Bill Gates' Win-Win Scenario for CPAs

Microsoft sees business systems consulting in small firms' future.
BY RICHARD J. KORETO

EXECUTIVE SUMMARY
  • WITH GROWTH IN CORE accounting services flat, small CPA firms should turn to consulting to grow their practices.
  • BIG 6 FIRMS ARE GETTING nearly half their revenues from consulting, and the same opportunities are there for small firms and their small business clients.
  • TECHNOLOGY IS THE KEY to helping small businesses grow. According to Bill Gates, CPAs are trusted business advisers well suited to providin g their clien ts with what they need to prosper.
  • THE IN TERNET IS JUST one example of how technology is changing the face of busin ess-and consulting. MCS engagements can be performed on line.
  • CPAs will need to learn how to choose a business model; create models for staffing, education, pricing and service delivery; get started with strategic planning; and effectively use the technology tools of today and tomorrow.
RICHARD J. KORETO is a Journal news editor. Mr. Koreto is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.


A vanguard of CPAs is pushing the envelope to provide new consulting services unheard of just a few years ago, and it is using technology to do it. Practitioners are advising their clients on improving business processes by offering consulting on a variety of business systems. These engagements use technology for spreadsheet consulting, conducting engagements through e-mail and helping clients set up Web sites, as well as consulting on broad processes such as accounting, manufacturing, human resources, document management, customer management and sales order systems. In addition, the American Institute of CPAs special committee on assurance services has identified assuring the quality and security of electronic communications as an important new service. CPAs need to advise businesses on issues such as taxation on money transfers over the Internet and finance systems that are challenging the traditional paper audit trail.

With so many changes in the way businesses and CPA firms are now run, CPAs have to pay closer attention than ever to changes in technology. No company has initiated more changes in personal computing, for as long a period, as Microsoft. Even CPAs who are not using Microsoft's Excel or Word probably own computers with Microsoft Windows or MS-DOS. Recently, the Journal spoke with Microsoft founder Bill Gates, who has been changing the way PCs work as long as there have been PCs. This leading technology visionary shared his thoughts not so much on what Microsoft will be offering around the corner but on what forward-looking CPAs should do to become the premier strategic business advisers of the 21st century.


WHERE DO YOU WANT TO GO TODAY?...
Microsoft's tag line might well apply to CPAs. Should they risk a move into consulting-will this put their safe, traditional tax and audit practices in jeopardy? But with tax and audit service growth flat and consulting services growing, "the real risk," said Gates, "is not doing anything." Take small businesses, for example. Gates pointed out that they can buy inexpensive programs to handle their bookkeeping, but they are starved for advice on how to grow their companies and use technology to achieve growth. They're running businesses-they don't have time to become technology experts. "CPAs are the perfect candidates to meet these companies' needs. They know their clients' financials inside out. They're trusted. They understand how to offer cost-effective solutions to problems. You add technology skills to these skills and you've got a winning combination."

Ultimately, said Gates, there is no avoiding risk. "But if you have a passion for helping your client build great business systems, I'd say the risk is low. And if any group knows how to assess risk, it's got to be CPAs."

CPAs can be confident there is a market for their consulting services. The United States has 7.1 million small businesses, nearly 4 million of which have fewer than 5 employees. In 1996, the Big 6 accounting firms saw an enormous 43% of their revenues coming from consulting while small firms realized only 5% from consulting. And yet the same opportunities exist for small firms: Small family-owned businesses-the ones that have been coming to these small CPA firms for tax returns year after year-have little idea what business systems they need, even though technology is the key to their growth. (And the smaller the business, the less likely it is to use technology.) Who know their businesses better, who have been their trusted tax advisers for years? Their local CPAs. "I see consulting as an inevitable change and a real opportunity for the traditional small firm to diversify and grow," said Gates.

Where the future is . As an example, Gates discussed how one technology in particular was going to change all businesses, big and small, and thus open up consulting opportunities for small firms. "The Internet is the most exciting technology development for CPAs or any businessperson today," he said. "In the next three to five years, communications between desktop systems and computers around the world will become quicker and more seamless. One computer screen will allow you to pull information off your hard drive, off the company's local area network (LAN) or off a server located in Singapore. There will be no difference." Within this interface, tools that CPAs use often-such as word processors, spreadsheets and databases-also will be integrated. The speed of accessing and managing information will increase enormously for those who have the know-how.

Many CPAs and other businesspeople even now are concerned that security issues will severely limit Internet consulting. Indeed, the AICPA information technology committees picked security as the most significant technology affecting CPAs. But Gates sees technology solutions on the way. "Available now are several levels of security," said Gates. "Some programs have a simple password. Others have a challenge-and-response system-like two secret agents giving each other complementary code words-or secured online sockets, or connections, that are encrypted." Many consumers, for example, are worried about sending their credit card numbers flying unsecured into cyberspace. But Gates said there are new industry standards for sending such data over the Net. "The merchant no longer will see the credit card number, just some indecipherable bits indicating the card company has approved the transaction. This is even more secure than a purchase over the telephone." Gates said Microsoft, and no doubt other companies, would be offering more options in the near future to reassure businesses it is safe to trust the Internet with sensitive data.

As the Internet breaks down the geographic restrictions on small firm engagements, the National Association of State Boards of Accountancy and the AICPA are breaking down the regulatory ones. As announced recently (JofA, Apr.97, page 4), the two groups reached an agreement on allowing CPAs to cross state lines, in person or through the Internet, to perform engagements. Some small firms are already performing national and even international consulting engagements.


...AND HOW DO YOU GET THERE?

Percentage of Big 6 revenue from consulting:
43%
Percentage of small firm revenue from consulting:
5%
Small business in United States:
7.1 million

Microsoft and the AICPA have formed an affiliation to help CPAs expand their knowledge (see "Microsoft and Institute Join Forces," JofA, Jan.97). In cooperation with the AICPA, Microsoft, Great Plains and Compaq are sponsoring the Partners' Conference, June 1-3, as described in the April Journal (page 16). At the conference, CPAs will learn how to start building a consulting niche in their practices. "They will not learn how to set up a LAN or how to create custom Excel spreadsheets for their clients," said Matt Davis, Microsoft's marketing manager for the accounting profession. "The affiliation and conference are not about selling products; they are about knowing why a CPA partner should devote human and capital resources to developing a consulting niche and what tools and strategies are necessary. We do not see increasingly sophisticated technology as an end in itself but, rather, as a means to a more profitable, efficient client." That is, businesses will not buy more sophisticated software and hardware just to have the latest in office tools. However, as they come to realize many of their problems have solutions in technology, they will, with their CPAs' advice, use technology to remove barriers to growth.

At the conference, CPAs will learn

  • Which business model will work best for their firms.
  • How to create models for staffing, education, pricing and service delivery.
  • How to get started with strategic planning.
  • What the technology tools of today and tomorrow ca
  • do for firms and their clients.

Davis emphasized that contrary to what many CPAs thought when the initiative and conference were first announced, there would be no push to buy or sell Microsoft products as part of setting up a practice. "At the heart of any consulting engagement almost always lies a solution based in technology. As CPAs create consulting niches, they may have to buy more software and hardware and advise their clients to do likewise; obviously we hope-and expect-a lot of this technology will come from Microsoft. But what CPAs learn here will be applicable no matter whose products they or their clients use."

Who benefits? "I see the ideal client owner or manager as the one who says to his or her CPA, 'I want to grow 10% next year. You know more about my business than anyone. How can you help me do it?'" said Davis. "Frankly, I can think of very few business clients that wouldn't profit from a CPA consultant."

"Computers already can do most of the number-crunching and data-intensive work CPAs used to do," said Gates. He should know; Microsoft made much of that possible. "So to grow, or even to survive, small CPA firms will have to expand into consulting." But he concluded on an upbeat note: "The combination of business acumen and technical competence is unbeatable. Fortunately, the prepared CPA is the best person for the job."

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