Accounting firms need to stop trying to control their clients and instead focus on empowering them.

After starting my career in investment banking and now regularly working with accounting firms using Modano, something has become very clear to me: The primary motivation of investment bankers is greed while the primary motivation of accounting firms is fear.

But both sectors share a penchant for controlling clients as a means of managing their own insecurities.

I will never forget a conversation I had with one of my senior investment banking colleagues after I asked him why more of our large clients didn't have their own high quality financial model, and instead relied on their advisors to build one for them for each deal. "That would be a disaster!", he said, "How on earth would we control the transaction if we didn't control the numbers!".

This exchange really affected me, as it was irrefutable evidence of the fact that investment banks knowingly create this dynamic of control over clients, which shattered my idealistic beliefs that investment banks were actually there to empower their clients.

Ultimately, this realization was one of the primary drivers behind me leaving investing banking to found Modano, which was by the way originally called Best Practice Modelling (BPM) Analytical Empowerment Pty Ltd. Yes I was young and na?ve, but to this day empowerment remains a passion of mine, and a key part of our mission at Modano .

So from this perspective you can imagine how frustrated I have become speaking with many accounting firms over the past 10 years that are adopting a very similar controlling approach to their clients to protect outdated service offerings. Here's how the conversation usually goes:

Me: "Do you build financial models for your clients?"

Accountant: "Sometimes. But our main service is providing them with regular reports providing a snapshot of their business."

Me: "And that report is static? It's not a model?"

Accountant: "It's a glossy PDF we email to them."

Me: "So what if they want to run some scenarios and see how their numbers look based on different forecast assumptions?"

Accountant: "We do that for them."

Me: "But aren't you just changing assumptions in a model? How does that work?"

Accountant: "They email us the assumptions, then we enter them in the model and send them back reports showing the outputs."

Me: "Why wouldn't you just let them run the model themselves? That's a bread and butter capability they should have in-house!"

Accountant: "They don't want to do it themselves. And besides, it's way over their heads, they're not that sophisticated."

Me: "Have you ever tried providing them with a model and walking them though how to use it?"

Accountant: "No! I don't want them doing it. That's what they pay me for!"

Most accountants will relate to this conversation, and I completely understand why they do. But it doesn't mean it's OK. And ironically I believe it's the key dynamic that's limiting the growth potential of most accounting firms and the depth of their relationships with their clients.

“My clients aren’t that sophisticated”

This is the most common justification I hear from accounting firms not empowering their clients. I've actually heard it more than 1,000 times over the past decade. And it's very na?ve and patronising.

The reality is that your clients are sophisticated, they often just lack the basic financial and accounting education to understand how to analyse their business. And a key part of your role in your relationship with your client should be to provide this education, not use this lack of education to insure yourself against some perceived loss of fee revenue from them being able to self-service.

Most clients, especially those running successful businesses, have taken huge risks starting their own businesses, hired staff, obsessed over their products, services, market and pricing, So they are more than capable of understanding financial statement fundamentals and key things like profitability analysis, working capital management and scenario analysis.

Yes, there are some golden goose clients that love outsourcing everything - those who call you and pay you high hourly rates to do data entry and don't want to go near a financial model - but from my 20 years of experience I've never met a business leader who doesn't yearn for more clarity and control over their business. And refusing to empower them with the core skills to analyse their own business financials is nothing short of neglect.

As I will discuss further below, it's also something that will be limiting your firm, and costing you money, rather than cementing your future revenue streams.

“My clients don’t want to do it themselves”

The other common justification I hear from accounting firms not empowering their clients is that their clients simply don't want to do it themselves.

I always find it hard not to laugh when I hear this, as I can't help but think of when my 5 year old son tells me he won't give the remote control car to my 3 year old son because "He doesn't want a go!" Nice try buddy.

The reality is that the majority of business leaders want more control, not less. They don't want to outsource the understanding of their business to expensive third party consultants and then rely upon them every time they make an important decision. They've just been forced into this position by the dynamics I'm discussing in this article. And this needs to change.

Trust and believe in empowerment

At the heart of the unwillingness of many advisors to empower their clients is insecurity. Put simply, they are scared that if their clients figure out how to do things themselves then they won't need them anymore.

This fear is completely understandable, but also akin to an emu burying its head in the sand. The world is moving fast, and technology is driving rapid change, so any advisor holding on to deprecated business models that aren't in the best interests of their clients is simply delaying the inevitable.

From a more positive perspective, there are enormous opportunities available to advisors willing to change their client dynamic to be one based on empowerment, and this is something we've seen both within Modano and across many of our more leading edge advisory users.

Many accounting firms state that they provide advisory services on their websites, but most of these aren't doing much more than basic reporting which, while very glossy, rarely helps their clients gain clarity and control over their business and its value and risk drivers.

Truly valuable advisory services require understanding how your client's business works, reflecting this in a driver-based 3-way financial model - ideally live linked to their accounting package and containing scenario analysis - and then empowering your client with the clarity and control that this understanding and capability provides.

Modano has been doing just this for 20 years, and found that clients are willing to spend a lot more money being empowered than they are being controlled. Even small businesses with less than $5 million in turnover are often willing to spend $5k - $10k per year to gain internal clarity and control, which represents a multi-billion global fee market that remains largely un-serviced by accounting firms.

So even if your firm isn't overly interested in empowering your clients, try thinking about the money you're not making from your current approach and empowerment might quickly become a lot more appealing.

And that will be a win for everyone.

Onwards

Michael Hutchens

CEO | Modano