CPA FIRMS MUST BE WILLING TO ADAPT RUN THE RISK OF BEING EXTINCT

Transcript:

Chris: Hello everybody! Welcome back with you again. I know we were on yesterday and so I thank you for taking time out to join us. This is a #BKOT episode number 33, and today we have the Partner of Heritage Family Offices in the Phoenix Arizona area, Michael Frost and what we're going to discuss is kind of adaptation with CPA firms and so who better else to hear it than one of your peers and colleagues. So Michael thank you for taking time out today to join us. So please tell us about what you do and a little bit about your background.

Michael: Yeah! Thanks, Chris, thanks for having me. My name is Michael Frost, one of the co-founders of Heritage Family Offices. We are a full multi-disciplinary practice oftentimes coined as a family office. We offer tax law, wealth management, insurance all under one roof. So I am one of the co-founding partners and so we do have a CPA firm, a law firm, an insurance company as well as a wealth management firm, all licensed and incorporated under one roof and started the company about a decade ago and we've grown the company via partnerships with CPA firms across the country. We've made a couple of acquisitions along the way, we've got about 40 employees, and we think we've got a unique business model we're proud of what we built.

Chris: That's awesome! So in starting all of this now, are you guys fully virtual, or have you moved over to that model or how is that set up now?

Michael: Yeah! We have always embraced technology as a company, and I think many business owners who have gone through this Covid journey with us can probably relate. I think Covid was somewhat a blessing for our company regarding embracing technology and training the clients who were a little bit more hesitant to meet with their professionals virtually.

So I think most of us as business owners can relate. We've been operating virtually since Covid started. And a matter of fact the leadership team at heritage has made decisions to really downsizing our real estate. We were in negotiations for about six months and before Covid hit and expanding our real estate footprint, simply because we were growing quickly and we needed real estate to put the professionals under a roof and then Covid hit we embraced technology, we all went 100% virtual and now it looks like we're probably going to maintain that as a company going forward. We've got some brick-and-mortar across the country. We'll continue to do that. I think that creates the synergy amongst all four of our professions to be able to see each other face to face but no I think moving forward I think operating virtually is here to stay.

Chris: Oh that's awesome! It seemed like you moved quickly in that process and so in working with your staff are you allowed to hire now outside the phoenix area or were you guys already doing that or how has that come into play?

Michael: Yeah! Our footprint is somewhat scattered and I made reference to building our business via CPA partnerships across the country, and it's those CPA relationships that have really expanded our footprint and so we're in 14-15 different states across the country, and they're not necessarily geographically concentrated. So I mean we're from Florida, New York, and New Jersey all the way to California and states in between and we've grown that organically via these partnerships and so as we come alongside other CPA firms and somewhat in a consulting role.

We've been looked at as somewhat of a thought leader in the industry in regards to what we've been able to do with our own CPA firm embrace technology, understand the services inside our own industry that's been commoditized and how do you automate that, and by doing so freeing up time and then how do you replace that time it's hopefully more profitable time spent for your business.

And so we've been successfully able to do that with our own CPA firm but it didn't happen overnight, it's taken us a decade to get here but now we're really able to leverage that track record and really show other CPA firms how to break through that ceiling I think a lot of the CPA firms can all relate to similar struggles of hiring and retaining the quality talent it's just so extremely hard to find and I think a lot of your viewers can probably relate to this if you are CPA millennials and the next generation that are graduating college are not hungry to enter the CPA profession. And so what do we do about it I mean it's a dying profession. In some cases literally, if you've hung around the profession long enough you hear the story of the CPA dying in the chair preparing a tax return and having a heart attack.

And there was no business succession plan to go around it right there's a problem here and I think we recognize that to be an opportunity and so we've leveraged kind of what we've been able to do with our own CPA firms and then consult other CPA firms to do the same.

Chris: So when you're partnering up with a CPA firm, what are the first three or four things that the firms should have already in place looking to maybe they're not too comfortable or tech-savvy yet but what should they have in place to get kind of ahead of the game and be agile for the future?

Michael: Would almost narrow it down to one particular thing because without it, there's no reason to even move forward and that's the mindset when you're working with CPA owners you'll find two categories and a majority of them fall into this one category of being stubborn.

And unfortunately and maybe some of your guests can relate to this CPA and they don't like change and if they're not at least conceptually interested in evolving, then it's probably not even worth exploring automation and outsourcing and other potential solutions to make your business more efficient because if you don't have the mindset particularly go there, you're going to end up getting in your own way.

So one of the very first things that we sit down and talk about with them with our CPA partner firms I am actually more interested in getting inside your head and better understanding your mindset of how do you see the professional services industry? What's the future look like for your business? What's the runway? Do you genuinely believe that you are the most trusted advisor in your client's life? And if you are I think we have an opportunity to capitalize that but you have to have the mindset to be willing to adapt and to change and oftentimes it doesn't take more than a 30-minute meeting with a CPA owner to understand. They're 30 years in practice, they're set in their ways and they don't have the mindset to at least conceptually explore kind of evolution or transformation inside their practice and so that is the very first step that we start with our CPA and if we can get over that hurdle it can be extremely mutually rewarding but we have found if they're just extremely hesitant we shake virtual hands and we wish him the best but it's usually not worth exploring after that.

Chris: Yeah! Well said I completely agree with that because it's the same thing what I am doing with clients as far as the whole offshoring concept and when if there's no buy-in or there's not everyone's on the same page at that manager, partner, leader level, it has to be everybody can't just be a couple of them or kind of in between, it has to be full buy-in so I absolutely agree and then it'll trickle down throughout the entire staff and then it'll create a cohesive open environment collaborative, rather than some people with the wrong mindset they're just not going to do it, yeah? No! you're right and so now they have the mindset and they're ready to take that next step, kind of provide some of the ideas of what you're doing with these clients, and is it just simply with technology or some other aspects of that?

Michael: No! Technology is a big piece, but it's only one piece of the puzzle. So once we get over mindset we actually do a strategic firm analysis. We essentially write a business plan on their business for us to successfully integrate multiple disciplines into existing tax practice. I must know their business intimately so we have a gentleman on our firm that's been a consultant in the industry with a phenomenal reputation, he gets involved and it takes time it's usually a four to a six-hour session we can sometimes break it into multiple meetings but we're getting into those details, What your staff looks like? How do you charge, Is it an hourly base is it fixed fees, is it value-based billing? Where's your revenue center? We want to understand your client base. How much of your clients do you actually influence? 

Let's take a deeper dive into the services that you're offering, which of them do the clients see value in, and let's be honest which have been commoditized? Because we want to pile up all that commoditized business and look to automate it and free up the time and then we're looking at the runway. What are you building your business for is do you have a business succession plan is there another generation to potentially pass this on to this all we consider all this when actually transforming a CPA firm into a family office, I may be gambling with this next comment in light of your audience I think majority-based being CPA firms but if I am being genuinely honest I have had the opportunity to spend a lot of time hundreds of CPA owners across the country and when I am sitting down with a new CPA I am usually sitting down with the smartest the technically smartest person in the room but what I have often found is their very poor business owners and what I mean by that is there is no succession plan in place the advice that their clients are coming to them for they're not taking their own advice.

And so when we get into a CPA practice there are a lot of similarities, it's the same ceilings that you oftentimes see all of them hitting it's the same common frustrations that they have with their peers in the CPA community and oftentimes they are technically brilliant but have never really taken the time to work on their business because as a CPA owner and CPAs that are listening they can all relate to this where's the time to actually work on your business, it is an extremely time-intensive practice and in all honesty.

A CPA profession in isolation if you're not able to build authentic build on it and offer other services I think you work really hard for mediocre pay and freeing up our CPA owners time is probably the most rewarding thing that we can do for a CPA owner because it actually gives them time to actually start working on their business and stop stressing out about the next tax season that's around the corner.

Chris: Yeah! There are far too many times there are situations with the owner, partner director they're just working too much in the business like you're saying and I think it's upwards of almost 60 to 70 percent and that means only 30 to 40 percent is working on the business and that essentially boils down to having whether you're five-person firm or a 500 person firm having the right staff in place and identifying and appointing leaders that can help you can't be the go-to person for everything. 

So in working with firms and they have technology in peace, we're comfortable working in this remote virtual environment. How do you go about their plans in regards to staff and specifically your thoughts too with offshore staffing?

Michael: I think it's the future and this might be a big bold statement but I feel like if CPA owners are not able to embrace that we do more than just offshore staffing, I think there's an additional technology stack that I think should probably accompany and we're a little biased in this but I think that should accompany the offshore is the ability to offshore the work that's been either commoditized or it is what it is you can't find the staff to hire it. 

And if you've looked at the economics between offshoring it's fairly black and white and so it's usually a combination between the two. I will tell you it's usually met with resistance. Again CPA owners do not like and do won't change the industry itself has been done the same way for the last hundred years and for those firms that have been passed down generation to generation just even the thought of outsourcing or oh my gosh this is a conflict of interest to my clients or how am I going to tell my client that someone offshore is actually going to prepare my tax return, let me tell you the client sees no value in the actual tax preparation itself, they want to work proactively with you to solve their problems they don't care how the document gets prepared and so if you can get over that outsourcing is a big piece of the puzzle, it's every one large step closer to freeing up time which almost no successful CPA has. After all, their work-life balance is all out of whack because they're hostage to their CPA firm.

Chris: Yeah! It's if you have all the right pieces in place then you could become that trusted advisor. So if you have the right staff, you have the right technology stack in place, you have a combination of and not just have to hire in your city or state but just good talent throughout the country and of course outside the country and when all that now is in place right now the firm can start the partner's owners directors can work more on the business. So when as far as a timeline I mean I know it's hard to put that but on average in working with firms when do you start seeing results with them or when do you start seeing some you know some positive feedback or some just some growth in general and working with them?

Michael: Yeah! We've gotten better on the timeline, keeping in mind we founded the company in 2011 so we're kind of approaching our 10th anniversary, in 2018 we did everything in-house. It wasn't until 2018 that we actually sold the majority of our tax practice got the ability to essentially build another tax practice from the ground up and embrace everything that I am talking about right now in the form of automation, outsourcing, and identifying.

The reality is the CPA truly is the most trusted advisor and I will probably conclude my comments kind of hammering that home but in the form of a timeline, it again goes completely back to mindset as well as the profile of the firm. For our sole practitioners that are listening, you literally have the ability to flip a light switch if you wanted to, if you are a sole practitioner with a couple of employees and you're again hostage to the CPA firm because you feel like you're just and let's be honest with deadlines being extended. 

I feel like we've been in a perpetual tax season since code started but you have the ability via the light switch with technology that's out there, with resources of yourself to free up time almost overnight by just embracing it, then the big question goes what do you do with the freedom time and where the light bulb usually goes off for our partner firms is when they identify, they realize that they really are the most trusted advisor because up into this point let's call it what it is amongst the attorney the CPA, the financial advisor and the insurance professional, the CPA is the most trusted, but they're oftentimes the least compensated when compared to those other three disciplines! 

That should be a wake-up call for CPA owners and it should realize the opportunity that they're sitting on. Especially CPA owners that have been grinding for 20-40 years before the tax cuts and jobs act when we used to be able to deduct tax deduct our professional services fee, I mean how often I can only imagine a CPA preparing a return with their clients sitting in their desk complaining about their financial advisor while their CPA who's getting paid twenty-five hundred dollars to prepare the tax return is literally deducting the thirty thousand dollars that they pay their financial advisor. 

That should be fairly eye-opening and we recognize that to be an opportunity and so with inside the culture of our firm we actually believe the CPA is the most trusted advisor and through the partnership program they should be able to be compensated accordingly and so to hammer that thought home in regards to timeline it's usually on their first successful case. They've embraced outsourcing, they've embraced technology, they've embraced automation, they've freed up that time and now they've replaced it with being proactive with their client which resulted in more profitable services like wealth management, legal, insurance which their client needs anyways they're going to get it from somebody why not get it from their most trusted advisor and now because of our structure they're participating on the revenue there have been we've written multiple six-figure checks to CPA firms that have been running a traditional CPA model for 30 years. 

When you take a six-figure check and try to back into the number of hours you would need to spend on preparing a tax it's almost mind-blowing that's when the light bulb goes off and that's when the momentum starts and that's when you actually see a real transformation away from no more managing billable time. Let's actually take control of our firm, automate the commoditized services and then replace it with profitable services.

Chris: Yeah! I have been working with entigrity for four years and over the last year would say almost half of my calls where the client is and we never used to talk about this so it was zero of my often calls now, it's like five often where they're saying I want to move into an advisor, I want to get into that advisory piece of the business, it's so prevalent nowadays, but you know it should have been there since day one granted but hey now they have the focus on their kind of retraining their clients and then they're structuring, they are onboarding more for new clients and so they're just hyper-focused on this which is good news to hear. So now you know as we talked about being the most trusted advisor now how can they just absolutely capitalize on this from this point forward?

Michael: Yeah! If you've got to be willing to have that heritage, we are passionate about education. And this is something that I learned very early on I got lucky enough to partner with the other co-founding partner of Heritage his name is Ralph he's really licensed as an attorney as well as a CPA by way of background although in the state of Arizona, you can through new past laws you can own a law firm as well as a CPA firm so although I am the founding partner and owner of these entities by way of background.

I grew up in wealth management insurance in Merrill Lynch and so when I met my business partner, one thing I learned really early on and Ralph is one of the most technically brilliant minds I have ever met, but what I found out I was always so intimidated by the CPA community and I think financial advisors tend to be that way, it's the CPA, it's the know-it-all, they've got their guard up because CPAs think that financial advisors just want to get into their book of clients and guess what you're right they do just want to get into your book of clients, they also think that financial advisors are overpaid for the advice that they give versus the advice that CPAs give you know what I would tell you I think you're right but what I learned I always thought that the CPA knew everything.

And once I got to come alongside and get inside the CPA firm and work alongside other CPAs you know what I found out they don't know everything. And a matter of fact I figured out the why the reason they've chosen not to invest a lot of their time in some of the more complex and advanced strategies they're very technically sound on and would say the basics of what you see in most common scenarios, but once it gets a little more complex they don't know it all. And the reason is they're not compensated if they're going to put their signature on the tax return they're going to put their reputation on the line. 

Why would they give counsel on something that is sophisticated or maybe falls in the realm of an aggressive position on a tax return or something like that and they just weren't they were just weren't trained to and we kind of embraced that when we founded the firm, so all the professionals that end up joining heritage come from some background you're either a CPA you're an attorney or a financial advisor and with inside that scope of that one profession if we've hired you you're good at what you do, but I can relate to this. 

I was never trained on any of the other disciplines and so to actually get some real momentum and be that most trusted advisor if you're a CPA listening, I think you've got to do what my business partner did and be willing to invest the time in the other disciplines so he came from a background of legal and tax but wealth management and insurance were extremely foreign to him and so what did he do he invested the time that gave him the ability to be in front of the client, identify the opportunity, provide the advice that may fall a little bit side outside the scope of tax and legal and here's where the light bulb goes off. You know we're the most profitable and scalable lines of services lie that's in wealth management and insurance not in tax and so if you're willing to invest the time it's usually rewarded in a much more scalable and highly more profitable line of service that usually follows the advice.

Chris: Yeah! So summing this upright a great conversation today because you first off you got to have a mindset right to have the right mindset and realize what you're worth to get the compensation and offering different services how you do that you got to get the education and so and it's not just you know one just doing bookkeeping unless you are the biggest bookkeeper in your state or town I just you need to diversify everything and so to do that it all starts with you know thinking of what your firm and your goals and not just today but in the future. So yeah well said and so as we wind down final thoughts for the audience today before we wrap up Michael.

Michael: Be willing to take a chance. Invest the time. The CPA is genuinely the most trusted advisor you have got the opportunity to capitalize that, if you are even conceptually interested you have got to lean into it right, you have got to, you have got to look at outsourcing solutions, you've got to look at leveraging technology, you have got to convenient sale cells. So the integration of multiple services under one roof clients are begging for this fact that they can get everything done under one roof, I will tell you that wins us more business than any sexy tax strategy that we could potentially come up with.

Chris: Yeah! A one-stop shop there you go. Alright well thank you for taking time out to join us today and to our audience thank you for taking time out of your busy day to join us as well and so we'll be back soon, for now, #BKOT checks us out and Michael again takes care to have a good rest of the week everyone else we'll talk soon bye.

Entigrity™ is a trusted offshore staffing partner to over 550+ accountants, CPAs, and tax firms across the US and Canada. Our flexible and transparent hiring model helps firms of all sizes hire staff for accounting, bookkeeping, tax preparation, or any other task for 75% less cost. As a firm 'run by accountants, for the accountants', Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management, still, you are left with least to worry about compliance, payroll taxes, overheads or any other benefits.