How small firms can get started with advisory

Let’s start by defining the words “advisory” and “advisory mindset.” When we talk about advisory, we’re referring to being “forward-looking.” As you interact within the industry, advisory services are those solutions that involve making a change now to produce a different result in the future. We contrast that against compliance services, which are all backwards looking. Compliance is based on what has already happened, and advisory services are those that affect the future – hopefully, in a positive way.

An advisory mindset is our approach and mentality. If you are in an advisory mindset, you are approaching every client interaction saying, “What is it that we could do going forward to make a difference to this client?”  With an advisory mindset, you will see the impact it creates on your firm.

James Lopiccolo knew early on in his career that the firm he wanted to create would be going in an advisory direction. His firm in Lake Orion, Michigan has a staff of six people. This is his second time going out on his own, and he calls it “firm 2.0.” He knew that we needed, as a CPA community, to do something different. What was going to be sustainable for his firm going forward was an advisory-first atmosphere.

“The impact of the advisory mindset on our firm is that we’re constantly being proactive with our clients,” noted Lopiccolo. “It creates a difference, versus typical compliance which is all after the fact and more reactive. We look at how to help with the solutions our clients are looking for, bringing solutions to the table versus waiting for them to come ask us. It involves us in various other areas of ensuring we’ve got better touchpoints and interactions with our clients. It’s thinking about the client first at all times, and as CPAs we should do that anyway.”

As accountants we often enjoy being more reactive, or we don’t have the time to be as proactive. However, if you are an “advisory first” firm, you will naturally be a more proactive firm, and you’ll create a different, improved customer experience.

“One of the first things I wanted to do going on my own was getting rid of my time sheets,” said Lopiccolo. “We’ve successfully done that. There is no hourly billing for our clients. What that does is create a relationship with that client where they can ask questions knowing that there is not going to be some sort of extra fee. At some point in time, we work it into the overall charge.

“They know that if they need to get ahold of me, they can. But they also know that I’m being proactive. I’m asking about their business and doing various deeper dives into their business to figure out how to help them, as owners, make more money. They really appreciate the proactivity. It’s included in our offerings seemingly without any cost, because it’s already built into the program to allow for better access to me as they need it.”

It is critical for a successful advisory client relationship to reinforce the fact that you are not a transactional expense for them, but a committed partner.

“In our particular firm, we have what we call the true advisory platform,” said Lopiccolo. “We bundle some advisory as part of our offerings on every piece. When somebody comes in, we tell them we no longer do ‘just’ tax returns. We require that we meet with you at certain times during the year to do strategic planning.

“Now the client and I are talking about various other things that may trigger something else. Sometimes the client feels they’ve got a great idea and they only need a voice to talk to about it. By giving them that ability, they love the fact we’ve built this rapport. They can talk about anything, then we do some tax planning. We are considered the business’s most trusted advisor, and this process just enhances it.”

One of Will Hill’s favorite sayings is, “I try to live in reality whenever possible.” Because often, we tend to make things sound better than what they are. But situational assessment is not about good or bad. It’s simply the reality in which we operate.

When we look at small firms, there are challenges that come along with being small. Therefore, we must recognize both the opportunities and challenges present for these firms.

“Small firms are nimble and agile,” said Hill. “They can move and handling things a bit more quickly. Yet, one of the challenges is how to scale well. If you’re going to meet with our clients, and you have a lot of clients, how do you handle booking that many meetings if you’re only one person?”

“I live for opportunities and challenges,” noted Lopiccolo. “Opportunities are always around us, and the fact that we are a small firm creates a great opportunity for us to be leaders within the community, leaders within our clients, and react a little better to what is happening in the world. In fact, 2020 was probably one of the best years I’ve had because of the opportunities we sought out. We were only able to do that because of the fact we were an advisory firm.”

Lopiccolo’s firm was highly prepared when the pandemic hit. He already had some of the advisory processes in place. They only had to create adjustments to fit the marketplace as needed. The biggest challenge was as Hill noted, there is only one James Lopiccolo to deliver all the services and the demand for service. The minute you start doing advisory first, clients will react. But the challenge then becomes how to deliver the services, how to properly onboard the client, and how to ensure your processes and procedures are in place.

“Frankly, when I first started this I thought, am I really good enough to do this,” added Lopiccolo. “That was a challenge too, that my version of advisory might be blowing smoke and charging clients some fee. But I live for challenges, because to me, they are a puzzle. How do we go about solving that? It’s a balancing act between the opportunity and the challenge. It’s ensuring you’re methodical in your approach to both.

“Sitting back and waiting for the work to come is not where we need to be as small firms. If we play too much defense, as a profession we’re going to die on the vine. There are too many challenges out there from other areas that are going to disrupt our business. So, if you’re not looking to start playing offense, it’s going to be a very uphill battle.”

As we think about some of these opportunities and challenges in a small firm, creating consistency is certainly one that comes to mind. Consistency is easy when there is just one of you, but there is the challenge of handling the volume if you’re always working in the same way.

“Advisory helped create that consistency,” said Lopiccolo. “I looked at something like Practice Forward and thought, oh they’ve already developed a good system. They’ve already developed the methodology, checklists, best practices, and internal guides. Why not take that as my base point and work from there in creating the consistency, because we must be able to do this. We must consistently make sure we onboard and treat all our clients the same way.”

There may be a lot to do behind the scenes to prep your delivery of advisory. But if you weren’t consistent in process, it wouldn’t show in the results. Stop and think, what is your mentality? If your mentality is almost all defensive, you’re going to struggle to take your small firm from an advisory mindset to a real advisory motion. You must take some risks, do something differently. If your challenges are holding you back from opportunity, your firm is never going to be able to move forward.

One of the unique factors to small firms is where to find accountability when they make decisions. Will Hill has been with Thomson Reuters for almost twenty years, traveling around to firms and doing business process consulting. He sees this as a big deal for smaller firms. In firms with three to five partners, there is an inherent accountability to making decisions, following through, acting, and getting results. In smaller firms where there is one partner position, the natural accountability does not exist.

“I have seen a lot of small firm partners and owners sit down and wrestle with this mentally,” said Hill. “They get paralyzed and don’t want to make the wrong choice. So, they’ll make no choice, forgetting that no decision is a decision in and of itself.”

Firm owners may want to make a move, but they haven’t thought about how success looks to them. How can you implement a change if you don’t know what you’re aiming for? And what if you fail?

“At my firm, both my administrators are not only strong admins, but good friends of mine,” noted Lopiccolo. “I’m the type of person who is very vocal about the direction I want to take the firm. I’ve shared it with them, and thus I’ve given them the ability to hold me accountable. I share our firm’s direction with the team to make sure we’re all going the same way.”

Just because you’re the owner of the firm, doesn’t mean you can’t empower your staff to be a part of its future. It’s essential to making your firm stronger.

It may also be helpful to gather information from peer groups. Look at other practitioners that are going through the same shift or program, the same challenges and opportunities. Have discussions about how you’re running your firm with your peers and people you trust.

“When I would go work with firms, I could tell really quickly who was going to be good at implementing advisory,” said Hill. “It directly involved the level of transparency they had with their team. The people that were too concerned about keeping people out of the conversation won’t get by implementing change. When they went to go get the everyday help to execute, the support wasn’t going to be there. They weren’t transparent enough.”

When we think about putting the advisory mindset into motion, there are a lot of different pieces. Whether it’s how we construct a billing relationship, how to weave in client meetings, creating a space for a different kind of conversation, or how to lead with forward-looking services in our new client relationships. Finding someone that you can trust is a key part here.

“At the end of the day you have to realize the direction you want to go in,” added Lopiccolo. “Create a client advisory group. Find some of your most trusted advisors, your trusted clients. Start talking to them about what you think your firm is going to look like and let them hold you accountable for that. There is nothing wrong with being held accountable. It drives you and pushes you through challenges. The answer is to keep pushing forward, you’ll get there.”

In order to find success within advisory as a small firm, there are 5 key points Will believes a firm ought to be able to do. Those are: leverage your strengths and assets, find partnership, decide the measurables (and be ready to pivot), learn from failures, and keep your long-term perspective even within short intervals.

To leverage your strengths, you must know what those strengths are. You must have confidence in your knowledge and abilities. What are the things you’ve told your clients repeatedly? What are the maneuvers that you’ve helped your client walk through that have caused a positive impact in their business and lives? Those are your strengths. Those relationships and networks you have can be used as assets to start putting together a well-rounded advisory package.

How do you find partnership? Whether its with Thomson Reuters, a new client partnership through somebody in your association, or you work with clients to find some partnership in a unique way, it is ultimately better than going alone.

“I’ve seen firms try to become an advisor on their own, and truly try to find a way to make it a center of their client relationships,” noted Hill. “They struggle when they try to do it on their own. They’ve learned the hard way that partnerships help you move forward.”

What are your measurables? If you want to switch to be an advisory-first firm, you may want to see an impact on your cash flow. Or perhaps, you want to see your clients make movements, and your measurable is your client hitting their goals. It’s important to recognize those goals up front, so you’re ready to pivot in the face of change. Measurables are a key part to ensuring that we’ve got long term perspective as we go through short interval changes.

Learning from failure may be the most crucial key point. With process changes to how you’re going to work with your clients, it’s not going to be a light switch. It’s more of a dimming switch. We’re not going to fail; we’re going to learn. We’re not going to give up but adjust. We’re going to learn something, adapt, remeasure, reevaluate, and keep going. If things are working well and we don’t need to change a lot, that is great. However, we still need to do the evaluation, because we still want to work in those short intervals without losing sight of the long-term perspective.

“We’ve failed so many times, especially trying to figure out how to do client onboarding,” added Lopiccolo. “We’re learning every single time. Advisory is a long-term play. You’re going to get some short bursts here and there, and you’re going to learn from them. You’re going to change, but it’s the long term that is really going to be the payoff.”

Solutions from Thomson Reuters

Checkpoint Learning: This whitepaper was based on a live webcast that offered CPE credit. Get access to CPE webcasts, online courses, and other learning options to build your firm’s skillset for success with Checkpoint Learning from Thomson Reuters. With Checkpoint Learning, CPAs and Enrolled Agents have the continuing professional education training and tools they need to keep up to date and looking forward in an industry full of change and opportunity. Learn more at cl.tr.com.

Practice Forward: To learn more about how you can transform your small firm to move from an advisory mindset to an advisory motion, visit tax.tr.com/practice-forward for the latest insights and tools. Clients’ expectations are changing. Make sure your firm is ready.