Value Pricing: Necessary but Complicated for Accounting Firms

With the belief that certainty, reputation and scarcity are valued, two QuickFee professionals are urging accounting firms to switch from hourly billing to value pricing.

Bruce Coombes and Justin Cross, in an article posted on Karbonhq.com, write that customers do not like being billed an hourly rate without knowing how many hours will be needed, so certainty is important; customers will pay for the best services, so an excellent reputation is critical; and the basics of supply and demand dictate that scarcity is valued as well.

They believe that while value pricing is gaining ground in professional service firms, most accounting firms are still billing their clients by the hour. They recognize that the task is daunting, as it involves assessing the scope of the work and the value it will provide to clients. The key to determining that value and the price that is charged lies in asking the following questions:

  • What is the problem your client needs solving?
  • What will a solution mean to your client economically and emotionally?
  • Can you provide this solution?
  • How novel is your solution?

“There is much more upside when addressing a client’s aspiration than solving an affliction,” they write. Some clients are willing to pay more because the service is highly valued. Set fees also increase client satisfaction and retention.

“By working out what is of real value to your clients, you can remove low-value work and spend time on the work that really matters to your clients. You will earn more in less time and enjoy more positive interactions with clients who are having their problems solved by working alongside you.”

PwC in UK Bans All-Male Job Shortlists

PwC has become the first of the Big 4 to put a UK-wide ban on candidate lists for senior-level workers that do not include any women.

While 48% of PwC’s staff are women, they earn 43.8% less on average than their male colleagues, the London-based Daily Mail reported. The government is requiring companies of more than 250 employees to report their gender pay gap.

Laura Hinton, chief people officer at PwC, tells the Daily Mail: “Diversity in our recruitment processes is something we’ve been focused on for some time and as part of this we are ensuring we have no all-male shortlists and more diverse interviewing panels.”

PwC recently set a target to recruit 50/50 women and men. The firm also has a 35.9% pay gap for its black, Asian and minority ethnic (BAME) employees.

The move comes as the rest of the Big Four – Deloitte, KPMG and EY – had all called for greater diversity on their candidate lists. Last month Bill Michael, KPMG’s UK chairman, said the firm had a “no tolerance” policy toward all-male recruitment lists. While Deloitte and EY do not have an outright ban on all-male candidate lists, they said they too look for a diverse range of candidates.

Analysis: The Next Recession is Coming and Law Firms Aren’t Ready

An economic downturn is likely in the not-too-distant future and few law firms are prepared, according to an analysis by The American Lawyer.

Ropes & Gray chairman Brad Malt says: “No one knows when the expansion will end, but we know it will end, and we know how it will end: in a recession.” The economy has been growing since the Great Recession ended in June 2009, and normal boom periods end after about 5 years.

Malt, is planning to leave the top job after 15 years, and a possible recession is in his thoughts, he says. “It’s less recession planning than thinking about contingencies – not because we’re in a management transition, but because we always think about having a fundamentally sound investment strategy that fits with the stage of the economic cycle,” he says.

Legal observers say most firm leaders are less cautious. “Law firms tend to think very short-term,” says Janet Stanton, a partner with Adam Smith Esq. “At the end of the year, they strip the balance sheet, and all the profit gets distributed. There’s no long-term investments in technology or any kind of advance planning. Many firms don’t even have a long-term strategy.”

The American Lawyer analysis notes that the business environment since the recession has changed fundamentally. For one, cost-cutting by clients in those down times have not abated, and they are keeping more legal work in-house while tapping into services offered by alternative legal providers, including Big 4 accounting firms, Axiom and Thomson Reuters.

“In-house lawyers are behaving ambidextrously: they’re pushing out to alternative legal service providers with one hand and bringing in to their own lawyers with the other hand,” strategist Hugh Simons says.

In response, law firms have had to cut costs during the recession and they are taking in less work. Billable hours are down. “It’s difficult to imagine a recession that would be as deep and protracted as the 2008 crisis. But the steady erosion of client loyalty and partner loyalty has created an accelerant in terms of law firm fragility,” says Paul Weiss Rifkind Wharton & Garrison chairman Brad Karp. “In the past, partners at law firms that saw a sharp decline in profits would be inclined to ride out the decline. That, sadly, is no longer the case in many law firms. The relationship between law firms, on the one hand, and their partners and clients, on the other, has become much more transactional, which is an unfortunate development for the profession and poses a heightened risk for law firms.”

Another worry is bloated ranks of non-equity partners. The 2018 Georgetown Report indicates that while associates – whose ranks were slashed during the last recession – have seen their hours return to pre-2009 levels, partner hours have not, and non-equity partner hours have suffered most dramatically.

Those non-equity partners are at the biggest risk of layoffs, American Lawyer reports, and consultants suggest firms may want to act sooner. “They might as well start soon, because measured reductions earlier would be wiser than panicked personnel cuts later,” the analysis says.

Guest Article: Identifying Future Leaders

Katie Strehler

Katie Strehler

By: Katie Strehler, Chief Human Resources Officer, Rehmann

Selecting those who will lead a company into its next phase goes far beyond identifying the most talented individuals—or appointing those with the most experience—it’s a process that forces companies to look within and decide what kind of organization they want to be. This is especially true for the accounting industry. At Rehmann, we expect our leaders to set the tone for associates and the clients they serve with their empathy, their demeanor and how they leverage strengths of their associates.

First and foremost, it’s impossible to identify leaders without the input and feedback of those they will work with. Engaging associates at every level is instrumental when considering which individuals best exercise the core values needed to lead a business or business segment. Both how an individual works on a team and the attitude they bring out of others are crucial elements to evaluate to determine how the associate will perform tactically in practice.

When I look for prospective leaders among current associates as well as external individuals we are considering, I ask myself four primary questions:

  • Does this person view a team as a group of people, and not just as employees?
  • Can this person bring out the best in others by identifying and leveraging individuals’ strengths?
  • Does this person have the ability to see things from other associates’ perspectives?
  • Does this person have a high degree of self-awareness?

At Rehmann, if we believe one of our current associates fits the bill based on these four questions, we will likely invite them to participate in our Rehmann leadership program.

Through our internal Emerging Leaders program, we teach how to lead associates the Rehmann way. Training exercises in the leadership program are designed for individuals to better understand the business and how to bring out the best in others to accomplish business objectives. A key skill we teach—and one we look for in potential leaders—is the ability to actively listen. We don’t want leaders to listen to associates for the sole purpose of providing a response, we want them to listen in a way that demonstrates understanding, so they can act with empathy and offer solutions.

Setting a positive tone in the face of adversity is especially important in the accounting industry when determining if an individual can be a successful leader. With ever-changing accounting methods, tax codes and regulations to adhere to—along with high pressure clients and tight deadlines—a leader in this industry needs to demonstrate the ability to perform and lead under stressful conditions. We typically search for individuals who can control their emotions, help control the emotions of their team and leverage the strengths of the right people to handle any circumstance thrown their way.

The most important action we practice in our leadership identification and development process is the support we provide our emerging leaders. To offer this support, our first step is to provide a sponsor. We match our potential future leaders with a sponsor outside of their current department to provide honest and transparent feedback, as well as an outside perspective. A sponsor’s role is to advocate for their protégé and provide a pathway for them to achieve success.

To match our emerging talent with sponsors, we allow the associate, or protégé, to select three potential sponsors, from which we identify best fit based on department and expertise areas, experience levels, gender and personality. Through this sponsorship process, the most crucial factor is the transparent and honest feedback sponsors provide. In order to truly cultivate talent—and create a positive, company culture—honest feedback is essential.

Lastly, to develop successful leaders, we often promote individuals, that we believe in, to leadership positions even before they may believe they are “ready.” If we believe an associate actively practices the traits we seek in our leaders, and sets the tone to create the best work environment for our associates, we want them in leadership positions as soon as possible. We take it upon ourselves to coach and guide them within their particular role, until they feel comfortable enough to hit the ground running.

Fostering an environment of successful associates and teams starts at the top. It’s the role of an organization’s current leadership to identify and develop the next generation of future leaders to keep business trending upward.

University of Kentucky to Offer Summer Accounting Career Awareness Program

This summer, high school students can learn from professional accountants, faculty and University of Kentucky students about opportunities and careers in accounting and finance through a free four-day summer residency camp July 29-Aug. 2.

The Accounting Career Awareness Program (ACAP) is presented at UK for the first time this year by the National Association of Black Accountants and the Gatton College of Business and Economics Von Allmen School of Accountancy. A key program goal is to increase the number of underrepresented groups in the accounting profession.

ACAP allows students to peek inside the world of accounting through corporate and CPA firm site visits as well as multiple networking opportunities with accounting professionals and UK accounting faculty members. In addition to learning about accounting careers, this camp prepares students for the working world through workshops on interviewing, resume writing and communication etiquette. ACAP also provides high school students the opportunity to network, make new friends and develop interpersonal skills in a real-life college setting.

The program is open to high school students at any level, and underrepresented minority students are especially encouraged to apply.

To find out more about ACAP and to apply, visit http://Gatton.uky.edu/ACAP.

Lessons From The Little Oregon Winery That Could, And Other True Stories Of Differentiation

What can the proprietors of a tiny Oregon winery teach accounting firm leaders? More than you might think.

Consider the challenge faced by the family-run Bells Up Winery. With a nonexistent marketing budget, Dave and Sara Specter needed to position their winery as different among more than 500 competitors, while selling a product that is readily available. In a market environment similar to accounting, where hundreds of same-sounding firms sell same-sounding tax and audit products, the Specters needed to get creative.

The key to surviving, and thriving, is exceptional customer experience, they told a crowd of marketers at the annual Association for Accounting Marketing (AAM) Summit in Portland, Ore., May 16. AAM invited numerous accounting experts along with Portland marketing professionals to offer lessons learned on innovation and differentiation during the three-day conference.

The fully self-funded Bells Up Winery faced an uphill battle from the beginning. With no money, no employees and no time, the husband-and-wife team watched competitors flood the cool, grape-friendly Willamette Valley to make Pinot Noir, the wine that made the valley famous. While Oregon produces only 1% of the country’s wine, it captures 20% of Wine Spectator’s domestic 90+ ratings, according to the Oregon Wine Board.

The wine board also tracks how fast the market is growing. It says 1.8 million cases of Oregon wine were sold out of state in 2016, the vast majority of it Pinot Noir, compared with 888,000 cases 10 years earlier. Bells Up needed to compete against giants like Willamette Valley Vineyards that produces 132,000 cases a year. Small, artisan producers are those who make 5,000 cases per year. Bells Up Winery produces 400.

Too small to be called a boutique winery, the Specters decided to play up their personality and tiny size. They spent only $500 on Facebook ads in marketing, and asked college students to make them a promotional video, for free.

While Oregon wineries offer huge, fancy tasting rooms to bring in business, Bells Up calls itself a “micro-boutique” winery offering small-group tastings with Dave Specter, a former Big 4 tax accountant turned winemaker. These “meet the winemaker” excursions have proven to be the differentiator that fulfilled their strategy: “to turn every guest into an ambassador for our wines, our wine-tasting experience and our brand.” Social media shares of #bellsupmoment and online reviews contributed to the winery breaking even and paying for itself in less than 18 months, which is very rare in the industry.

Their experience in innovation – offering truly different, personalized customer experiences in their specialty niche – was echoed many times throughout the conference, where attendees were urged to let their personalities shine though, tell their own stories, and reject the fear that can accompany business disruption and the mandate to innovate.

Here are some examples:

Be a Green Apple in a Bushel of Red OnesJohn Garrett, a comedian and “recovering CPA,” mocked the often-used label of “trusted advisor,” saying that CPAs are in a “trust rut.” He says, “The more you talk, the more people are turned off by ‘me, me, me.’ ” People remember your hobbies more than your technical skills, he says. Promote yourself as a CPA and an actor in community theater, and show a genuine interest in your clients.

Get Personal – Tracey Segarra, a former New York reporter who is now an award-winning storyteller and marketing director for Margolin Winer & Evens, says sharing vulnerabilities can forge meaningful connections, and science backs this up. Studies have shown that hearing stories releases oxytocin, a hormone that feeds empathy and trust. “Be the storyteller that’s inside you.”

Involve Your Fans – Corey Dolich, senior vice president of business operations and marketing at the Portland Timbers, the city’s professional soccer club, says the Timbers aim to make an emotional connection with their fans that transcends individual players and even the performance of the team. Marketing, instead, is focused on Portland pride and fellow fans, reflected in a hugely successful, massive billboard campaign that featured city fans posing with axes, the symbol of the Timbers.

Take a Risk With Weird – Ajay Date, vice president of marketing at Travel Portland, says the city found its differentiator with “Dude,” created to promote Portland to Japanese tourists. “Dude” is a big blue furry mascot that appears at events in Tokyo. “It’s weird, but weird plays pretty well in Japan.” After three years, it’s working, Date says. Tourists from Japan have increased 16% while U.S. destinations overall are seeing a 9% decrease. Go boldly but not blindly. Take a leap anyway. You can’t let the data always dictate everything.”

Study Reveals 30 Must-Know Sales and Prospecting Stats

Data from 488 business-to-business buyers and 489 sellers has revealed trends in what works in sales prospecting today, says the RAIN Group Center for Sales Research in its new report, “Top Performance in Sales Prospecting.”

The study was intended to find out how sellers connect with buyers, how to generate meetings, what influences overall purchase decisions, and where buyer and seller views on prospecting overlap. Boston-based RAIN Group, a global sales training company, analyzed those with the best prospecting results.

Here are some insights on top performers in sales prospecting:

  • 82% of buyers accept meetings with sellers who proactively contact them.
  • Top sales performers generate 2.7 times more sales meetings than others.
  • Sellers that generate more high quality meetings, conversations and demonstrations are more successful.
  • 71% of buyers want to hear from sellers early in the buying process.
  • 69% of buyers say that research data produced by sellers captures their attention.
  • 80% of buyers say they prefer email contacts, but they must be customized and well written.
  • On average, it takes five touches for top performers to generate a meeting.
  • Calling existing customers is the No. 1 most effective prospecting tactic.
  • C-suite executives more often prefer to be contacted by phone than managers and directors.
  • 82% of buyers look up providers on LinkedIn before responding to outreach efforts.
  • Proving value to prospects must be done within 10 minutes.

Men Receive Far Larger Bonuses Than Women in U.K.

Bonus gaps between men and women at U.K. companies are on average twice as big as salary differences, according to data reported under a new law.

The analysis, by PricewaterhouseCoopers, shows that more than 80% of companies have a bonus gap that favors men, Bloomberg News reported May 15. At about 55%, or roughly 5,500 companies, the bonus gap was more than 30%, the accounting firm found.

The new legislation requires U.K. companies with 250 employees or more to report the average and median differences in hourly and bonus pay between male and female employees. While employers in Britain are mandated to pay men and women the same for the same jobs, gender-pay reporting shows that men dominate the top jobs, while more women hold lower-paid positions.

Some of the widest pay gaps were found in financial services firms, while food and health organizations show narrower discrepancies. Some sectors’ numbers can be deceptive, according to PwC. The transportation industry, for example, has reported relatively small pay gaps, probably because of a lack of female employees for comparison.

The reporting has led some companies to acknowledge the lack of diversity among their top ranks. EasyJet U.K. Director Sophie Dekkers told lawmakers only about 6% of pilots in the industry are female. The airline has 13% female pilots and is aiming to hit 20% by 2020.

Not everyone thinks the pay-gap reporting is a good thing. Michael Spencer, founder of electronic markets operator NEX, told Bloomberg News that British business was “wasting time” with gender pay-gap reporting and should focus on limiting the fallout from Brexit.

Consulting Now ‘Cash Cow’ for Big 4, Raising Conflict Questions

In the last five years, the Big 4 have come to rely on revenues generated from advisory services, but offering consulting and auditing services within the same firm is raising an old debate about conflict of interest.

As a group, the Big 4 accounting firms saw 42% of their global fiscal 2017 revenue come from consulting and advisory work. From 2012 to 2017, audit revenue grew by only 3%. Consulting and other advisory services grew by 44%, or from $39 billion to $56 billion, according to the Wall Street Journal.

“While consulting can be lucrative – it tends to be more customized, creative and driven by corporate clients than auditing is – the presence of the business at audit firms has been a concern for years,” writes reporter Michael Rapoport in the April 7 edition. “Investors fear it could cause the firms to take their eyes off the ball when it comes to their core auditing responsibilities and that it would be harder for an audit firm to be impartial if it is also reaping large consulting fees from the same client.”

The fears, raised during the early 2000s amid the demise of Enron and Arthur Andersen, are being revived in the U.K. Following Enron and other U.S. corporate accounting scandals, the Sarbanes-Oxley reform legislation prevented firms from providing many kinds of consulting services to audit clients. However, firms can still do both for clients outside the U.S., as well as provide consulting to any companies they don’t audit.

Now, following accounting scandals in the U.K., Stephen Haddrill, chief executive of the Financial Reporting Council, told the Financial Times that authorities should consider breaking up the Big 4, which audit nearly all the largest U.K. companies, so that corporate auditing is separated from consulting. That way, separate firms would only perform audits.

Deloitte and EY have voiced opposition. For example, Mark Weinberger, EY’s global chairman, says that having auditing and consulting together gives auditors easier access to technology and expertise about their clients’ businesses, the Journal reported. It “provides the structure, breadth and depth of technical skills and industry expertise necessary to deliver high-quality audits.” KPMG didn’t comment, but PwC’s U.K. firm said it was “open to ideas.”

While some industry observers think the move could improve audits while sparking competition, there’s been no push in the U.S. – at least lately – for audit-only firms, the Journal reports. The change would be complicated, as regulations differ from country to country. Also, Big 4 member firms in each country are legally separated from others in the same network.

Global Recruitment Trends

Theresa Richardson, Chief Talent Officer, WithumSmith+Brown

GLOBAL TRENDS

Theresa Richardson

Theresa Richardson

It is imminent! Recruiting Talent in the accounting industry is being impacted by artificial intelligence (AI). Global trends reveal that AI will automate or eliminate up to 40% of transactions in accounting work by 2020.

Automation will allow accounting teams to spend more time interpreting data and providing deeper insights to clients, rather than performing manual testing. With the increase in technology advancement, accounting firms will be looking to hire more talent with IT and data analytic skills. Talent hired will be a mix of undergraduates, graduates and post graduates across all degree disciplines, experienced hires and people without formal qualifications. They will have degrees in mathematics, sciences, engineering, technology, marketing, business and finance related fields, and others will highly skilled people with no degree at all. The common threads for all the tasks that will be performed will be relationship skills, communication skills, global acumen, agility and being open to change.

Across our industry today, team members are predictors, critical thinkers, entrepreneurs, business builders, communicators and change makers. With technology taking on more transactional accounting functions, competition for talent with analytical skills and strong business acumen may soon get even stronger.

THE OPPORTUNITY

AI will provide a great opportunity for CPAs to transform and differentiate themselves from the tax preparers and accountants of the world. CPAs are already considered the most trusted advisors; to succeed in the automated future, firms must transform themselves into advisory firms that give clients advice and support that only a CPA can provide.

The sense of innovation, flexibility and digital acumen is a much-needed source of change for the accounting profession. A firm that listens to its team members, is connected and open to new work practices will find new ways to reach out and recruit accountants of the new generation. This new approach will also provide a positive impact to the bottom line.

THE CHALLENGE

Talent acquisition will continue to be a major focus with many firms as we enter this world of AI. Accounting firms will have the challenge of recruiting talent with all the necessary skills that include technical, IT and communication skills. But it’s good to keep in mind that the challenges aren’t new. Firms that can solve these challenges will be in good shape as the issues continue to evolve in the future. Every challenge has its reward!