What clients value and what accountants think they value are rarely the same thing, and Joe Woodard makes the case that it’s accountants who need to change their ideas around value, not clients.
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Dan Hood (00:03):
Welcome to On the Air with Accounting Today. I’m editor-in-chief Dan Hood. At some level, clients must value what accountants do for them. They pay their bills after all, after a while and after some grumbling and after some writedowns. The question is, do clients value the things that accountants think they should? And what can and should accountants do to find in package services? Whose value is crystal clear to clients Here to talk about all that is Joe Woodard, CEO of Woodard, one of the leading traders of accountants and business advisors in the country and host of the Scaling New Heights conference. Joe, thanks for joining us.
Joe Woodard (00:28):
It’s always great to be here. Dan,
Dan Hood (00:30):
I want to dive into this. There is a little bit of a disconnect going on and I want to get your opinion on do accountants and clients measure the value that accountants deliver in the same way? Do they both look at it in the same way?
Joe Woodard (00:40):
Well, actually it’s just the opposite. It’s a paradigm of difference, and the paradigm is really defined as effort versus outcome. When you were talking about write downs and squabbling with clients over payments and what we have to do in order just to get them to pay their bills, it’s because the clients are asking the ultimate question of what value did this bring to me? How am I exchanging this money for outcomes that are tangible or at the very least were required? And I know that you have done them in a way that was on par or better with anything else I could have gotten in the space. It’s the outcome they’re paying for. But then whenever we deliver that pricing through the vehicle of effort, because that’s what the accounting profession has historically valued, is the effort it takes to produce the tax return or the financial statement or whatever it is.
(01:32):
So we price it, we package it through the vehicle of our effort, AKA time, hours. And that forces, even if we’ve delivered a really good tax return, maybe with some favorable strategy in there, we’ve delivered a really good audit report that the bank loves and our investors love and the client’s happy and they love the outcome. We make them change from what they value to what they don’t value because they have to dissect that invoice and measure alongside us around our effort. Again, something they couldn’t care less about. And then when they start to peel our effort apart, line item by line item, they start to question, did I really talk to you for 20 minutes? I thought that was five minutes and you’ve just changed the whole conversation from value to anti value all because of how we bill, right?
Dan Hood (02:23):
Right. Yeah. And I mean, half clients think you just push a button and it all happens automatically anyway.
Joe Woodard (02:28):
Anyway. Right?
Dan Hood (02:29):
They’re going to think it took exactly how long does it take to
Joe Woodard (02:31):
Push a buck? And ultimately how long it takes is irrelevant because if I was leveraging automation technology and I could produce this amazing output and 20% the time that my peers are doing it, and the accounting firm’s value valuing effort, I’d even heard some people say, well, that it’s unethical to charge more if I spent less effort because we’re so locked into that paradigm that effort equals value, cost defines price that we feel guilty when we charge what something’s worth just because we did it faster and better,
Dan Hood (03:06):
Which is terrifying because everything is being done faster and
Joe Woodard (03:08):
Better, faster and better. Which means if we don’t change this paradigm, we’re going to end up running ourselves out of business by driving prices down, down, down, down, down, even as we’re driving expediency and value of our delivery up, up, up, up. Right. It’s counterproductive. Yeah.
Dan Hood (03:24):
So as you’ve described it, its accountants tend to value their effort, their time, their hours, and the clients don’t value the hours. How does that translate into specific services, their services that accountants are like, this is great, we’ve delivered it. You should be happy. And the client’s like, yeah, no,
Joe Woodard (03:37):
This is, yeah. Well, yeah. So it’s really good. So the tax return has a certain, I guess we could say passive value. A passive value is really how I define a utility. I mean, as we’re recording this, there’s some great electricity. We’re comfortable as air conditioned in our environment, we’re passively receiving the value of this. We have to think about the fact, actually it’s the absence of it that would make us think about how valuable it is. The presence of it is just background. And so whenever you’re dealing with something that is important to them, like having a type tax return that is timely and accurate and the peace of mind that comes with that, making sure that audit report is delivered to those investors and those bankers so I can keep the cash flowing and make my board happy, make my executive committee happy or whatever it is, it’s only the absence of those things that will even cause the value to be noticed.
(04:31):
So it’s passively valued. That’s a utility. And what we have to do is we have to deliver the utility, but we have to find active value. So what’s the experience that my client has? What’s the proactive step I’m taking beyond what’s necessary to what will advance them in their business, will give them more visibility, will address their fear? Every business owner has a measure of fear and anxiety. It comes with the territory. So how can I help to alleviate their anxiety? How can I help to address their fear? How can I use information to create courage? How can I engender peace of mind? And we will go from, I don’t want your listeners to think I’m diminishing the passive value. Nothing is more important as we’re recording this at the BDO Alliance event in Las Vegas. Nothing’s more important to this city that I’m looking at out the window than power. Just see it at night. But so value, just because it’s passive doesn’t mean it’s incredibly value. It’s just the distinction of passive versus active. And we’ve got to get involved in more active value components.
Dan Hood (05:36):
And as you say, in many cases, right, it’s not the only value when it’s not there. You only value your tax return when you get it audited or when you get to the IRS says, Hey, why It’s true file. Or when your bank says you didn’t get an audit properly, you didn’t pass. So we know that’s not what they value. You talk about getting active. What do those services look like? What do active services look like? What
Joe Woodard (05:56):
Would clients value? So what would they actually value? And I mentioned at a high level, I appreciate the opportunity to kind of drill down on it. Specifically controllership services highly valued because it’s operational in nature. You might still say it’s passive because it’s sort of that back office thing and they’re not necessarily seeing what’s happening in the back office. But I would classify it as active because of the fact that more balls get dropped in the back office of the business owner and they feel the pain more acutely. I mean, they’re getting the actual sticker on the door from their local county that they have to cease operations because they failed to file a business license. And that happens to so many of our clients because they stick somebody in the back office that they found on an online search engine that knew a debit from a credit, and they don’t know how to actually run the compliance of the back office.
(06:44):
So there’s more of an acute pain they felt and a pervasive sense of anxiety over whether or not those things are getting done in my back office. But then if I wanted to make it really proactive, it’d be stayed in local taxes, property census reports, all of those things are necessary to kind of swat the gnats away and swatting the gnats away from a business owner is a very active value, but there’s even something more active than that. And that is the reduction of expense overruns. And that’s ultimately how I define controllership. People define it in so many different ways. I’m going to define it based off of its outcome, its ultimate outcome. Almost everything that you do as a controller, an outsource controller, a provider of those services as an accounting firm is going to result in the reduction of an expense. You’re going to pay less for the business license.
(07:36):
It was filed on time. So even the compliance pieces have something to do with expense. You’re not going to pay penalties and interest because the sales tax are being filed quarterly or monthly, exactly as they should be. And then the more proactive is the expense analysis and management. So this person’s going through the general administrative expenses every single month and asking line by line, challenging everything. How could this have been less? How could this have been less? This went up this quarter versus last quarter this month versus this month last year. They’re looking at those and it’s not rocket science. A business owner could say, well, I’m not going to pay for that. I can do that myself. It’s easy. It’s not a matter of effort, it’s a matter of attention. The business owner’s distraction cost to go look at those line items is higher. They need to be out there generating new revenues, maybe negotiating some cost reductions and let this controller that they’ve engaged through their accounting firm deal with those savings. And just to give you one example, there was a client with about 5 million in sales, right? They were running about 20% ebitda. So the rest of that’s cost and general administrative expenses. We did a spend analysis on them. We were able to save them $40,000 a year just with about two hours of our effort. And of course we did not bill by the hour. Yes.
Dan Hood (08:51):
Well, unless you billed $5,000 an hour, that would be exactly. But I want to touch on that for a minute because you talk about that, the attention spent on the thing. I think a lot of accountants say, well, I gave ’em a financial statement. They could go through it. You said they could do it. They could do it just as well as I could. And then started wondering, is some of this value perception and is the perception issue that I want to just talk about briefly is, is it just education? If the client just knew how to look through a financial statement, they could do the same things we do. I mean obviously they’re not going to do it as well as quickly or sufficiently, but because of accountants, firms would look and say, well, I’d love to do that. I don’t necessarily have the time to spend. You talk about it as attention. It’s an issue, it’s an attention. That’s actually an issue of time. If spending the time with the books and the numbers and going through and saying, yes, save money here, save money there. You’re spending way too much here. Here’s an opportunity you missed. That’s actually time and
Joe Woodard (09:36):
Effort. Our budgets and budget curation, budget enforcement, holding people to those line items, are their budget spend policies? Are they staying at the Ritz or the Marriott? The Marriott or the courtyard? Those dollars add up because they go straight to ebitda. Straight to ebitda. But the
Dan Hood (09:49):
Accountant says, that’s all in the financial statement that I gave you every month. Well, what are you doing? Why aren’t you paying attention to this? And obviously it comes down to somebody’s got to do it, but the accountant has given them the tool. I think a lot of accountants feel like they’ve given them the tool
Joe Woodard (10:03):
And now it’s up to the business owner. It’s
Dan Hood (10:05):
Like, well, why didn’t to do this before?
Joe Woodard (10:07):
First, there’s a huge assumption that the business owner even can do it, right? Because remember they got, you remember the E-Myth principle, they got into business because they know how to make a widget or a gadget or they know how to provide legal services or fix somebody’s tooth. They did not get in business because they understand a financial statement. They took their mandatory accounting class in order to meet all of their core at college, and then they forgot it all very quickly. Probably got a D or a C. Because what they were trying to do is fix teeth. And frankly, I don’t want a dentist that has a degree in accounting. Let’s all stay in our swim lanes and let the accountants interpret the financials. So you said, what do they value the operational side of it, especially if we can connect it to spend and expense reduction in some peace of mind.
(10:50):
That’s one that’s controllership. I call that controllership. Now, this is a big mistake that everybody makes, Dan, is they think that this business owner also values financial analysis. They do not value financial analysis. Most business owners, what they value is informed decisions around financial information. What they want is for you to interpret it, tell them in your professional opinion what they should do, maybe a little reference to the financials at 40,000 feet and let them trust you enough that you don’t have to write down how you got there. But instead, what we do is we do try to overin inform and overeducate, it’s like a dentist sitting there going, alright, we’re going to take this tooth out, but before I can take it out, let me explain to you tooth extraction, I don’t care. Just as a matter of fact, go ahead and give me the gas stuff. So I’m not even here, right? I hate dentist. I hate being going to the dentist. I like the dentist. I don’t like
Dan Hood (11:50):
There’s a theme here, but we’ll take
Joe Woodard (11:52):
That. Yeah. But the point is we overeducate, we over inform, we confuse and we make them think that if I don’t understand, it has no value. But what other professional does that the lawyer just does their job, the engineer just does their job and they explain to you only what you need to understand in order to receive the benefits of their knowledge. We need to do that more as accountants. And that means the twofold answer to your question is controllership services and management advice. That’s what they want. Gotcha.
Dan Hood (12:28):
It makes a lot of sense. I’d want to dive more into all of this a little bit more, but we need to take a quick break. Alright. And we’re back with Joe Woodard of Woodard talking about value and how clients perceive value and what accountants perceive value. I want to talk, I’d love to because you unpack controllership services in a fair amount of detail. I wonder if we could dive a little bit more deeply into the management consultant. You sometimes call the journey protection, I think, and I’d love to dive more into detail on that because I think that’s, you come at it, I think from a perspective that not necessarily every accountant has top of mind. So maybe we dive a little bit more into the specifics of that role, the management consulting and
Joe Woodard (13:07):
Journey. Well absolutely, and I’d like to start with what it’s not. There are some firms that do true operational advisory, outsourced strategic officer, director of strategic planning kind of role. And they hire people out of private industry who helped to do biz dev. They have MBAs and they come out of industry, so construction or manufacturing, wholesale distribution. And then they take this industry expertise and they productize it and they send it back to multiple clientele and sort of a fractionalized director of biz dev. I am not saying that when I mean management advisory, that’s a noble role. If firms want to embrace it, that’s great, but it takes a lot of effort to sustain a consulting practice like that. And I would call that consulting. I would not call it management advisory. So first that’s not what I mean. If that keeps you listening. So now maybe it’s something more tangible.
(14:05):
What I do mean is financial planning and analysis, fp and a conducted by you and then packaged into advice. Now maybe along the way you do explain a little bit more and more about the ratios you’re using and the metrics you’re driving because educating the client is good, but it’s just not a prerequisite to the value proposition. And that’s the big mistake we make. Like I mentioned before, the break. So management advice is broken down into what I would say above and below the line. We’re going to do the general and administrative, which was we put into the product of controllership services. If it sits below gross profit, and that’s your spin reduction in the budget curation and the spin policies and so forth above gross profit, you start getting into what I call management device and the clear distinction there is a certain amount of industry specific knowledge.
(15:03):
So let’s get back to say manufacturing, wholesale distribution. I don’t have to have any knowledge at all about their business model to see that below the line they are overspending with their traveling sales reps or they are overspending on facilities or something like that. Administrative facilities, something, some salaries for admin, I can benchmark that. I can figure that out to figure out how they should better manage their capital investments and the way those depreciated, which I know isn’t cost good sold, but it’s depreciation expense, but it’s still very industry specific. But especially if I were going to be dealing with their supply chain negotiation with supply vendors for better terms, say 2%, 10 at 30, if they’re not getting any discount terms at all, understanding the connection between shelf life and cost, how long something sits on a shelf, increases cost of goods sold, and how to measure obsolescence waste, how to curb threat through caged inventory, better inventory controls, all of those pieces.
(16:07):
How to strategically buy because sometimes shelf life decreases cost of goods sold. If you do strategic buying one year out before there’s going to be a protected price increase. So when I start doing management device, I have to understand a little bit more about how a warehouse operation runs or a job site runs. And therefore what I would say is, and this is kind of the way I’ve coined it, if you’re dealing with controllership, there are leashes in the niches. Don’t limit yourself to specific industries. Everybody needs expense reduction. If you are above gross profit, you’re doing management advice, there’s riches in the niches. The better you understand a subset of industries, the more value you can bring, the more brand distinction and the more people will be to path to your door. It’s a better mouse trapp proposition.
Dan Hood (16:54):
That’s an interesting
Joe Woodard (16:55):
Distinction
Dan Hood (16:56):
Between the need for where the need for industry expertise.
Joe Woodard (17:00):
And it happens above gross profit, which also I would include revenue in that too. Some revenue guidance. Yes. Pricing guidance.
Dan Hood (17:06):
That’s a really interesting, see, now I wonder as you look at that, does it make sense? There’s some, and this is going to go actually to my next question, which is there’s some degree to which if you start with the controller shipping work that puts you in a good position to
Joe Woodard (17:17):
Do to upsell to the managed
Dan Hood (17:19):
Management device, then need, does that mean you start saying, okay, well then even as I’m thinking just about my controllership, maybe I should be focusing on an industry because if I’m going to upsell, I’m going to need to have that expertise
Joe Woodard (17:29):
In. Absolutely. And then you can go mine from within your controllership services base to find the industry. Or if you’re a larger firm listening in, the good news for you is you can have multiple industries because now you can have these expertise backed across your CS practice. And it’s all still client advisory services, right? We’re still in the realm of cs. And the realm of CS includes accounting services, controllership services, back office process outsourcing, as well as financial planning analysis. It’s all still called cs. But I want to address another distinction here, and that is fractional CFO, because we’ve been kind of tiptoeing all around it. Everybody’s like, well, okay, you’re talking about fractional CFO, Joe. Once you get above gross profit pricing strategies, and actually in the way I define it, I have not yet described fractional CFO in anything I’ve talked about. It is actually a fifth thing.
(18:24):
So accounting services, which I think everybody gets in here, is record keeping compilation, controllership. We defined in this back office process outsourcing is all that back office paperwork stuff we talked about. To me, controllership and back office processing are peanut butter and jelly. And then you get to the financial planning and analysis. Alright, so what is fractional CFO if nothing we’ve talked about yet is Joe’s definition of that. Let me give you Joe’s definition of that, which by the way is it’s the definition that enterprise uses private industry uses. A CFO is someone who represents your company in a leadership position, not your firm, your client’s company in a leadership position with a certain amount to policy authority who sits with the executive leadership to steer the company strategically represents the company to banks and investors has a business card with your client’s name on it that says CFO.
(19:23):
So if you are not negotiating lines of credit with a bank, if you are not making presentations to investors, potential investors and boards, if you’re not building pitch decks or working with the business to build pitch decks. And if you’re not sitting weekly in the executive meetings of your client with similar level of weighted authority to the other full-time executives in the room like C-O-O-C-T-O-C-P-O and CEO, you are not a fractional CFO, whatever you call yourself. You’re a financial planning and analysis expert who’s interpreting financial information or maybe you’re a controller. But we’ve got to create more distinction around that term. The more we broaden it and the more we make it nothing, it becomes nothing. It’s got to be clearly defined. Well,
Dan Hood (20:07):
That’s interesting. I think a lot of people would define it much more broadly, right?
Joe Woodard (20:10):
Yes. And you can disagree with me if you’re listening to this. Please, that’s fine. It’s a free country. It’s a
Dan Hood (20:14):
Useful
Joe Woodard (20:15):
Distinction. It is a useful distinction, but I
Dan Hood (20:17):
Don’t think it’s one that many people make. I think they just say, well, I’m in the business, am I advising them and I’m looking at their numbers, and that’s what a C FFO does. And
Joe Woodard (20:24):
That’s actually not what a CFO does.
Dan Hood (20:25):
Well, I mean a lot of that is the CFO’s role has been elevated over the last several years from what it used to be more like what I think the broad definition of fraction CFO would be. It’s been elevated more towards what you’re describing. It’s a leader within the company with more authority and more strategic
Joe Woodard (20:40):
Importance. Absolutely. And usually appointed by the private equity firm that’s investing in, you usually appoints the CFO because that’s the watchdog for their interests and it’s the liaison. But I want to really drive the point home again by saying, if you look at a company that’s say maybe 15, 20 million and up, Dan, the financial planning and analysis people in that company and the controllers in that private company report to the CFO. The CFO does not do their work. And so as you’re trying to, this whole thing’s about value communication as you’re trying to communicate the value of what you do to the client, then you need to look at that 15 to $20 business, even if the client isn’t one of those. Look at that as the model and look at how they have accounting services people. They have compliance people in their back office, that’s BPO, back office process outsourcing. They have controllers that deal with the spend mitigation. They have financial planning and analysis teams, and all of those people are on the CFO’s team. They report to the cfo and there are all your distinctions of CS right there.
Dan Hood (21:47):
And then the CFO sits on top of them and does all the leadership sort of outwork that she described in the outward facing representation with the company where it makes sense. That is a very interesting and useful distinction. But again, I think it’s one that as that role changes, as people get more used to it, that may be one people can take on board, but it’s
Joe Woodard (22:05):
Military. But we should be leading on those definitions. We should be defining the category rather than following.
Dan Hood (22:12):
Good point. I want to ask why worry about the SNAP clients of if clients don’t currently value the services as accountants have been offering, they probably haven’t valued them forever. They’ve always sort of thought, yeah, it’s texture, but I have to get it. They only notice it when it doesn’t happen. I only notice my audit when it doesn’t happen. Why should accountants be worrying about this now? Should we be paying attention to it at this moment?
Joe Woodard (22:34):
Yeah, well, they should be worrying about it because we’ve suffered from commoditization for years. You guys have honored me with the top 100 most influential award many years in a row. And I really appreciate that from accounting today. But you always ask me the question, what’s the biggest issue that the accounting spacing, and sometimes I’ll go back and forth between staffing and the southern answer. It’s always a tie. But the other big issue besides staffing is this commoditization, which is turning into commoditization and it’s being driven by artificial intelligence, which everybody’s looking in the peripherals on and going nervous, nervous, nervous. So there’s artificial intelligence, but there’s also the scaled competitive landscape. You’ve got these scaled compilers of financial information like pilot, I don’t want to call them bookkeeping services because all the CPA firms will go, well then they don’t do what we do.
(23:22):
No, let’s use your terms. We have all these scaled compilers of financial information that are backed. They have, they’re either multi-billion dollar global companies like Intuit or a billion dollar company that’s not global h and r Block. They’re either billion dollar companies or they are funded with funds that have access to hundreds of millions of dollars to build the Amazons of bookkeeping, of financial compilation. And if we ignore that category, if we pretend it doesn’t exist and just sit our head in the sand, then we become the travel agency of this decade. Yes. Right. But that’s what’s happening. And I said this whenever I was speaking for the accounting summit that you did, the virtual one, I watched the movie Hidden Figures, and it was in that movie that I learned for the first time, a computer used to be a person, they hired computers at people.
(24:25):
And of course it was about three remarkable African-American women. It was a beautiful story, but they were called computers alongside all their other peers regardless of race. That was just the term you used. A computer used to be a person. And I remember my daughter turning to me, she was about 14 at the time, and she turns, she goes, that doesn’t make any sense. A computer’s not a person. I think that in about 20 years, some kid’s going to turn to their parents and say, that doesn’t make any sense. A bookkeeper’s not a person because the bots are going to end up doing that particular role and tax preparation, you’re not protected either. That’s a bot role. So more than ever, with the acceleration of artificial intelligence and quantum computing, which by the way isn’t separate from the scaled competitors, the scaled competitors are entering the market because of the artificial intelligence, the technology, it’s all two sides of the same coin.
(25:22):
And the coin is what we have to avoid. We have to get away from that cap, not away from it. We have to move. We have to transcend it so that when we’re doing it, we’re doing it as part of a larger package that is very outcome driven and very distinctive. That is what those machines and those scaled competitors cannot do or ought not do. So I’ll tell you some interesting things Pilot doesn’t do. Pilot does not measure the shelf life of a client to determine whether or not that is increasing their cost. Pilot will not advise a business around buying trends and buying patterns to predict what supply will be six months from now versus now as a ratio of how much available operating capital I have and the cost of that money. No, they don’t do that. They just generate a financial report. And if we will do the first part of what I just mentioned and provide that management advice, we will stay out of their way. They will stay out of our way. Everybody gets a swim lane and that’s why it’s critically important right now.
Dan Hood (26:27):
Well, you can work with ’em, right? You can use, send your client to them and then say, when they deliver the information, deliver to me and we’ll advise you on.
Joe Woodard (26:34):
That’s a good point too.
Dan Hood (26:36):
Well, I mean that’s scary, but also I think the opportunity there is to move up and to do certainly more interesting work. Well, what a sue, and then to get back to the original point of this was the client will value more, right? They’re going to look at the pilots and they’re going to say, well, that’s just my bookkeeper. That’s just my automated bookkeeper. They take care of that. I push a button and the machine does it right? But that still leaves the room if the accounts make these changes for them to bring the extra
Joe Woodard (27:01):
Value. Well, there’s a great quote from Game of Thrones. Chaos is a ladder and it’s about to get a little chaotic over the next five years. But that’s a ladder. Let’s climb it. Let’s climb it as the field of accountancy.
Dan Hood (27:13):
There you go. Awesome. Alright, Joe Woodard or Woodard, thank you so
Joe Woodard (27:15):
Much. It’s always great to be here, Dan.
Dan Hood (27:17):
Great talking to you. This episode of Raleigh, the Air was produced by Accounting Today. Rate review us on your favorite podcast platform and see the rest of our content on accounting today.com. Thanks again to our guests and thank you for listening.
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