Profitable Accounting Practices: Beyond Payroll Processing

Small, full-service accounting firms are always under pressure coming from several competitive sources. First, large accounting firms that can provide a broad array of in-depth services. And second, highly-specialized providers of narrow service bands – providing perhaps only one or two basic services efficiently, and at lower costs to clients. In addition, new technologies are commoditizing bookkeeping, taxes and other accounting functions that increase competition and contribute to erosion of profit margins.

Many small and mid-sized firms are implementing smart positioning when they can’t be bigger than the big, or provide more value than low-cost, specialized providers.

There are many potential strategies to add more value to client relationships and improve profitability by building consulting capability while improving efficiency. Helping clients rearrange work based on new technologies is a way to build client relationships and loyalty.

1. Become more consultative in financial and strategic planning
2. Proactively assist clients ‘in-house’ accounting tasks when it makes sense
3. Outsource services to other providers who can do the job more efficiently

While the last two answers may seem like throwing away business, they can help build a smarter, stronger, and more efficient relationship between a client and an accounting firm. A firm that holds their client’s best interest front and center will experience a more trusting and profitable relationship.

Becoming more consultative: Client Intimacy.

The strategy of becoming more consultative means, of course, moving into more personally and professionally executed advisory services. The book, The Discipline of Market Leaders, was published in 1995, written by Michael Treacy and Fred Wiersema. In the book, the authors discuss the competitive business strategy Client Intimacy, focused on building deep customer relationships by understanding their specific needs and tailoring offerings to meet those needs exactly.

An independent, accounting business owner is better equipped than a large accounting firm or specialized service provider to build this kind of relationship with a client. And, with the right relationship, the owner can become more personally engaged and be an important and trusted individual partner.

Consulting offerings might include CFO services, long-term tax strategies, cash flow analysis, strategic advice for growth, even sales forecasting and strategies.

Assisting in-house transitions: Client Partnership

A solid client relationship built over the long term by providing trusted consulting solutions can create a bond between client and accounting firm where the two organizations operate seamlessly. Processes and handoffs become routine and smooth. In fact, it can become difficult for an outsider to determine where one organization ends and the other begins.

As accounting practices become simplified through new technologies, opportunities are created for clients to bring certain types of work, certain practices in-house. This occurs in almost every industry, where it begins to make sense to not pay an outside organization – no matter how close a relationship is – for ‘commoditized’ practices.

Tax preparation software, QuickBooks, and cloud-based technologies give companies the opportunity to ‘do it yourself’ and many are inclined to do so.

The client intimate accountant welcomes this transformation of the relationship. Assisting in, and even recommending, these transitions provide evidence to the commitment that the best place for the work to be done, is where it can be done most efficiently and effectively.

Client-intimate companies see these opportunities as means to move their work upstream to provide more strategic, comprehensive, customized support and solutions that build loyalty.

Outsourcing to efficient providers: Client Leadership

Moving into the role of more of a strategic partner might mean outsourcing peripheral services to more efficient providers. Being serious about ‘moving upstream’ means working to both position a firm as a true consulting practice and focus the business. This strategy is becoming more prevalent with accounting practices with whom we do business today.

A good example is payroll processing. Many firms handle payroll for their bookkeeping and tax clients. Software programs like Gusto, Intuit QuickBooks and Patriot Software are used for processing. Outsourcing to payroll specialist like ADP is also a frequent practice.

Payroll processing has become significantly more complex for accounting firms – for example dealing with Earned Sick and Safe Time. Combined with rising compliance expectations, technology demands, and increased liability exposure, many firms are reevaluating whether payroll remains a service offering. In addition, if you are interested in moving into more of a consultancy role with your clients to further build and protect your relationship, value, and profitability, selling your payroll practice to an outside provider could be a smart move.

Selling your payroll processing can be a business cash infusion.

There is a strong market for books of payroll processing business. We are beginning to see this trend for all the reasons outlined. And, if you are the owner of an accounting practice and would consider selling your payroll book of business, here are three things to consider:

• A payroll processing book can bring two-and-one half to three times its value – even higher multiples for large payroll books. That means for example, $100,000 in payroll processing might be sold for between $250,000 and $300,000. So, it could be a big cash infusion into your business.
• Second, selling the payroll business to a specialized payroll processor could very well mean better service and delivery, and fewer headaches for both you and your client. Even if you are delivering a high level of service, moving upstream into more of a consulting practice relationship could be made easier – and more credibly – if an ancillary service like payroll processing is moved to a specialized provider.
• Third, while you may think that it will be harmful to your client relationship to move your payroll processing service to a specialized provider, research indicates that over 95% of clients keep their relationship with their accounting firm with outsourced payroll processing. .

As you continue to build your practice by evolving into more consulting and strategic planning roles, getting a Confidential No-cost Payroll Service Evaluation to see what your book of payroll processing might be worth is a good idea.

The team at Sunbelt Business Advisors are not only experts in selling businesses, but we are also experts in helping you evaluate an opportunity like selling a payroll processing book.

Learn what your payroll practice might be worth to your business. Please contact me and let’s see if this is something that will work for your practice.

Call Matt Sobieski, CPA

Sunbelt Business Advisors Accounting Practice Specialist

612-964-8884