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By Edi McHenry, CEO, Mentor Plus

While you've been busy providing services to your clients, I've been busy asking them what they do and don't like about you. As I facilitate "client advisory boards" for hundreds of business owners who hire CPA firms just like yours, one prevailing theme really hit home: Business owners want their accountants to be more proactively involved in helping them manage and grow their businesses.

The marketplace is changing. With competitive forces increasing every day, the margin for error in business is shrinking. Business owners are looking for outside help to shortcut their learning curve. This has created a tremendous demand for "advisory" services. For every accounting firm that is ready to deliver on that demand, there are an equal number of non-CPA providers also romancing business owners for their advisory dollars. In the past, CPAs only felt competition from each other--not any more.

For firms seeking to make the transition from compliance-based services to reliance-based or advisory-type services, the race is definitely on to identify and implement the right systems and technology to make that happen. However, before stepping too far outside their core competencies to adopt a whole new set of skills, perhaps accountants should consider how they can bridge what they are already really good at with want their clients really want.

Simply put, accountants are good at accounting for things. Traditionally, accountants have focused on measuring the financial activities of the business. However, we know that when CPAs apply those skills toward measuring other types of business activities, two things happen: 1) The client has better information, and therefore is better prepared to attain their desired goals; and 2) the client's perception of their accountant shifts from strictly a scorekeeper to more of a coach, thereby creating a higher perception of value and fees.

Instead of just providing clients with financial statements or what we call "lagging indicators," there is an opportunity to expand their efforts to include providing "leading indicators." These leading indicators provide clients with real-time feedback about their company's performance so that they can make adjustments to their strategy on a real-time basis.

Owners and managers often have to wait until the end of the month or quarter to see the company's outcome. This delay weakens the link between employee performance and company performance. It is much easier to make adjustments to employee performance on a real-time basis. It also is absolutely essential to have that real-time feedback in place to serve as an incentive to improve performance. With the right performance measuring systems in place, employers are able to create compensation and bonus programs based on real performance rather than arbitrary measures.

The concept of measuring activities is pretty easy to embrace. Being able to identify the activities critical to the company's goals takes some practice. I recommend that those seeking new ways start off by measuring just a handful of critical numbers, such as lifetime value of a customer, customer cost of acquisition, cost or errors/re-work, conversion rates, marginal net worth, etc. Here are six steps to follow:

1) Establish a baseline of financial and performance indicators relating to the current business scenario.

2) Set goals for future growth. Be sure to break down specific goals for each business unit based on company goals and industry benchmarks.

3) Identify the critical performance indicators (CPIs) to be measured. Be sure to look at them from both customer focus and operational perspectives.

4) Educate the team about the link between their performance and the financial outcomes of the business.

5) Design a "report and reward" system that reports on, recognizes, and rewards the contributions of each business unit and team member toward the accomplishment of company goals.

6) Measure, monitor, and meet with key management personnel on a regular basis, to review and advise on ways to improve critical numbers.

Also, be certain that the right performance indicators are being measured. Ideally, the CPIs should have either a direct or inverse correlation to the short-term profitability and long-term viability of the company. The goal should be to create a direct link between financial indicators and performance indicators. As clients learn to identify and develop systems for monitoring their CPIs, the accountant's role will naturally shift from scorekeeper to coach. This provides a very natural bridge between how accountants are perceived and the expanded role they seek to have in their clients' businesses.

Bottom line: The fastest way to expand your accounting firm may simply be to expand the types of activities for which you are "accounting."

Edi McHenry is co-founder of the Consulting Accountants Roundtable and CEO of Mentor Plus and works with accounting firms on the development and delivery of advisory services. The Foundation for Accounting Education is offering "Making the Transition from Compliance to Reliance," a three-day Mentor PlusSM training program on May 27­29, 1998. Call FAE Registration at (212) 719-8383 or (800) 537-3635 for more information.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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