The Path Towards Advisory in Tax

We're continuing the Path to Advisory series and now moving on to tax. Today, I'm joined by Jorge Olavarrieta, Intuit's VP of Product Management and Design, and Minal Babaria, CPA, CTC, CEO and founder of KB Tax Deviser CPAs to talk about Intuit's white paper, aptly called "The Path to Advisory." In addition, we'll take a look at types of tax advice, focusing on a niche, and empowering employees, and much more.

[00:00:00] Preview

Jorge: But how do I make sure that I am maximizing the value that I'm providing to my client in a way that enables me to have sanity in my life and maximizing the value I'm getting for the firm? But it doesn't have to be, do it all at once. Give it a shot, try it.

Minal: That's where we get stuck. We feel like, "Okay, we have to do all at once, and then it becomes so scary. We keep procrastinating on decision, and then we put it away."

[00:00:29] Thank you to our sponsor, Accountests

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[00:01:28] Introductions and what this episode will cover

Blake: Hello, and welcome to another episode of the earmark podcast. I'm your host Blake Oliver, CPA. And I'm excited today to be talking about advisory services, the path to the advisory. Joining me today is Jorge Olive Arrieta. He is the VP of product management and design at Intuit. And we also have joining us, Minal Babaria, who is the founder and lead tax strategist at KB tax divisor, CPAs. Thank you both for joining me today.

Minal: Thank you for having us.

Jorge: Likewise, thank you.

Blake: So, we're here talking about the path to advisory. This is the title of a white paper that came across my desk a few months ago that Intuit has put together a comprehensive guide to help tax firms lead with planning and advisory services. And I get a lot of this stuff. I see a lot of this, blog posts, articles, people talking about moving to advisory.

And then I opened this thing up, and I see it's 80 pages. It's a real guide. There's a lot of thought that has been put into this. And I started going through it, and I thought, "This is something we need to talk about because we're actually getting into the weeds of how to do advisory in tax." So, before we dig into the path to advisory, or before we begin our journey on the path to advisory, Jorge, would you mind telling us a little bit about how this came to be?

[00:02:53] How did this guide come to be

Jorge: First of all, I appreciate that you realize the comprehensive nature of it because it took a lot of blood, sweat, and tear in partnership with our tax counsel, who Minal was a part of as well. To bring it together, at a very high level, we've recognized for the last few years that the profession as a whole is on this journey away from compliance and towards advisory. We started engaging our tax counsel, which is a group of tax and accounting professionals that help us think about the trends that are going on in the industry, the experiences they're having with our offerings, but all the way to really thinking strategically about how we help the profession moving forward.

And a couple of years ago, we started this journey by doing a deep dive with them, really understanding how they're serving their clients and what are the opportunities for them to provide them better advice to help them achieve better outcomes. Out of that session, we identified some key challenges. And one of the key challenges was really around what appears to be a very daunting thing to say, "I'm transitioning to advisory." But people really not fully understanding what it meant, what tools it required, what expertise they needed to have, how they should think about their processes, so on and so forth.

When we came out of that session a couple of years ago, we started putting our heads together with our tax counsel to say, "So how do we help people figure out what seems to be a very daunting and could be a very complicated journey?" And we said, "Well, you know what, why don't we all come together, learn from each other's journeys, learn from others, and put together a perspective on the things that you should consider, the steps you should take, the tools you could look at using?" And ultimately that culminated in the delivery of this very comprehensive guide.

Blake: And Minal, what was your role in putting this together?

[00:04:47] Minal's role in putting this guide together

Minal: I would say going through this journey and along with us whole bunch of accountants, I think we were 14 or 15 of them, correct me, Jorge, if I'm wrong and learning from each other. That was kind of mind-blowing. Because we all feel up to a certain extent, "Okay, we are doing good. We could be better." But what that better could be, we don't know. And just doing the tax preparation, that has been the day of... I mean, those days are gone with the software automations and all. And with the pandemic that we are going through, the advisory service is something that clients need now more than ever before.

And when you want to step up and want to provide, it comes with lots of questions. What do I charge? Is it free? Is it sustainable? What labor I'm looking for? How do I maintain that culture within my team? Whole lot of thing. It's not just about scaling your business, but it's kind of intentionally scaling your business if I can say it, and intentionally building that team, creating that culture. Whether you have hybrid, virtual, or an office team, it's more sustainable. So, I loved that whole brainstorming exercise. We as a team learned a lot. And every time I go back and refer to it, believe me or not, I get new distinction, new access point, "Oh, this is something we can utilize in our process, in our business."

[00:06:26] What does advisory mean to you?

Blake: So, what are we talking about when you say advisory, what does that mean to you? What is this destination that we are getting to in this path that we are on?

Minal: I would say the advisory, to me, what it means is providing the client guidance where they needed, whether it is in tax planning side or on the business scaling side, helping them grow their revenue. It's just looking something beyond compliance. And it's a win-win for our clients, as well as for us. You get better respect for the advice that you're giving out, at the same time, when you help clients save thousands of dollars in taxes.

Now have to save those thousands of dollars. It comes with a lot of things that I see in the [inaudible 00:07:13] advisory. There is a survey which is being done and it says, income shifting strategy has been the most transforming where people are getting most value. So those strategies, what we are doing is we are freeing up that cash flow, which can then be utilized, whether to provide more benefits or hire new team or grow business, or just living their dream life. It's a lot of things that can be achieved with this advisory services.

Blake: So, helping clients save money, helping them get where they want to go. That's the essence of what we're talking about here. Okay, that makes sense. I can buy into that. And when you talk about compliance services, obviously you're talking about, what, filing tax returns, paperwork, right? Which has been the bread and butter of what we do and for most firms still is.

[00:08:03] Any idea on the split on what most firms are offering in terms of compliance vs advisory services

Blake: I'm actually curious, Jorge, do you have an idea of where we are at as a profession when it comes to advisory? Where are we now? What percentage of what we do is compliance versus what we might call advisory services?

Jorge: So where is the profession? I think it varies depending on firm, to be honest with you. I wish I could give you an overall number. But what you mentioned is still true in that many of the businesses are still heavily reliant on compliance services for revenue, right? Doing tax returns, doing your book. What we do know is that advisory services are growing at twice the rate as compliance overall. We do know that there are a significant number of leading [inaudible 00:08:50] firms that are actually being very, let's just say, aggressive about really making tax preparation and compliance in general really an afterthought to their service because it's not necessarily that they would not continue to prepare tax returns. In many cases, preparing the tax return or doing the books is the key input to help you figure out how to advise a client, where to dig deeper. Hard to give you an overall number, but we do know that it's incredibly growing in, let's just say popularity and in importance, especially given COVID and the fact that people were needing help.

[00:09:33] 3 out of 4 CPAs want to offer advisory but lack confidence or tools to do so

Jorge: And I could give you some very high-level data that shows that right now, about three out of four pros want to offer advice. But in many cases, what we have found is that they either lack the confidence or the tools to make it broadly available to their clients. As an example, even the firms that do offer advisory services, whether that's helping you on the small business and the operations for our front or on the tax savings perspective, either from the business or the individual side, those types of services are reserved for certain types of clients.

So, it's really about only 30% of clients of the firms who offer these types of services are actually being served by the firm. That mostly has to do with time. Right. I can't afford to take the time. I spend all my time on the compliance work, and the amount of time I have to dedicate to helping you make better financial decisions comes at a cost. And that cost is fairly high to the small business owner or the taxpayer in some cases, and only some of them can afford those types of services. So, bring it all kind of full circle, when we initially did our journey, there was an element of, do I have the expertise to advise? Whether it's, how do I think about the talent that I have, how do I restructure my business and the services I offer? There's all kinds of complexity in there. But there's also the, I don't have the tools to do this type of work efficiently. And we believe we're there, right, to making that more broadly available. We call it democratizing tax advice.

[00:11:15] Are advisory services too expensive for most clients when it's on an hourly basis?

Blake: Yeah. I feel like most CPAs, most tax pros are actually doing advisory. And there's a stat that caught my attention in your survey here that 74% of tax firms provide tax planning and advisory services already. They're just not getting paid for it. 62% of them are not getting paid for it. And that goes to your point that if I could rephrase it, we're doing it on an ad hoc basis. We're doing it as needed on an hourly basis often, and that tends to dissuade most of our clients from taking advantage of it because it's very expensive when it's delivered that way by a partner generally. We haven't figured out how to push that kind of work down to staff yet. Right. It's all being done at a very expensive price point. So maybe that's one reason why only, I think you said something like 30% of clients take advantage of it. I'm wondering if that's your experience, Minal.

[00:12:15] Minal had no guidance. Clients don't value "free advice"

Minal: Well, see, here's the thing. When I started our practice in 2013, and I was like, "At no cost, we are taking in tax compliance work, only clients. It's just going to be a recurring advisory work or no client at all." Starting at that level, it was a lot of struggle for us. I wish we had this guide back then, because back then no one was talking about advisory services. There was no guidance. You cannot find anything like this in a CPE or in any article or where to start. So, it was a little bit challenging, to be honest. And when we give out free advice, even though it could be a very valuable advice because it was given free, client have no value for it, and they will not take any action. And they don't look at you as if they're working with the accountant whom they have paid the money for that advice. So, it's like we are giving out the advice, but because of our inability or some mental limitations and not being confident on have to scale it, have to charge it, and have to put it into action. It's like they're doing huge disservice to ourself as well as to our clients.

[00:13:30] How do we actually start selling advisory services to clients?

Blake: So that leads me to the question, and I may be jumping the gun on this, but how do we start actually selling this service? You weren't doing it before. You were just giving away the advice like we tend to do, most of us are doing. Do you now sell that? Do you have a price that you put on it? Give me an idea of like, what does that look like? If I'm a client, what do I buy when it comes to advisory service?

Minal: So, I will speak to how I got started first before I come to your question. Just like many other accountant, even I had those limitations in my mind, how do I charge? How do I put in myself in front of client? And most of my colleagues are charging only couple hundred dollars just to prepare the tax return. And here I am. I'm asking thousands of dollars. I started slow. So, if my ideal pricing, say for example is $10,000, then I started like at 5, 6, 7, and slowly and gradually keep on increasing until I build my confidence because it's not that the client don't want to pay you. It's just that we are building our confidence.

It's just we are fighting with our own inner voice. Client want to pay you provided you bring that value. Now, putting into my perspective, I like to start all my clients on tax planning advisory services first. Once you start them on tax planning advisory services, showing value to them is very, very easy. The moment they can see the tax plan, which saves them 30, 40, 50, or hundreds of thousands dollars in taxes, that's it. You're done.

Blake: Right. Your fee in comparison to that savings is nothing, right? It's-

Minal: It's nothing.

Blake: All right. And it's amazing to me that... It's actually a very simple idea, but it's very powerful.

Minal: It's a simple idea, but see, the fear most accountant have, they don't want to lose clients. You have to be ready to say no to the client. We cannot be all do it for all clients and master of none. And that's where the challenge many accountants are facing. They don't want to niche down. They just want to focus on and taking every single client. Instead of losing a client to a competitor, they'll reduce their pricing even further, which is again, doing a lot injustice to yourself. Because I mean, it's my philosophy if client wants to work with us, they'll come at no matter what price point we have. I never negotiate on price, never reduce my price because someone else is selling cheaper.

Blake: So, you are pricing out clients in the thousands of dollars versus the hundreds of dollars. You have fewer clients. You're able to offer more services for them, and you are able to charge them the value that they perceive for those services.

Minal: Absolutely. So, it's kind of in a short language, you do less work. You have less pressure on the due date because you are filing way less tax returns. But you are paid way higher. So, to give you some perspective, my average client value is about $20,000. That's how much my client pays me on an average on a yearly basis. So [crosstalk 00:16:46] -

[00:16:47] What typical services are you providing a client?

Blake: And for a typical client like that, you said $20,000 annually. What services are you providing?

Minal: So, the services, it could be depending on complexities of the client how small or big the client is. It could be just tax planning and tax return preparation only, including quarterly meetings, or it could be tax planning, tax return preparation as well as monthly bookkeeping and quarterly meetings. The clients are looking at us as an accountant as if we know the holy grail of business. Clients trust accountant attorney as if whatever they say goes. But when we are not playing that role, we are just doing disservice to the clients and to ourselves because we have created that impression that we know the business, we have studied it. We are master and expert in this.

And they're coming to us and looking forward to this advice. I mean, there is not a single week I do not hear from my prospects, "I wish my accountant did this. I wish my accountant was proactive." We all can be proactive provided that we are not just focusing on tax preparation only work kind of having no life for four months and just kind of tirelessly working all seven days of the week, working 80 hours-plus less repairing taxes, just realizing that another accountant is charging a couple thousand dollars just for the same work.

[00:18:17] The difference between tactical vs strategic advice and showing value

Jorge: And Blake, if I could connect the perspective based on what we saw, what we observed, what we learned as we engaged our tax counsel. You asked the question of there's a lot of people, 74%. I can't remember the exact number. I think that's about right.

Blake: Oh, right. Yeah.

Jorge: They offer some level of advisory, but they don't bill for it. And I think it's really the difference between tactical versus strategic, right? You calling me on a given decision, and I'll tell you, this is what you should do, that's one thing. Then there's a follow-through too. Does the customer actually follow up? Do they see the benefit? But I think shifting to advisory becomes less about being tactical in what you tell the customer and more being about strategic, about how you're thinking about their business.

The other thing that you just heard Minal talk about that became incredibly apparent to us as we went through several days, hope Minal, you enjoyed all of that, that we had several sessions where we dove deep and we asked questions and was really the tax and accounting professional wasn't particularly good at showing the value or being able to articulate the value that they could provide their client. So just to connect the dots, not to the path, to the advisory, but to the product that we're building, well and the path to advisory speaks to that as well, to a certain extent. But in the product that we're building to help on the tax side of the house, one of our key tenets is to ensure that we can show you the benefit right off the bat with no effort.

So, you click a button, and it tells you, "Here's all the things you could do, and here's all the money you could save." What you could easily hand to a client to make it easy for them to understand that the value I'm talking about isn't worth that one minute decision. It's the thousands of dollars that we could save if we work together strategically, not tactically. So, I think those are just one of the key things is, how do you market your service? Right? You can tell somebody, "I think I can save you lots of money." But to actually take all of their data and do the work to show them how much money they could save is a ton of effort. So how do we make that incredibly easy so then Minal doesn't have to convince people or spend hours and hours and hours to show the value before the person adopts a service or pays for the service, but instead, we say, no, here's one artifact, but based on this very automated solution, you can spin out, and now again, you can offer this to every one of your clients, as opposed to just the limited number because of the time required?

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[00:22:36] Value billing clients

Blake: Yeah, that makes me think of the, on the consumer side of tax products, these tax calculators, where you go to a website, and you enter some basic information, and it tells you, here's what we expect your refund to be or how much tax you expect to owe. If you can have that on the advisor side and enter some key information and then spit out a number saying this is the range of what we think that we can save you if you retain us, that price again is an anchor. And if my fee as an advisor is a small percentage of that savings, it's a no-brainer. Why wouldn't I spend 10% of the projected tax savings on my advisor? It's a good ROI. Right? Good return on investment. And that's how business owners think. I think a lot of times we as accountants don't think enough like our clients do. And they're thinking about if I hire this person, what am I going to get for it?

Jorge: Well, what's amazing to me about that like is that accountants naturally think of that way anyhow? They're already built that way. So why don't you just transfer how you think to how your small business customer's thinking? Because you're thinking about your ROI. You're thinking about, "Should I serve this client?" You heard Minal say it. Do I keep this client; do I not keep this client?

Blake: Well, Jorge, to that point though, I feel one of our challenges in accounting is that we tend to think internally too much about our own costs when we price services. A lot of us do cost-plus pricing where we set an hourly rate, and then we estimate how many hours we're going to spend on this project, and then we bill out at that. But we are underpricing vastly the value of advisory services that are not linked to the amount of time it takes. Our expertise was earned over a lifetime of a career, and we might give somebody in 15 minutes, a piece of advice that could save them $100,000. So, do I only bill 0.25 hours for that? No.

Minal: Yeah. See that's where the value billing comes in place.

Blake: Yeah. And Minal, I'm curious about that. Well, you said that you price out clients, is it a monthly fee, fixed fee? How do you price it? Value first?

Minal: Yeah. It's a value billing always because I may be able to do it in 15 minutes or so because of my years of learning and intellectual. So, they're not paying for my just 15 minute of work. They're paying me for all of that hard work. And I liked the fact that you mentioned that most accountants are looking from the cost perspective and pricing it from there. Whereas, what we look in, what are the loopholes they have? What are the things that my client is not taking advantage of? And just kind of adding up mental math in my mind, rough math. And I kind of say, "Okay, I know that I can help this particular client with this, this, and this, and total of that comes out, okay, $45,000. I would easily charge them at least $15,000 to $20,000.

Blake: So, I think if I'm listening to this right now, and I'm currently providing tax returns, and that's what I'm selling, I'm sold on the idea of switching to a value-priced advisory type of service. The challenge is how. What do I start with? Where is a good starting point? Because if I've just been turning on tax returns now, how do I begin to offer advisory? Minal, do you have any insights from your own journey? And then Jorge, what have you learned from talking with the tax professionals and doing these surveys about the best starting point on the path?

[00:26:21] How do people start the transition to advisory

Minal: So luckily, in my case, I did have to switch the gears. From day one. I didn't accept any tax preparation-only client at all.

Blake: Got it.

Minal: But if I had it... I mean, if we were to go back, I would say, from many other coaches that I've seen, you bundle up, do the price increase and keep the client that stays with you. Let the rest of them go. You're working less hours with less number of clients, but your revenue will be still higher. And then I will focus on, number one thing is setting up the vision, as the guide says, setting up the vision, setting up your niche market. People don't realize when you are working with multiple niches, it kind of eats your hourly cost. So, if you have the same niche and you are kind of identified an expert in a particular niche, it kind of gives you a lot of improvement in your productivity and efficiencies as well. You are known in the market for that expertise. So, I think if I have to go back, that's where I will start.

Jorge: Yeah. I would say my observation from the firms that have done this successfully, because people implemented different ways. What I would say is no matter how you choose to go about it, take a step, right? Whether it's one client, whether it's how you monetize, whatever that may be, you want to take a step, and you don't have to do it alone. You have to learn. You can learn from others, and the path to advisory is nothing more than a compilation of, "Hey, here's some things that we've learned, some things that you might recommend that you take on."

What I have seen as it typically starts with a topic that you're probably very familiar with and something that's been changing over the last. Decade, it starts with billing. It starts with, do I go transactional, or do I move to value-based? That's where a lot of people start. And I would actually encourage people to take a step back even from that, because that's a very tactical move, which absolutely I'm a believer in, value-based billing versus time-based billing makes so much sense. But I think it does have to start with who you are and what your vision is, because if you don't create a vision for yourself and you don't understand what it will want, you understand your capabilities and what you're able to do or places where you need to invest to increase your knowledge.

But if you don't start with your vision, then your actions won't be connected to anything. And it'll be very difficult to say, "Is this action I'm taking aligned to my vision?" Well, when there is no vision, you won't know that. So, from a business sense, it's almost like you want to set up your principles before you start making decisions, because then your decisions are going to be weighed back against the guiding principles that you set up.

[00:29:10] Start with a vision and choose a niche

Jorge: So, my recommendation would be start with who you are, your vision. And it's very complex with what Minal said is, do you want to focus on niche? We're seeing a lot more of that. Or do you want to be a generalist? That's up to you. But that impacts your downstream actions as well. So, you have to kind of declare that upfront.

Blake: I feel like being a generalist is generally a losing proposition these days, because well, to your point, Jorge, you need to define your values first. You need to decide where you want to go as a firm, and those values often determine what type of clients are going to serve. Who do you get along with? Who do you want to work with? And then from there, you can decide, "Well, what do these clients, these prospects need from me?" And that's where you go out, and you get the education. You get the software. You learn how to provide that, whether that is entity selection, or maybe it's HR or income shifting. I mean, there's this great list in the white paper here on page 28 of all the possible different services that can be provided. And it's enormous. The opportunity is incredible. But again, that's going to depend on... What you pick from that list is going to depend on your clients. So maybe high net worth individuals are going to need a lot of retirement planning.

But some other business, if you serve businesses where there's not a strong owner, a family ownership situation, then maybe that's not necessary. Maybe you do some other tax type planning for them, like R&D credits for startups or something like that. Right. Startups are not interested in retirement planning. That's why there are startups, right? They're going big before they start to plan in that regard. So yeah. It's actually very exciting, I think for our profession. But you can't begin this journey if you have so many clients and so much work that you have no time to do anything. And I guess that's where raising prices, pairing your client list becomes essential because how can you grow something when you've got no spare capacity?

Jorge: With one exception, I would say, until there are tools that are available that take that capacity away or free up that capacity, I should say. I mean, I think you can make the same argument for tax software, right? Let's face it. 40 years ago, people were still doing returns on paper.

Blake: Oh, we still have those folks. They're around.

Jorge: Very few. We'd like to think that they're not out there, but we do know that there's still some service bureau-type models out there. But the amount of clients that you could serve, even from a tax preparation perspective was highly limited, right? But then here comes software, and software makes that process more efficient. Now you're serving more clients, and I think the same place I've been... And once again, as a solution provider for the industry, that's our job, right? Our job is, how do I make your work take less time? How do I enable it to put more money in your pocket or your client's pockets? Because at the end of the day, most of our firms have the same mission that we have at Intuit, which is we want to power prosperity for client, so do the accountants, right, and the tax professionals. They're trying to help achieve a better outcome.

So how do we put more money in their pocket, which translates into money in your pocket? And then how do we do it in a way that instills complete confidence in the work that you're doing? Just like the tax software, right? Today, you enter your data. You see the output. You look at it. You have confidence. You file it, and you're done. So, it's those three benefits that are kind of at the heart of everything that we try to do as a solution provider. But not to sound like a broken record, I think you want to start, to your point Blake, with clearly knowing who you are.

And what I would say is bring your employees along in the journey if you have employees. There'll be nothing that will get them more excited about crafting the future for the firm about helping to define their role within that future, to grow their skills in the places that they need. It doesn't have to be done in a dark closet by yourself. Now, obviously, there's a lot of solopreneurs, and that's just the reality, but bring your employees along, right? They have input that you probably haven't even thought about. That's the beauty of teams, right? Teams better than individuals, right? So-

[00:33:43] Need to move beyond the partner, staff mindset. Need to empower employees

Blake: I think we need to get beyond this partner staff mindset. That's an old model of this two-layer system where here's the decision-makers, here's the business owners, here's the experts, the knowledge experts. And then we got the people doing the work. And that doesn't work anymore. It's hard to attract and retain staff because they don't want to be staff. They want to be part of your team. They want to have input on the growth of the firm. I was just talking with a firm over in Providence, Rhode Island called GrowthLab. They gave equity to one of their 20-somethings because he's an all-star, and they want to keep them and retain him. And in a traditional firm, he'd have to wait 20 years to get to that point. So, I'm excited for that change, but it's going to take a rig big mindset shift, especially when so many partners had to spend so much time and effort getting where they got. It could be a little frustrating to then have to... that the younger generation doesn't have to do that.

Minal: Well, I don't think it's frustrating because if they don't do it now, very soon, they will be far behind.

Blake: Yeah. They won't have any staff left.

Minal: The biggest new challenge will them float for a while.

Blake: Yeah.

Jorge: Yeah. And I would argue that it's maybe not even so much about breaking down the entire structure of how your firm operates, but if it's instead opening the doors of communication and establishing a different mechanism where you're ensuring you're getting input and perspective from everyone. And yeah, you're always going to have somebody that has to, "Hey, you need to go do the taxes, or you need to go do this job." That's okay. But keeping them out of the conversation as to where we're headed as a firm is not okay. And that just comes from me from just living in the corporate world. Right?

Blake: Yeah. Yeah. These are lessons that we have learned in corporate America over decades, that this is how we inspire teams, and we need to learn those lessons too, so-

Minal: Yeah. I totally agree with what both of you are saying, Jorge, especially, what are saying, in corporate. We have to create that transparency in our firm. Just giving my live example, last year, we set the vision and shared with whole team, what is our one-year goal, three-year goal, and 10-year goal? And then this January, we revised it again, and we shared it again, one-year, three-year, 10-year, and we broke it down in quarterly. My team is so excited over the moon and they're like, "Everyone in the company is just taking the owner of what they do, and everyone is stepping up." I mean, it's not-

Blake: That's wonderful. That's wonderful here.

Minal: ... like I'm not having all the burden in my bag. I have been out of the business. I mean, I have been a lot of in and out due to health reasons in last three months. We haven't lost a single client. In fact, we have added more clients, and we are ahead of the game for this particular tax season as well. And company-wide, we are planning to take the day off [inaudible 00:36:56]. So, because my team is stepping up, now, when we share that vision with them, they feel like they have that sense of ownership. And they're going-

Blake: Yeah, that-

Minal: ... to provide the good feedback, and whatever we are blindsided to, they are there to cover us.

Blake: That's a beautiful thing to hear.

[00:37:15] The dream of owning a firm and not having to always be working crazy hours

Blake: And that's the real dream of owning your own firm is not having to be an employee of it all the time. Sure. You got to put in the time and the effort and the hours, and you got to check in every now and then. But there's ways to build firms that don't require us to work crazy hours all the time. And it's not that difficult. You've laid out actually, Jorge, a pretty easy starting point in the guide where you talk about doing recurring advisory meetings. And the idea is at least correct me if I'm wrong, but you could just take these existing tax clients and say, "We're going to raise fees, but here's what you get. You're going to get meetings with us, whether that's two times a year, four times a year, every month, maybe depending on the package you have."

That's really appealing to people to get that check-in point. And that requires nothing other than you making the time to do it, right. I always believe that if you're going to raise prices, you should offer something in exchange for that. Right. Otherwise, it doesn't go over so well. But if you say it's... And I'm thinking of one particular firm owner who wrote into me and said that he has 1,400 1040s, and he doesn't want to do another tax season because of it. It's just him and his wife, 1,400 1040s.

Minal: Wow.

Blake: Can you imagine? His life is just nothing but tax returns for four months. But I looked at his pricing and his pricing, a few hundred dollars per return. It's bottom of the market, and he could very easily double that? And what could he offer? He could offer, I'm going to talk to you more than once a year. We're going to formalize this. You don't feel bad about calling me. I'll be able to pick up the phone. So, there's a lot to think about, but also there's not that much to think about.

Jorge: Yeah, I think you're right. It's kind of like obvious, and I think the intimidation is what do I do first? And I think that's where there's another article I just was recently writing about. People have this belief that accountants are slow to change, right? And I've always, for a long time, and I've been in this industry for years on the software provider side, and I've always said, "It's not about slow to change. It's about methodical decision-making." And what I would say is break down those really daunting problems.

[00:39:40] Start small -don't have to make all the changes all at once

Jorge: You don't have to all of a sudden turn your entire practice its head. Do it on one client. This person that has 1,400 clients, they could easily reach out to one that they think is a really good fit and say, "I'm going to charge you 4X what I charged you before, but this is what you're going to get. And if that person bites, then guess what? That client is worth the same as four others. And you can easily start figuring out, how do I... I don't want to call it, call the herd. That's probably the wrong term. But do I make sure that I am maximizing the value that I'm providing to my client in a way that enables me to have sanity in my life and maximizing the value I'm getting for the firm. But it doesn't have to be, do it all at once. Give it a shot, try it.

Minal: That's where we get stuck. We feel like, okay, we have to do all at once, and then it becomes so scary. We keep procrastinating on decision, and then we put it away, although the tax season comes in. It's like just getting started is what is more important. And if we don't do anything else and you don't have any other resources, just this guide itself has laid down in the order you need to get started. And every quarter, if you just hit one particular section in the guide, that's it. In a year, you have transformed the whole practice.

Blake: I love that idea of just picking out the clients who you know want and starting with them because that's just money that we're leaving on the table. I also don't like that term calling clients or... Whenever I hear that, I think, it's not about that. It's about just as many clients as... There's always the clients that maybe we would prefer not to have as clients. That's just a fact. Right. But there's also the clients that really want more from us, and we're under-serving them. So, let's think about it that way. Who are the 10%, 20% of clients where they really want more, and they're willing to pay more? Let's find out. And we know who. We probably know who they are. I feel like especially if we asked our team, they would know who they are too. So that, again, going back to this idea of bringing in the team to help with it. Right?

[00:41:52] What technology changes came with the move toward advisory

Blake: Well, let's talk a little bit about technology and the time we have left, a few moments. Minal, I'm curious. The move to advisory must... Well, it doesn't have to be, but usually, it's paired with technology to make us more efficient. What sort of tech have you adopted in your firm this path?

Minal: The practice management system, I feel like is the number one thing that we all need, tracking our billable hours. Of course, the billable hours at each project level for our client, having the proper workflow system so that it's easier to scale and assigning to each team members so we know not one team member is overburdened versus other. Intuit practice management is fantastic. Carbon is good. We are using count in our case, which we started using before we found out about the Intuit practice management. And I'm like, at this point, we are so too much into it. I don't want to change another software very soon.

So that's kind of my pitch way that side. Other than that, more than technology, it's just having that right mindset. Technologies are there. But technologies are not going to work on its own. As a practice owner, we have to create that culture and kind of nurture our team. What is the end result we are looking to get? That's way more important because technologies are there, and the data is going to be available. But if you don't measure it, that technology is of no use. We have to measure it. Okay. What was our average hourly collection rate last week? Would I be tracking for this week? Did I spend a hundred percent of my time on client deliverables? Because as an accounting practice owner, you don't want to spend 100% of your time in client deliverables. And if you are, then we are just in the business, not on the business. I'm like, "My proposition is 30% on client deliverables, 70% on sales and practice management.: So that's kind of important proposition.

Blake: That's amazing. Because that's probably flipped from where most traditional firms are where it's 70%, 80% on client work. And then I have this maybe half a day or a day a week to work on modernizing the firm. And it just doesn't happen that way. Right? You can't do it.

Minal: No, you can't do it.

Blake: Yeah, can't do it.

Jorge: Can I make one other little add on something I've seen from a very successful firm that is really leaned into advisory over the last couple of years? She used to be part of the tax counsel as well. Sometimes when you think about technology, it's not about new technology. It's about the technology you're using today and whether you should continue. So, the example I'll give with that firm, which is in line with moving to advisory, value-based billing, niche markets, she made a realization pretty early on that what she could deliver to somebody who's using, and I'm going to use Intuit product, but this is the story, who was using QuickBooks Online, and the service that she could provide that client was radically different than the people that were using desktop.

So, she didn't so much say, "Stop using QuickBooks or adopt a new technology." She just said, "If you're going to be on desktop, it's not going to work. We're going to get everybody on online because this is the value I can give you." So, it goes back to you always want to lead with the benefit with the client, lead with the benefit, and they will listen. But it wasn't about new technology. It was about getting rid of the one that isn't enabling you to deliver that benefit.

Blake: And that's a great way-

Minal: I would say one of my most favorite software, QuickBooks Online, can't live without that. If client is not willing to use it, you're not my client.

[00:45:39] We need to lead the clients, don't let the clients lead us

Blake: I love that. And that is leading the client, right? We are saying you got to play by our rules to work with our firm, as opposed to letting the clients dictate our workflow and our tools. When I go to the autobody shop, I don't tell them what tools do you use to fix my car. Right? They decide. I just want the car fixed. Or if I go to the doctor, I don't tell him what surgical procedures to perform at me. That's up to him. Right? Or her. And so, we as accountants need to do the same thing as professionals. Wonderful.

Minal: That's a huge access point that accountants' standards are lower than an autobody shop owner.

Blake: Yeah, plumbers too, right? I mean, we have a lot to learn from other professions. And I think staying humble. And I like to look at what other industries are doing, other professions and learn from them. And I mean, we have a lot that we can learn just from software companies. I've been privileged to be in a few of them over the last four years, and it's incredible the innovation, just like a simple idea, like giving stock options to our employees. Some interesting way to retain talent. I'll tell you that. It really works.

Minal: It does.

Blake: So that's all the time we have today. Thank you so much Minal Babaria and Jorge Olive Arrieta for joining me today, it was a real pleasure talking to you. We will have the link to this white paper, the path to advisory, in our show. Thanks for putting this together. And I encourage all of our listeners to go and download it because there's way more in here than we were able to discuss. We just skimmed the surface of this. There is marketing, content marketing, tips in here, how to niche, how to create more capacity, how to plan even the project timeline, lots of great stats and technology recommendations.

Jorge: So, thank you. Thank you for having us.

Minal: Thank you so much.

Jorge: I'm only hoping that this was useful to other people because that's what I want. I want them to thrive. So, thank you for having us, and thank you, Minal. Great seeing you again.

Blake: Absolutely. And don't forget, listeners, you can get free CPE credit for listening to this episode. Download the Earmark CPE mobile app for Android or iOS. You can find it in the app store or go to earmarkcpe.com. Download it today. Thanks, everyone.

The Path Towards Advisory in Tax
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