accounting practice growth – Page 12

It’s been said that the only constant is change. Businesses are being told that having the strength and agility to meet those changes is what makes the difference between success and failure. But in order to address change, to understand the possible outcomes in various “what-if” scenarios, a business has to understand how it is performing today, and then must capture and compare measurements over time to be able to identify trends and similarities. Only then, when the business has the information necessary to view performance over time, is it then possible to introduce changes and forecast potential outcomes. When the analysis includes many businesses rather than just one, even more may be revealed in terms of comparative performance levels under varying circumstances.

It doesn’t sound all that difficult, really. Not on the surface, anyway. There are a lot of tools and resources available now which make this type of analysis a walk in the park. With accounting moving “online” and into connected web service, and with accounting professionals working closer than ever before with their online clientele, the data available is astounding and analytics providers are eating it up. It’s actually possible for a small business to subscribe to a solution, upload or sync up their QuickBooks or similar financial information, and magically have a really cool dashboard to look at that makes financial statement reading obsolete. More often than not, there’s also a feature that lets the owner compare or benchmark their performance against others in the same industry. And that’s the problem.

Stepping back a bit, let’s now talk about XBRL (eXtensible Business Reporting Language). In its simplest form, XBRL can be described as an application of XML (eXtensible Markup Language) intended for use in business reporting. The idea is that all financial reporting should be “marked” in certain standard ways, so that it is easier to compare and monitor. XBRL is considered by many, including the AICPA, to be a “language for the electronic communication of business and financial data which is set to revolutionize business reporting around the world.” Even though it sounds logical enough, it hasn’t taken off as quickly as everyone thought.

So what does XBRL have to do with data dashboards and industry performance benchmark comparisons for those small businesses we discussed earlier? They both suffer from the same dilemma, and that’s lack of consistency in definitions and taxonomy (categorization).

Because businesses have a lot of, um, flexibility when it comes to financial reporting, it is not unusual for the application of a single term to mean one thing to one company, and a very different thing to another. As an example, what one company calls “operating revenues” may be what another business calls “net revenues”. Does “inventory value” mean the same thing to a business using a FIFO costing method versus LIFO?

When you try to perform an analysis of the financial data of two companies who report or label their information differently, it makes it really difficult to trust the comparison because you may very well not be comparing the right things – apples to apples. It may be more like apples to aardvarks. I can’t tell you that the solution is out there, because at this point I don’t think it is. I say this because the problem starts where the data is created and initially “categorized”. There are few standards, and even fewer that are actually implemented on any sort of broad basis. The problem exists in the trial balance software, in the accounting products, and in those Excel spreadsheets everyone carries around with them.

The best, first step any accounting professional can take with their clients is to make every attempt to address the financial reporting in a standardized manner, and capture and categorize the data appropriately from the get-go. It’s the only way you’ll avoid spending days with Excel spreadsheets and working papers, attempting to normalize client data into a framework that is available for a useful and trusted comparative analysis.

cropped-jmbunnyfeet1 Make Sense?

Interested in learning more about tools which can help your professional practice get more opportunity from every client? Contact me @JoanieMann on Twitter, or connect with me on LinkedIn or Facebook.

Read more about how accountants need business intelligence, too
Read more about how there’s no fear and loathing in accounting
Read more about the pressure on accountants to deliver more value and intelligence to their clients
Read more about Data Warriors: accounting in the cloud

I think that accountants recognize that their profession is in the midst of transformation, and technology will continue to play ever-more critical roles in helping professionals meeting these trans-formative challenges. There are increased pressures on a variety of levels, not the least of which is the pressure to differentiate and find new value and opportunity to deliver to clients. While this has always been a challenge for the professional accountant, the do-it-yourself tools and services available today have served only to increase competitive pressures, and have made it more difficult than ever for accountants to demonstrate their business value to the client.

Being a successful business today means being able to make decisions – informed decisions – quickly. Business owners need reliable and actionable information now, providing greater ability to adapt to the complexity, risk, and volatility of the market. In terms of differentiation, one of the challenges plaguing accountants, delivering higher levels of business intelligence to the client is a key differentiator, and one that can not only set the practice apart from the competition, but also help to establish the firm as an industry leader.

The difficulty that many firms have faced is finding the right opportunity to deliver more intelligence to the client. Not understanding what tools and solutions may be available, and not knowing how to identify real areas where the firm can add value to client engagements, becomes the barrier. For accounting professionals, business intelligence is not just a tool to measure performance, but should be the foundation for exploring the depth of services and advice potentially deliverable to each and every client.

Because many professional practices actually operate as more of a “collective”, with individual partners handling their own books of business, there is often no good way to understand the overall mixture of clients being served by the various practitioners in the firm. Certainly, billings and collections are measured, but there is often little “intelligence” applied to analyzing the client base as an entire system and identifying those clients where similar needs may exist or where differentiated service offerings may apply. Applying a level of business intelligence to this problem, and providing the firm with a means to analyze the various properties of the entire client base and client performance, becomes the centerpiece to increasing the value of and opportunity within every client relationship.

The important thing for professionals to remember is that their business clients need informed consulting and knowledgeable advice. Business owners want to know if they are performing well in their respective industries and are creating long-term value, and they need guidance and support in order to understand business performance and make the necessary changes to improve it. Business owners trust their accountants to do quality tax and audit work, but if they aren’t able to get a higher level of consultative service from their trusted accountant, they’ll go somewhere else to find it.

Read more about how there’s no fear and loathing in accounting
Read more about the pressure on accountants to deliver more value and intelligence to their clients
Read more about Data Warriors: accounting in the cloud

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