can consume the information at a glance.

In essence, we’ve been talking to business owners in conversational Swahili, whereas they just ordered their Swahili to English dictionary on Amazon yesterday.

As you are preparing to offer CAS in your firm, you need to think like a business owner – not an accountant or a bookkeeper. Yes, your clients are paying you for your accounting knowledge and expertise, but this must be translated into a language in which they are already fluent.

The two elements of future-focused CAS

Two CAS elements can be seamlessly integrated into your firm’s current offerings and help business owners without forcing them to think like an accountant or a bookkeeper:

  • Technology management and training
  • Real-time cash management

Technology management and training

Business owners aren’t looking for new technology for the sake of having new technology. They want something that is easy to use and will make their lives easier. When you help your clients learn to use technology that streamlines checks and balances in their business and simplifies their internal accounting processes without needing to understand accounting concepts, you help them take control of the accounting side of their business.

But wait…doesn’t that mean you are putting yourself out of work? Or at the very least reducing the amount you can earn from a client?

Absolutely not! Effective technology management requires an even higher level of accounting knowledge than doing the accounting soup to nuts. And, when you customize technology for your clients, you are providing them with a personalized solution with a much higher value than an out-of-the box software purchase.

The bonuses are numerous:

  1. You can now focus on advising your clients on things that will help their businesses grow instead of spending all your time doing compliance work for them.
  2. Technology management and training is profitable: A skilled employee in your firm can manage the technology in less time than one could to the compliance work. And much of the training on technology can be evergreened.
  3. You can look outside of the accounting industry for employees to help with technology management and training. Yes, someone will need to make sure the numbers produced by the technology make sense, but setup, optimization, and much of the oversight can be done by a tech-savvy non-accountant. Given the scarcity of seasoned professionals in the industry, this solves a huge challenge faced by many firms.

Real-time cash management

82% of small businesses fail due to a lack of cash. Even if a business is profitable on paper, if it runs out of cash and can’t quickly raise capital, the business will close its doors. Add to that the stress a business owner faces when they can’t pay themselves a living wage, and you can see why cash management is of utmost importance when building your future-focused CAS offerings.

But your focus shouldn’t only be on cash management. To offer effective, future-focused CAS, you must focus on real-time cash management.

Technology cannot provide this. When you rely on software or – shudder – spreadsheets to manage cash, you introduce a friction point: Someone, be it you or your client, has to update the technology in order to get the information the business owner needs to make decisions.

The one resource that can offer real-time information about a client’s cash position is their bank account. And Profit First is the system that leverages this resource as an effective real-time cash management tool.

Administered with the proper training and guidance, Profit First:

  • Helps business owners manage their cash effectively, making sure they don’t close their doors due to a lack of cash.
  • Helps business owners pay themselves a living wage as well as routine bonuses for running a profitable business.
  • Propels businesses to sustainable, profitable growth.

The demand for CAS will only grow

By all accounts, the US economy – as well as other leading world economies – is heading toward a recession. As the pandemic taught us, periods of financial uncertainty lead business owners to seek more advice from their accountants and bookkeepers. Focusing on the two elements of future-focused CAS now will position your firm to meet the demands your clients already have while preparing for future CAS needs.

Decoding CAS

“CAS” is the buzzword du jour in the accounting industry. Short for “client advisory services,” it’s something all the experts are saying accountants should be offering. But aside from the decade-old “compliance is dead” argument, few are really telling accountants why they should be offering these advisory services.

The value of CAS

According to Amy Bridges, professional development manager for CPA.com, the mean gross profit margin for CAS grew from 34% to 47% between 2018 and 2020. The profit margins for more traditional accounting services also grew during this time…but only by 6% (from 28% to 34%.)

Why did CAS grow at more than double the rate of traditional accounting services?

  1. CAS is valued higher by clients. Over the past two years, clients have grown more aware of the help their accountants can provide. Accountants had a unique opportunity during the pandemic to step up and prove their worth, and as a result many businesses that otherwise might have failed, thrived. This real-life experience has led to business owners being more willing to invest in advisory services.
  2. CAS is valued higher by accountants. As they were helping their clients survive and even thrive, accountants started realizing clients really are willing to pay for their unique knowledge and business insights. This realization came at a time when accountants were experiencing a high burnout rate, exacerbated by changing legislation, moving deadlines, and staffing shortages. As a result, accountants started looking for ways to earn the same – or more – money without working themselves to the bone to do it.

In short, we’re in the midst of a once-in-a-lifetime opportunity where what clients need and are willing to pay well for aligns with services accountants want to provide. And accountants can charge premium rates for these services while still ensuring their clients get an ROI on their investment.

But what is CAS?

Like its predecessor, known simply as “advisory,” CAS has a definition so broad as to be almost undefined. Depending on who you ask, CAS can mean:

  • Budgeting and forecasting
  • Accounts payable management
  • Technology management and training
  • Payroll and HR services
  • Cash flow management
  • Financial statement preparation and review
  • CFO services…which has become sort of a catchall term for all the above

At its core, CAS – like advisory – goes beyond data entry, reconciliation, and tax returns and extends to strategic work with your clients.

How can CAS have the most impact?

Software developers would have you believe CAS is a matter of having the best dashboard for your clients to use. Traditional accounting organizations will tell you CAS is all about teaching your clients how to interpret and use their financial statements.

But business owners don’t necessarily want a fancy dashboard or to learn how to read financial statements. What they do want is an advisor who will help them look ahead and make predictions about how to move their business forward profitably. A combination of “real time” reporting and advising and future-focused guidance will have the most impact for businesses.

In other words, business owners want you to help them the way you helped them during the pandemic.

In our next article, we’ll take a look at some of the future-focused advisory services you can add to your firm’s offerings now that the world is returning to “normal.”

Making the Numbers Empathetic

Financial professionals get a bad rap. We’re seen as “numbers people” as opposed to “people people.” This reputation isn’t entirely unwarranted. We do like our numbers. Numbers don’t lie. They tell the story of a business without the emotional baggage. They cut through the “gut feelings” many business owners use to run their businesses.

Numbers help us see the truth more clearly.

The problem is, business owners want someone who can relate to them as people. And when we keep pointing to “the numbers” or “the data,” we’re not relating to our clients in a language they can understand.

If we’re going to get through to our clients, we must make the numbers empathetic.

Translating the story of a business

“Making the numbers empathetic” might sound like woo-woo nonsense, but you’re already halfway there. You already know that numbers tell the story of the business.

You just have to translate that story into language your clients understand. And you probably already know how to do that, too.

As a financial professional, you know that the purpose of most businesses is to generate a profit. The exception is non-profit businesses. Non-profit businesses exist not to generate a profit, but to fulfill a purpose. That purpose is the “story” of the business. Any net assets (the bottom line on a statement of activities report – the non-profit equivalent of a profit and loss statement) are used to tell that story and fulfill the non-profit’s purpose.

Most small business owners look at their businesses through this same lens. It’s not that they don’t want to generate a profit – they absolutely do – but they are more focused on what the success of their business means for them than they are on profit alone. In other words, they focus on the purpose of their business and the story they can tell with it more than they focus on the numbers.

How do you make numbers empathetic?

You can make your business clients’ numbers empathetic by connecting the dots for them. Ask your clients what they want from their businesses. Then ask why they want it. You might have to dig around a little, but if you’ve built good rapport with your clients, you’re going to get a lot of emotional, touchy-feely answers.

This is exactly what you want. The emotional, touchy-feely responses – freedom to work on their own terms, flexibility to spend time with children or aging parents, providing jobs to people in their communities – tell the client’s story in their own words.

Once you’ve gotten a client to tell you their story in their own words, you can translate the story for them. And the question you have to answer to complete that translation is:

“How much money do you need to make that happen?”

Aha! Now we have our client’s story in a language we can understand, track, analyze, and use to guide the client as they work toward fulfilling their purpose. Now we have a Rosetta Stone we can use in our conversations with them to help them see where their “gut feelings” might be leading them away from the plot of their story.

Now we’ve made the numbers empathetic.

It takes practice

Just like learning any new language, it takes practice to make numbers empathetic. Start with a client you already have a good relationship with. One who already values your advice from the perspective of a “numbers person.”

Ask them, “What do you want from your business?”

Ask them, “Why do you want it?”

Then ask that all-important Rosetta Stone question: “How much money do you need to make that happen?” Write that number down.

Over the following months, translate the numbers you see on their financial statements into the elements of the story they want to tell for themselves and their family.

This is going to feel awkward and – dare I say – hokey at first.

Stick with it.

Value Starts With Asking Your Prospects the Right Questions

Most financial professionals are familiar with the “price sensitive” prospective client. You know the one: They call or email you out of the blue, and the first question they ask is, “How much do you charge?”

Some prospects truly are price sensitive, but many more are “value sensitive.” A value sensitive prospect is willing to pay for top-quality financial services, but first you have to show them the value of working with you. It can be hard to differentiate between a price sensitive and a value sensitive prospect unless you ask the right questions.

The wrong questions

Many accountants and bookkeepers focus on the wrong questions during their initial call with a prospective client. This mistake is often made even before the call, in the call intake questionnaire.

Are you asking traditional, transactional intake questions, like?

  • What accounting software do you use?
  • How many transactions do you have per month?
  • Do you have employees? How many?
  • How many bank and credit card accounts do you have?
  • What is your total revenue?

If you’re asking these questions, you’re setting yourself up to be treated like a commodity. Price sensitive prospects will use these questions – and your quoted price – to determine your hourly or per-transaction rate, even if that’s not how you quote for your services. They will then compare your pricing to your competitors’ pricing and choose the lowest-priced provider.

Are you thinking, “Big deal. I don’t want the price sensitive customers, anyway!”? Then consider this: By asking these transactional questions, you’re also making it difficult for your value sensitive prospects to differentiate between you and your less-expensive competitors. And this means you are turning off – and turning away – good prospects.

The right questions

If you want your prospects to value your expertise and stop comparing you to your competitors, you must improve the questions you’re asking during your sales calls.

The right questions focus on the prospect’s history and what they want to accomplish in the future. The answers to these questions give you a better understanding of the prospect and whether you will enjoy working with them. They also let the prospect know you aren’t a typical accountant or bookkeeper. The prospect then starts to view you differently, seeing the value of what you offer…value they are willing to pay top-dollar for.

The right questions focus on the following four areas:

  1. Understanding their past. Once you understand where the prospect is coming from, you can start formulating a plan to help them recover from any accounting or other financial mishaps in their business.
  2. Learning where they are now. Knowing where the prospect is currently in their business will help you address their most immediate needs first. And when you relieve this pain quickly, your client will trust you more.
  3. Looking to the future. When your prospect shares their aspirations for their business with you, you can see how your relationship with them might develop over time. This can help you determine whether you want to take a risk on a prospect who might not be a good fit now but could become an ideal client with a little bit of nurturing.
  4. What they want from you. Every prospect has expectations of their accountant or bookkeeper. It’s important to know what these expectations are up front so you can determine whether or not you’ll be a good fit for the prospect’s needs. There’s a reason we list this area of questions last, though: Chances are, your prospect’s expectations will change as they start to realize they can’t compare you to your competition.

If you want a comprehensive look at specific questions for each of these areas of focus, check out our “Value Starts With Hello” e-book.

Why You Should Use a Tiered Value Pricing Model

Pricing is the most important thing for you to get right in your business. Improper pricing ultimately leads to lack of profitability and overwork for both your and your team.

There are many pricing models to choose from. The most common are:

  • Hourly
  • Fixed-fee
  • Value

Of these three models, a tiered value pricing model will yield the best results for your firm.

Why you should use a tiered value pricing model

A tiered value pricing model accomplishes three things:

  1. A predictable workflow. One of the pitfalls of “menu” or “fixed-fee” pricing is that you customize services for each client you serve. This not only results in confusion for your team, but it can also lead to you having as many “bosses” as you have clients. You started your firm to have freedom and flexibility…not to have multiple bosses dictating how you work.
  2. A way to “steer” clients in the right direction. When structured properly, a tiered pricing model will influence your clients to choose the best option for their business. And it’s no coincidence that this option contains the most profitable offerings for your firm.
  3. Financial security for you…and your team. When you create your tiered pricing model using the methodology we teach at Profit First Professionals, you ensure that your personal financial needs are met. However, it’s not all about you: This model also ensures you can properly compensate your team for their contributions.

How to create a tiered value pricing model

There are five steps to creating a tiered value pricing model:

  1. Reverse engineer your firm’s income. We call this Income Targeting. Start by determining what you want to earn for the work you do in your firm. Then, use the Profit First model to reverse engineer the revenue you must generate to support your salary while maintaining business profitability.
  2. Analyze your current pricing. Create a list of your current clients and how much they pay you annually. Use this list to determine the average annual value of the clients in your firm.
  3. Analyze your workflow. List all of the services your firm provides. What services do you provide for each client? What services do you provide to the majority of your clients?
  4. Build your tiers. This is how you create the company you want. Using your workflow analysis, create three packages of services for your prospective clients to choose from. The middle package will be ideal for around 90% of your clients…and again, this package will contain the most profitable services for your firm.
  5. Price your packages. This is where the rubber meets the road. Use your Income Targeting and average annual value exercises to determine how many clients your firm needs to reach your revenue goals. Adjust this price until you reach a number of clients your firm can handle. This is the annual price of your middle service package. Your basic package will be priced at half of this amount, and your top package will be priced at 2.5 times the price of your middle package.

Next Steps

Using a tiered value pricing model is conceptually simple, but as with most things, the devil is in the details. A complete, 10-module course to help you create the perfect tiered value pricing model for your firm is included in Profit First Professionals membership. Non-members can purchase this course for $497.

Dispelling the Top Five Myths About Profit First – A Bookkeeper’s Perspective

Profit First is a game changer for business owners. This cash management system helps entrepreneurs feel like they are in control of their finances, even if they don’t understand how to read their financial statements or have never gotten the hang of budgeting.

But many accountants and bookkeepers are resistant to the Profit First methodology. This resistance is largely due to some myths about the impact of Profit First on business owners and the financial professionals who serve them. Understanding the truth behind these myths and misconceptions might just change your mind about Profit First.

Myth #1: All those bank accounts create more work
The most common objection I hear about Profit First is that the multiple bank accounts create additional work for the bookkeeper. When Profit First is improperly implemented, this is absolutely true. However, when the Profit First bank accounts are used as intended, there is a minimal number of transactions – typically fewer than six per month – in three of the five foundational bank accounts. It takes less than a minute per month to reconcile the additional accounts.

Myth #2: It would be better for my clients to learn to read their financial statements
I agree, business owners should learn to read their financial statements. However, after more than 20 years of trying to teach business owners to rely on their financial statements rather than their bank accounts to make business decisions, I’ve discovered the small business owner who will actually do this with any regularity is rare.

Profit First lets your client run their business without emailing you every time they want to make a large purchase – or worse, calling you in a panic because they overdrew their bank account. Now, instead of explaining their budget to them again, you can use your financial statement review discussions with the client to guide them in long-term strategic decisions for their business. This, in turn, increases your value in the client’s eyes.

Myth #3: Profit First wasn’t written by a financial professional, so it’s not “true” accounting/bookkeeping
This one is true. Profit First wasn’t written by an accountant or a bookkeeper, and it’s not accounting – it’s a cash management system. Profit First resonates so well with business owners because it was written by a business owner who experienced the struggle of not understanding accounting and found a way for cash management to make sense to non-accountants.

And this works to the advantage of accountants and bookkeepers, too. The Profit First methodology helps us bridge the gap between our knowledge and our clients’ understanding. It serves as a translation guide between what we say and what our clients hear. With a common language in place, we can make a bigger impact for our clients.

Myth #4: Profit First undervalues bookkeeping and accounting
The Profit First methodology doesn’t rely solely on accounting, but good bookkeeping is the foundation of a successful Profit First implementation. Without solid bookkeeping in place, a business owner cannot accurately determine how much money they should be allocating for taxes, what they should be paying themselves, and how much profit they should have in order for their business to be deemed truly healthy. Profit First doesn’t undervalue bookkeeping…if anything, it underlines the value of working with a quality bookkeeper.

Profit First also increases the need for business owners to work with a forward-thinking tax advisor. As a business’s profits increase, so does its tax liability. Business owners implementing Profit First are encouraged to work with a tax advisor who will help them keep more of their hard-earned money, while ensuring they are setting aside adequate cash to pay their tax bills.

Myth #5: Business owners don’t need a professional to help them with Profit First
This is similar to saying anyone can read a book about bookkeeping and be a good bookkeeper. Or that anyone can read the tax code and prepare a complex tax return. There are nuances to the Profit First methodology that accountants and bookkeepers who attain Profit First Professionals certification leverage to help their clients’ attain ever-higher levels of profitability. This, in turn, positions the financial professional as the go-to advisor for the client…which helps the accountant or bookkeeper attain ever-higher levels of profitability, too.

Conclusion
As a long-time bookkeeper, I understand the resistance many of my fellow financial professionals have to the Profit First methodology. Profit First can seem to fly in the face of what we were taught about the “right” way to run our businesses and serve our clients. However, after implementing this system in dozens of businesses – and seeing how that implementation helped those businesses not only survive but actually thrive during 2020 and 2021 – it is essential to dispel the myths and misconceptions surrounding Profit First.

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