What CPA Firms Should Learn from Covid-19
It's fair to say that nobody in the business world saw this coming. Business Owners, large and small, were experiencing the benefits of the longest Bull Market in American history. In November, December, & January, there was no reason to expect that a "little bug" in Wuhan China was going to stop that. It was business as usual. Owners were closing their books, and working towards, barring unforeseen circumstances, another great year.
Unforeseen circumstances occurred. February 20th, 2020, the Markets across the globe began to experience historic declines. Many held pat believing that it would rebound, and after weeks of an up-and-down, volatile market, it was official: we were in a historic recession.
Business owners began to focus on keeping doors open, maintaining profitability, cutting costs, and, unfortunately, that meant cutting staff. Within five weeks, 26 million Americans lost their jobs, and that "little bug" was the cause of it all.
In short, American businesses were blindsided and only had time to pick up the pieces. The government reacted quickly, offering bailouts, loans, and stimulus. What could end up being a lifeboat from a sinking ship for many businesses and their employees.
What does this have to do with CPAs? Aside from the fact that many CPAs are also small business owners, this pandemic has been a total interruption in their usual yearly workflow.
When the pandemic and its economic effects began to take hold, CPAs were in their busiest and most profitable time of year.
"In terms of hours, CPAs do over 1/3 of their yearly work in the three months of 'busy season,'" said Joe Abesamis, Tax Manager at BaCo Group in Dallas, TX. "Those months are February, March, and April."
In terms of tax clients served, between February 15th and April 15th, nearly 100% of the tax preparation clients he works on will be filed, or an estimate will be made for an extension. In many cases, 1/3 of their billable work for the year will get done in those two months.
Most CPAs run their practice on an hourly engagement with their clients. When a client signs on for their service, they get billed AFTER all the work is completed. COVID and the recession it caused presented several problems for CPAs.
- Many of their clients would need to reduce hours on tax & accounting work. CPAs project those hours and use that to gauge all their necessary business expenses from salary to utilities. When clients cut hours, CPAs must cut costs.
- The pandemic meant everyone, though CPAs are deemed essential in many states, moved to work from home. Gathering data for clients became more difficult than ever, especially considering that many clients still deliver physical documents or require meetings to get all their books in order.
- The Tax Deadline moved to July 15th, meaning that many clients who had not sent in their data will simply wait. This move was not a move to give CPAs more time, but to provide business owners more time. Ultimately, many CPAs will begin to get more books in May & June and still have just as busy of a busy season, only in the Summer instead of the spring.
Of course, these problems were experienced by every profession and every industry across America in slightly different ways. Loss of income, working from home, interrupted workflow – the issues are not unique to the accounting industry. What is unique, though, is that no one is pointing out the obvious: The CPA profession is broken, and the pandemic has exposed its long-standing problems.
Many businesses are learning lessons that could forever alter how they do their job – for the better. For years, studies have shown that working from home routinely leads to more productivity and efficiency. There are pains to this as well, but many owners are beginning to adopt work from home as a permanent option as well – giving employees the choice to do so.
Businesses are also learning where to invest their time and resources more effectively—recognizing the services and products that they have that endure through a recession and focusing their energies on those things.
Restaurants, tech, production industries, marketing, and many others are all learning. Why shouldn't CPAs be doing the same? If you cannot learn in a difficult season, how can you thrive in a season of prosperity?
As a tech firm founded by a CPA firm, and working with CPAs closely, we have had an opportunity to discover some of the things CPA firms should be learning.
1. CPAs should switch to Value Pricing vs. Hourly Billing:
Value pricing focuses on the service provided rather than the time it takes to provide it. When a firm focuses on the hour, the more hours they work, the more money they make. It flies in the face of being efficient because if a job took fewer hours, then you lose money.
Many firms have lost revenue this year simply because their clients need them to work fewer hours. That may not be possible, but when they deliver their bill, they will either have a fight or will have to reduce their hourly rate. Either way, the CPA loses.
Switching to Value Pricing allows a firm to send one bill, at the beginning of their year that can get paid out at 12 consistent payments. Instead of surprising clients with a cost, they are paying a steady rate for your service and more able to account for it in any season. That has proven to be more valuable than ever in this climate as many CPA firms have large invoices outstanding from their customers for the tax work they have been doing, but customers are reluctant to pay that large lump sum during this shutdown.
Here is a link to a more in-depth study from Ron Baker on Value Pricing, how it works, and its overall benefits.
2. CPAs Need to Automate:
When describing what busy season hours were mostly made up of, Joe Abesamis said: "A ton of that time is taken up by redundancy, back and forth with the client, helping staff figure out what happened last year, and simply gathering data."
Technology has allowed many industries to become more automated, but it seems like these things have skipped the CPA industry. The reality is this is not the case. There are many platforms out there that help CPAs become more efficient. Unfortunately, the industry is a change-resistant market. More on that later.
Moving clients to an online platform, such as QuickBooks online, allows CPAs to more quickly access or gather their data. If QuickBooks online is not your thing, there are many other online accounting platforms that you and your clients can utilize. BQE's Core Accounting Platform is a fantastic product; NetSuite & Xero are also reliable and widely used options. If you are an accounting firm looking to automate your practice, the task can seem daunting. The first step? Ensure your client's data is online. Need help? Companies like BaCo Tech offer services that can help your clients switch, so you do not have too. Many of these cloud accounting solutions have advisors to help simplify the process as well.
If you have clients online, then it is time to automate your workflow. "We use technologies that automate our data gathering, so we have real-time access to all of our client's accounting information," said Joe Abesamis. "This has allowed us to work on tax returns in real-time, so when the pandemic happened, and we moved remote, our workflow wasn't interrupted, and we were able to help our clients apply for the much-needed PPP loans at no additional cost."
Automating a practice not only helps CPA firms be more efficient, but it helps their clients too. Recently, two interesting articles in CalCPA and Sage Accounting were written about what CPA firms would look like in 2030. In short, it is highly automated firms that provide high-value services to their clients. Covid-19 revealed the need to do that now, and many do not realize that solutions like cloud accounting, and technologies like Baco Tech, help them accomplish that.
3. It's Time to Change
CPAs and their firms are known to be Change resistant. It makes sense, their entire workflow is based on "what did we do last year." The first thing they do when they get a client's files is look at the previous year to see what they did, repeat that and improve if they can. CPAs are continually looking back; Change requires that one looks forward. You are never too old, too experienced, or too successful to learn something new, adapt, and be better. The CPA industry has been exposed; it is broken. Working off old data based on last year's work does not lead to the most valuable service they could provide. It leads to repetitive form filling, over long hours disproportionately spread throughout the year, and CPAs personal lives are what gets caught in the crossfire.
It is ok to be broken, what is not ok is to stay broken. Broken things require fixing, and Covid-19 has revealed that it is time to fix this.