All the industry experts agree: implementing client advisory services (CAS) is critical to the ongoing growth and profitability of your firm. CAS not only adds revenue and profitability to your firm, but it is also a “sticky factor” that makes it difficult for your clients to compare you to your competition. Plus, with automation and AI becoming more prevalent by the day, higher-level CAS offerings differentiate you from the claims made by overly ambitious software companies.

It makes even more sense for tax-heavy firms with a high level of seasonality to offer CAS. This type of firm has historically relied on part-time or seasonal labor during the busy season, which can be difficult to count on year after year. Offering CAS can help you keep your top-tier seasonal team engaged year-round, reducing the risk of them not being available when you need them for the next busy season.

There’s an elephant in this room, though.

It’s easy enough to implement and deliver CAS during the “off season.” But what happens during the “busy season”? How do you manage your commitments to your CAS clients while processing tax returns for your compliance clients?

Do you have to choose to be a “CAS firm” vs. a “tax firm”? Should you put CAS on hold until after tax season?

Can you have the best of both worlds and finish the busy season with your sanity intact?

Reality check

As much as we might wish it to be different, tax-heavy accounting firms have a “busy” season and a “slow” season. Some firm owners embrace this seasonality and strategically design their firms so the revenue earned – and the hours worked – during the first few months of the year sustain them until the next busy season. There’s a certain allure to working all-out for four months and then having the rest of the year more or less “off.”

Not every firm owner wants this model or can sustain it long-term, though. Most firm owners supplement the busy season with other streams of revenue. Historically, bookkeeping services have helped these firms bridge the gap between busy seasons. But – unfair though it is – bookkeeping has faced increasing downward pressure in terms of pricing and perceived value by clients. Bookkeeping-centric firms have addressed this downward pressure by introducing CAS. And although tax-heavy accounting firms can – and should – consider offering CAS as well, these firms seem to be at a disadvantage.

The tax firm disadvantage?

Most bookkeeping services are not critically deadline-driven. Yes, you might have made a commitment to your client to deliver financial statements by the 15th of the month, and payroll is always on a schedule, but missed deadlines don’t typically result in exorbitant penalties that cannot be abated.

Tax services are different, though. With the exception of filing extensions – which, when used incorrectly, only extend the pain of the busy season – there isn’t much relief for the deadline-driven nature of a tax-centric firm. You must complete all the returns in a short period of time, or your client faces interest and penalties, which – chances are – your firm will have to cover.

So, while a bookkeeping-centric firm can easily manage deadlines while still fulfilling their commitments to their CAS clients, tax-focused firms are faced with the double-whammy dilemma of a high volume of work that must be completed in a short period of time. This can make it seem difficult – if not impossible – to offer CAS in your tax-heavy firm.

What’s the solution?

Do you put CAS on hold during tax season? That’s not fair to your CAS clients, and chances are they aren’t going to want to pay you for the months you aren’t working with them.

Do you stop offering tax services altogether and focus on CAS? You could, but that’s like throwing out the baby with the bathwater, especially if your firm is known for tax work.

Do you work more hours during tax season to serve both your tax clients and your CAS clients? I don’t know you, and I know nothing about your firm, and I can still tell you that’s not sustainable.

Do you hire more employees to serve everyone? Oh goodness, where do we even start with the pitfalls of this one?

So, how do you overcome the tax firm disadvantage? How can you offer CAS and still deliver tax services?

Both/and instead of either/or

The financial professional’s ability to see things in black and white is both a blessing and a curse. It’s a blessing in that we can be confident that 1 + 1 will always equal 2, a bank account can always be reconciled, and we can bring certainty to our own little corner of the world.

It’s a curse in that it often blinds us to opportunities.

There’s an easy answer to the question of how to offer CAS in a tax-heavy firm, and it’s this:

Tax work is CAS work.

Now, I’m not saying that you can plug numbers into your tax software, print a return, and say you offer CAS. But what you can do – what you should do – is make CAS an integral part of your tax preparation process.

You accomplish this by remaining mindful of your clients’ needs, especially in the throes of tax season.

For example, you notice your client owes $12,000 in taxes. You take another look at their return and find $1,500 in credits (this is CAS). Then you run a quick calculation and see that they would have saved $1,000 had they made an S-corp election, so you make a note to schedule a call with the client to discuss this (also CAS). You notice they only have $7,000 in their bank account to pay the $10,500 tax liability, so you add a note to talk to them about a tax savings account (again, CAS…and, ahem, Profit First).

Notice that you haven’t added much work to your plate. Yes, you’ve taken another look at the return to find additional savings, and you’ve made some notes of things to talk to your client about, but these steps are part of your process, anyway. You’ve just become more mindful of your client.

And that’s CAS.

It doesn’t have to be complicated to be impactful

Too often, we think we must put in hours of work in order to justify calling ourselves advisors. But the truth is, you can offer CAS to your clients, even during the busiest time of the year, with minimal impact to your workload.

Profit First is an excellent way to offer CAS in a way that is impactful without adding hours to your schedule. Profit First Professionals leverage a system that requires little time commitment on the part of the advisor, while helping the client achieve phenomenal results. And these results help you add revenue to your top line and profit to your bottom line.

Even though it’s the busy season, I hope you’ll apply now to start your Profit First Professionals journey. You could have CAS up and running in your tax-focused firm before the start of the filing season.

There’s a common misconception that Profit First emphasizes expense reduction to the point that businesses are forced to run on “leftovers.” Yes, an expense analysis is one of the first things a Profit First Professional will do when implementing the program with a new client. And, yes, we do put a large amount of emphasis on reducing unnecessary or redundant expenses.

But not all expenses are created equal. In fact, there are certain expenses that – if cut – can actually cost your business money.

When you approach expense reduction as a “slash and burn” endeavor, you run the risk of harming your business. Just as you should be cautious of a tax accountant who encourages you to “spend down your profit” to save money on taxes, you should be cautious of an accountant, bookkeeper, or coach who tells you to cut expenses to the bare minimum without going through the additional step of individually weighing the benefits and risks of cutting each expenditure.

So, how can you determine what expenses you should cut? It’s really pretty simple.

Cut Expenses. Keep Investments.

Let’s address the elephant in the room: Some “pure expenses” are essential to your business operations. Things like utilities, business licenses, and breakroom coffee (I said what I said) might not generate a direct return for your company, but you must maintain them in order to operate a business.

But aside from these “necessary evils,” the best way to determine whether to cut an expense is to ask yourself this question: Does this expense generate a return for my business?

If the answer is no, then you can – and should – eliminate it.

You see, even though they appear on the profit and loss statement instead of on the balance sheet (where “true” investments in the accounting sense of the word reside), some expenses are really investments in your business. These are the expenses that generate a return for your company. This return can be monetary, but it can also be in the form of efficiency.

You want to avoid eliminating investments. Eliminating an investment is the equivalent of approaching weight loss by removing muscle because it “weighs more” than fat.

A (Tricky) Example

It’s often easy to identify pure expenses. The subscription to the newsletter you intend to read “later” but rarely do. The Subscribe and Save order for rubber bands when your desk drawer is overflowing with them. That pesky $5/month for the app you keep but don’t use because the hassle of canceling hurts more than paying the $5.

But sometimes an investment can masquerade as an expense.

I was working with a professional services provider who needed to make some dramatic expense reductions (we had already addressed her pricing issues, which is a topic for a different article.) Like most business owners, she had reviewed her expenses and homed in on the largest one.

In this case, it was her virtual assistant.

“I have to cut her,” the business owner said. “If I cut out the amount I’m paying her, I’ll be more than 75% of the way to my expense reduction goal.”

“Okay, let’s discuss this. What does your VA do for you?” I asked.

Her answer? “Everything.” And she wasn’t exaggerating.

Basically, the VA handled the entire operations end of this professional services business, freeing the business owner to focus on the revenue-generating activities only she could do as a licensed professional. Without the VA, the business owner would more than double the amount of time she spent working, and by her own admission most of the essential tasks would either go undone or be done inadequately.

You see, the math worked, but the physics didn’t. The easy answer – cut out the VA – would have been detrimental to the health of the business. In fact, the cut probably would have completely sunk the business.

Rather than cut the VA altogether, we dove deeper and identified things the VA was doing “just because they had always been done.” By eliminating those tasks, we were able to keep the VA but reduce the amount she was being paid.

What about the rest of the expense reductions? We found them in seemingly insignificant increments of $10 here and $25 there. Was it a quick process? Absolutely not. Was it fun? Also no. But we got there, and when we were done, the business was running more efficiently and more profitably than ever before. The business owner didn’t even feel the “loss” of the expenses we cut. And – even though she was being paid less – the VA was happier because she was able to focus more on essential business tasks than the minutia she was burdened with before our analysis.

Proceed With Caution

Of course, the opposite scenario can also occur. You might be able to look at every expense your business incurs and justify why it’s necessary.

This is why it’s paramount to work with someone who understands your business and will take the time to analyze and challenge your assumptions about what is necessary and what isn’t. And that’s exactly what our Profit First Professionals are taught to do.

If you’re interested in working with a professional who will turn your business into a lean, mean, profit-generating machine, click here. We’ll happily introduce you to a PFP who will guide you through the expense reduction process in a way that is – if not exactly fun – at least safe for your business’s health. Investing in the services of a Profit First Professional will yield returns well beyond what you pay for their expertise.

If you’re interested in helping businesses do this sort of expense reduction, I encourage you to apply to become a Profit First Professional. This investment in your firm will garner returns well beyond increased advisory revenue. Our team will share the details during your enrollment call.

We got spoiled.

In 2020 and 2021, business owners were clamoring for help. Accountants, bookkeepers, and financial coaches were the beneficiaries, and for a moment in time, we basked in the glory of knowing business owners saw us as the trusted advisors we are.

Then the world opened back up, and things slowly returned to business as usual.

Now, with the economy still in a state of uncertainty, many business owners are cutting back on financial services. Just as we benefited from the surge in demand at the start of the pandemic, we now feel the discomfort of our prospects’ and clients’ decisions to tighten their belts. Sure, the dwindling number of accounting services professionals works in our favor to an extent, but many providers are finding it harder to retain existing clients in the high-value services we want to offer and to attract new high-paying clients.

But that doesn’t mean you should throw your hands up in defeat. In fact, there are four client attraction tactics that are bringing our Profit First Professionals members great success.

Wanna know what they are? Read on!

Tactic #1: List nurturing

Unless you started your business yesterday, you have the following lists:

1. Prospects who didn’t become clients
2. Former clients who departed on good terms
3. Current clients who aren’t fully utilizing your services

That’s three groups of people you can market to. And the best thing about these lists? The hardest part of marketing to them is already done. You’ve already gotten their attention. Now you just need to nurture them.

How?

Provide them with valuable, actionable information that (1) they can use and that (2) highlights the ways you can help them.

Don’t worry about “giving away the farm”; you aren’t going to go into their numbers and solve their specific problems. Instead, you are going to give them just enough information – in the form of targeted emails, short videos, and simple resources – to show them what is possible if they work with you.

List nurturing takes time. Don’t expect to get a new or increased engagement with the first email. Build out a sequence of 12-16 emails you can “drip” on your lists over the course of several weeks, saving your “let’s schedule a time to discuss how I can help your business with this” call to action for some point during the second week of emails.

Once this sequence has run its course, put anyone who hasn’t responded or engaged on a “keep warm” list, and send out a monthly – or even biweekly – email to them to keep you at the top of their minds.

Tactic #2: In-person networking

Those of us who are a bit more on the introverted side of the scale have been more than happy to let in-person networking fall by the wayside these past few years. However, depending on which research you choose to believe, anywhere from 50-75% of the population is extroverted…and they really, really missed in-person networking.

Love it or hate it, in-person networking is one of the fastest ways to gain trust, which we all know is a financial professional’s most important asset. Our Profit First Professionals members who are engaged in in-person networking are finding they get results quicker…usually within three months of networking with a new group. (Email marketing is usually taking at least six months to produce results, and those are the exceptional cases.) In-person networkers are also signing higher-end engagements.

Tactic #3: Talk to low-revenue prospects

One of the biggest mistakes I see financial professionals make is to base their decision to speak with a prospective client on the business’s revenue. I could write an entire article about why this is a horrible idea, but for now, let’s focus on the solution:

Do some research before rejecting the prospect.

Is this a new business?

Is the business owner an employed professional or a retiree?

Does this prospect currently own another business, or have they owned a business in the past?

You can get most of this information from LinkedIn. A “yes” to any of these questions could be an indicator that the business owner has money to invest in the business, meaning they have money to invest with you.

So, talk to (almost) EVERYONE. Sure, you’ll kiss some frogs in the process… but you’ll also likely find a prince(ss) or two.

Tactic #4: Sell your prospect what they want… not what you think they need

Back in May, marketing consultant Robin Robbins spoke with our Mastery level PFPs. She shared tons of great examples, but one in particular has stuck with me:

A business owner calls an IT company because their Wi-Fi is out. The IT company launches into a sales pitch for their managed services program. The business owner isn’t interested in managed services… they just want their Wi-Fi fixed. The IT company doesn’t do break/fix work, so they send the business owner to another provider who does. A few months later, the first IT company discovers the business owner who called them is now on a managed services program with the other provider.

What the heck happened?

It’s pretty easy to see from this side of the example: The second provider sold the prospect what they wanted – working Wi-Fi – and then used that as a steppingstone to sell additional services.

Now, think about the prospects who come to you for bookkeeping work, or a tax return, or bookkeeping work so they can file their tax return. Or maybe they just want a budget or a cash flow projection. You launch into an explanation of your packages and advisory offerings and…

The prospect just stopped listening. In fact, they’re Googling the phone number of the next financial professional on their list.

Yes, you want to protect your workflow. You definitely don’t want to go back to the “checkbook and a pulse” qualifier for a client. But don’t throw out the baby with the bathwater. If a prospective client wants to pay you to fix the problem they know they have, and you can fix that problem, fix it. Sell them what they want. Once you’re through the door, so to speak, then you can make suggestions about how you can continue working together. That’s when you can sell them what you know they need.

Bonus Tactic: Collaborate with other professionals

Remember Tactic #2? Yeah, the one you skimmed past because you really don’t like in-person networking (I see you, fellow introvert). Here’s a secret to networking that will pour rocket fuel on your client attraction efforts.

Profit First Professionals who are leveraging in-person networking aren’t only – or even primarily – networking for new clients. Instead, they are networking for and with complementary service professionals with whom they can share business. These connections are broadening their sphere of influence, providing them with referral partners who understand the sorts of clients they want to work with, and shortening the sales cycle when the introduction is made.

Suggestion #1 (good): Find a networking group – like your local chamber of commerce, or your bank’s lunch and learn series – where you can find attorneys, insurance brokers, bankers, and HR and IT professionals. Start attending this group regularly. Make connections. Build trust. Pay it forward by referring your clients who need these services.

Suggestion #2 (better): Become a Profit First Professional. Here you will find a ready-made community of complementary service providers – accountants, bookkeepers, business coaches, financial advisors, fractional CFOs – who are constantly looking for collaborative partners to help them help their clients become more profitable. Click here to make your fully-refundable deposit and schedule your enrollment call.

“Profit First isn’t necessary.”

This is one of the objections we hear most often from accountants and bookkeepers. And, as much as it pains us to say it, they are correct.

Profit First isn’t necessary… if you’re already wired to think like a financial professional. Which most business owners are not.

In fact, I’d go so far as to say many financial professionals aren’t wired to think like financial professionals. Instead, they have trained themselves to look at the world through a certain lens. This training takes years of dedicated focus and a narrowing of perspective.

This is something most business owners won’t do. In fact, it would likely be to the detriment of their business if they did.

Profit First democratizes the visibility of a business’s financial information so any business owner – regardless of how they’re “wired” – can consume and act on it.

Not everyone thinks like you.

A shortcoming of the financial services profession is the mistaken belief that everyone thinks the way we do.

Scratch that. A shortcoming of the entire human race is the mistaken belief that everyone thinks the way we do.

Because we tend to see the world from a certain perspective, and because this perspective makes sense to us, it can be hard to remember there are countless other perspectives out there. What makes perfect sense to us can be the equivalent of an alien language to the person sitting on the other end of the Zoom call.

We financial services professionals think business owners “should” learn to budget and read their financial statements and analyze and act on their KPIs because that’s what we have learned to do. In some cases, we learned to do that because the skills came naturally to us.

Pro-tip: Check yourself every time you find yourself using the word “should.”

Don’t should on your clients

The problem with the word “should” is that it implies some sort of shortcoming. There are numerous studies and articles decrying the use of the word “should.”

It’s demotivating.

It implies an obligation to do something you might not want to do.

It’s inherently negative and leads to feelings of inadequacy.

When financial services professionals say, “Profit First isn’t necessary,” what they really mean is “Profit First shouldn’t be necessary from my perspective.”

But the few who embrace Profit First and become Profit First Professionals add on to that: “but it is necessary for the business owners I serve, and so I am going to help them use this tool to run the best business they can run.”

Profit First: The Great Equalizer

I thought I’d heard all the arguments, both for and against Profit First, until a recent webinar we co-hosted with our banking partner, Relay. At the end of the webinar, one of the participants shared the following:

I haven’t seen this feedback anywhere, but this visibility set up is incredibly “safe” for neurodivergents like me. I’m AUDHD and having the immediate knowledge of where everything is makes me breathe easy. Where DEI Is a huge initiative right now, Profit First is hitting the mark by being an inclusive system.

Wow.

Not only will most business owners not train themselves to think like financial professionals, but some literally cannot train themselves to think this way.

Profit First can be structured to bring the exact level of clarity a business owner – any business owner – needs to run their business effectively. Whether it’s with three, five, or twenty bank accounts, a Profit First Professional can help their clients see their businesses through the lens that works best for the “eyes” they have.

If you’re interested in becoming a Profit First Professional and helping your clients see their businesses through the right lens for them, click here to schedule an enrollment call.

In part one of this two-part series on the “D” word, we defined the two uses of business debt. As a recap, you can either

1. Leverage debt to strategically improve your business’s profitability (this is the “good” debt), or
2. Use a debt bridge to cover expenses that exceed your business’s income (this is the “bad” debt, especially through the lens of Profit First).

But how can you protect your business from having too much of a “good” thing? How do you make sure your intended debt leverage doesn’t become a shaky debt bridge? That’s exactly what we’re going to cover in this article. But first…

Important disclaimer

Although we’ve identified “good” debt and “bad” debt here, as a business owner you alone are responsible for making decisions about how to use debt in your business. In other words, don’t take our word for it; speak to your own trusted advisor before making decisions that will impact your business’s financial health.

A process to properly – and profitably – leverage debt
From a Profit First perspective, there is a proper method to approach debt leverage, and that is through the following six-step process:

1. Conduct a 12-month lookback Profit Assessment on your business and make note of your current dollar amounts and Current Allocation Percentages (CAPs). Use the most current numbers you have available. This doesn’t have to be 100% accurate; close enough is good enough.
2. Add the debt you plan to incur to the Operating Expenses on the assessment you conducted above.
   1. If you are taking out a loan that will be repaid over a number of years, add the annual repayment amount including interest to this field.
   2. If you are planning to add an expense that won’t require a loan, add the annual amount of the expense to this field instead.
3. Calculate your new CAPs and make a note of the difference between the CAP for the assessment you conducted in step 1 and the one you conducted in step 2.
4. Now we’re going to do some reverse engineering of your Top Line Revenue.
   1. First, determine what your Top Line Revenue needs to be to bring your CAP from Step 3 back to what it was in Step 1.
   2. Now, determine what your Top Line Revenue needs to be to hit your TARGET Allocation Percentage (TAP) for Profit.
5. The difference between your current Top Line Revenue (from step 1) and the Top Line Revenue you calculated in step 4a is the minimum amount of revenue this investment needs to generate to “break even” on your investment. And the difference between your Top Line Revenue from step 1 and that from step 4b is the amount the investment needs to generate to give you an ROI.
6. Set benchmarks for revenue increases and targets for hitting them. This is the most important step of the whole process. Without benchmarks for realizing a return on the debt incurred and targets for hitting them, your debt leverage will become a debt bridge. This step puts a plan into place for “pulling the plug” on the debt if it’s not generating the return you expected.

As you move through this process, it’s possible the calculations will show you moving into a new Real Revenue tier, which will lead to a change in your Target Allocation Percentages. This math can get a little tricky, but Profit First Professionals have access to a tool that will streamline the calculations.

Business growth without debt

As mentioned at the beginning of the series, many people believe that Profit First = Debt Bad. And although we’ve talked about how to properly leverage debt in this article, it’s important to note that the Profit First methodology does not advocate incurring debt…even the “good” kind.

Using debt leverage can speed up your profitability goals and help you take advantage of opportunities that might disappear if you don’t act quickly. For normal, sustainable business growth, though, your best bet is to open a Business Growth and Development account and allocate to that account regularly. You will then use the funds in this account to “finance” your own business growth sustainably and without the risk of over-leveraging your business.

Keeping it all in balance

Monitoring your business’s financial health is every bit as important as monitoring your personal, physical health. Without regular checkups, your financial health can slowly deteriorate without you noticing it.

If you’re concerned about your business’s financial health, then click here to connect with a Certified Profit First Professional. And if you are an accountant, bookkeeper, or business coach who would like to help your clients monitor their financial health more closely, click here to learn more about becoming a member of Profit First Professionals.

Debt. It’s the four-letter word everyone wants to avoid, and yet we can’t stop talking about it. Whether it’s personal debt levels or the government debt ceiling, everywhere we look there is a discussion happening about debt.

There’s a common misconception that through the lens of Profit First, debt is always bad. But debt can sometimes be a useful tool to help you reach new levels of business growth and profitability.

So, let’s lay it all out on the table. Let’s talk about debt, baby. (Gen X, you’re welcome for the Salt-N-Pepa earworm.)

This article is part one of a two-part series on the “D” word. In this piece, we’ll define the two uses of debt. In part two, we’ll share a process to help you make sure you are using debt the “right” way.

Not all debt is created equal

The first thing we need to understand is that not all debt is created equal. And, no, I’m not talking about negotiating favorable interest rates, although that’s important, too.

There are essentially two ways to use debt. And, like the two types of cholesterol, one is “good,” the other is “bad,” but too much of either one can spell bad news for your business’s health.

What are the two ways to use debt in your business?

Debt leverage vs. debt bridge

Debt leverage is the “good” debt. When you use debt leverage, you have a planned, strategic use for the borrowed funds – to generate more profitability in your business.

For example, let’s say you need to increase your business’s production capacity to reach your next profitability goal. To do that, you need to acquire a new asset (this can be a machine, software, or an employee.) But you don’t currently have the cash on hand to acquire this asset outright, or – in the case of an employee – there will be a period when the cost of the asset is higher than the revenue generated.

This can be a good time to consider debt leverage. The debt you incur to finance the machine or the new hire’s payroll has a specific, strategic purpose, and you can make a reasonable assumption that the debt will pay off in the long run.

A debt bridge, on the other hand, is the “bad” debt. In the most basic terms, using a debt bridge means your normal, ongoing expenses exceed your normal, ongoing income. Your business is essentially living on credit cards (or a line of credit, or possibly even investments from your own personal savings.)

It’s easy to fall into the trap of relying on a debt bridge. Maybe your business experiences what you think is a short-term decrease in revenue, and you decide to “ride it out” by using debt until things improve…but that improvement doesn’t happen as quickly as you expect.

Or maybe you justify additional expenses in your business by convincing yourself they are strategic expenses, but you don’t put the proper tracking mechanisms in place to ensure you are getting a return on the expenses.

Or – and this is the worst scenario of all – you’re just so busy running your business, you lose track of how quickly your operating expenses are outpacing your revenue. Before you know it, you’re barely able to make the minimum payments on your debt, and you wonder how on earth things got to this point.

Important disclaimer

Although we’ve identified “good” debt and “bad” debt here, as a business owner you alone are responsible for making decisions about how to use debt in your business. In other words, don’t take our word for it; speak to your own trusted advisor before making decisions that will impact your business’s financial health.

Using debt profitably

Now that you know the two ways to use debt in your business, you might be wondering about the “right” way to use the “good” debt. How can you make sure your planned, solid leverage doesn’t become a rickety bridge that will throw your business into a raging river of “bad” debt? In part two of this series, we’ll share a six-step process to help you make sure you are truly leveraging debt to improve your business’s profitability.

A couple of weeks ago, the following email landed in our support inbox:

“WOW…PROFITS FIRST? Really? Not ‘PEOPLE FIRST’? Really doesn’t say much about the corporate culture there.”

And that got me to thinking: It’s time to write a blog about this particular elephant in the room.

Profit and corporate greed

We’ve all heard the headlines: Corporations are reporting record profits during a time when it’s becoming increasingly difficult for families to afford a carton of eggs. At the same time, executives at many of these same companies are paid tens of millions of dollars in salaries and other benefits.

Meanwhile, workers’ wages are increasing…but not enough to offset the rising costs of basic necessities. Yet, rising workers’ wages are one of the things blamed for inflation.

This article isn’t about all that.

Of course, the headlines rarely tell the full story, and I’m not going to argue whether or not certain executives deserve millions of dollars in compensation.

But it does shed a pretty bright light on why many people – financial professionals included! – are opposed to the concept of “Profit First.” Because, when you look at profit from this perspective, there’s very little positive about it for most people.

Profit in the “real world”

Let’s look at profit in the “real world.” I’m not saying large corporate profits don’t have real world impacts but remember: This article isn’t about all that. What I am saying is that, for most businesses in America, “profit” has a very different meaning than what most of us think when we hear the word.

What does profit really mean for small businesses? It means the ability to

• Hire more workers and pay them higher wages.
• Provide those workers with life-changing benefits, like paid medical leave if they get sick or have a sick family member.
• Upgrade equipment with more frequency, which makes work safer and more pleasant.
• Sponsor a Little League team, build a Habitat for Humanity Home, or contribute to a community garden.

And what about owners’ wages? Well, profit – especially under the Profit First methodology – does two things:

1. It makes sure the owner is paid a living wage for working in their business. Have you ever worked for an employer who was concerned about making their mortgage payment? It doesn’t make for a very pleasant work environment, and it often leads to the employer making some pretty bad business decisions…decisions that compromise not only the owner’s livelihood, but the livelihood of every employee in the business.
2. It puts guardrails on the owner’s overcompensation. If you’ve never worked for an employer who was worried about making their mortgage payment, perhaps you’ve worked for one who raids the business checking account to purchase a new car and then asks you to wait a few days for your paycheck. Profit First ensures the business owner gets compensation increases as the business grows – as they should – while acknowledging that a growing business will require more funds for operating expenses…like employee salaries.

Profit First is the antithesis of corporate greed

As a methodology, Profit First is designed not only to help small businesses operate profitably. Its percentage-based and scaled format virtually eliminates “runaway profits” and “corporate greed.”

At the highest level of Real Revenue (revenue after accounting for pass-through costs), the Profit target allocation percentage maxes out at 20%. Granted, 20% of $10M-$50M is a LOT of money…but so is 65%, which is the amount allocated to Operating Expenses at that level. That’s $6.5M-$32.5M for worker salaries, benefits, and other expenses that support the business.

I’ve implemented Profit First in dozens of businesses. Some of those businesses have grown into multi-million-dollar companies. And in every single case when a business using the Profit First methodology has hit the multi-million-dollar level (and in most cases before they’ve hit that level), I’ve seen some combination of the following:

• Profit sharing with employees.
• Vaulting cash reserves with the express purpose of being able to continue to pay employees during a reduction in business revenues.
• Capital improvements to make work more pleasant for the employees.
• Employee wellness programs.
• Community giving, either through charitable contributions or service projects.

Profit First = People First

The employee in charge of our support inbox isn’t a Profit First Professional Guide or an accountant, bookkeeper, or business coach. However, she nailed the nature of Profit First in her response to the person who expressed concern about the corporate culture of a business implementing Profit First:

We totally understand how it sounds when we say to put Profit “First,” but it’s never meant over people. Profit First is a cash management method that ensures you put a percentage of your earnings into a designated “Profit” account to ensure that your business stays profitable and sustainable.

This company has been the most family-friendly of any that I have ever worked for, the first that has said they are “family first” and meant it. But – our goal is to eradicate entrepreneurial poverty and to make that happen, we have to convince people to pay themselves first.

Only sustainable businesses can put people first, and Profit First keeps businesses sustainable.

The accounting industry spends billions of dollars each year on technology. Ten short years ago, the majority of that spend was in once-every-few-years equipment and software purchases. A firm could spend a few thousand dollars on a computer and software for each employee, then breathe easily for a few years until upgrades were needed.

Today, equipment is relatively inexpensive, to the point that computers and laptops are often considered a “throwaway” expense. And the days of purchasing a software package once and using it for multiple years are a thing of the past. Even a small a firm can easily spend several thousand dollars every year on “inexpensive” computer equipment and software as a service (SAAS) fees. Additionally, the prevalence of cloud accounting and the increasing popularity of remote workforces has made cybersecurity insurance and protection a must-have.

Technology is a critical part of your firm’s budget. But you must manage your technology spend properly; otherwise, what should be a key investment for your firm becomes a bloated overhead expense. Fortunately, there is a simple way to manage your firm’s technology budget.

Open a Technology Account

At Profit First Professionals, we advocate taking your cash management system beyond the core five bank accounts detailed in the Profit First book and leveraging additional accounts for strategic purposes. One account we always advise our member accountants, bookkeepers, and financial coaches to open is a Technology Account.

The purpose of this account is three-fold:

1. Once funded, you can easily take advantage of annual payment discounts for your SAAS subscriptions without having to leverage credit card debt.
2. By allocating a percentage of your firm’s revenue to your Technology Account, you can eliminate the guesswork about whether you are spending too much (or enough) on your firm’s technology.
3. Because you allocate a percentage of revenue to your Technology Account, your technology budget will naturally scale with your firm’s growth.

With a Technology Account, you can stop worrying about how to afford your firm’s technology stack, take the sting out of paying for it, and get back to helping your clients transform their businesses into profitable enterprises.

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.

“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.”

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.

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.