Bookkeeping vs Advisory Services

For the most part, a tax return or a financial statement will look similar no matter who prepares it. That’s not to say that bookkeeping isn’t important, in fact it’s the foundation of your business plan. It’s just to say that most firms are going to prepare your tax returns, financial statements, and compliance reports the same way. 

Advisory services are different. They require specialization, planning, expertise, and strategy. Advisory services are tailored both to your business and by the person giving the advice. We thought it might be helpful to take a look at paying an accountant for JUST standard bookkeeping vs paying a CPA firm for advisory services. How do you know when you need both?

What is an advisory service?

At its core, advisory service is the concept of taking complex ideas and distilling them down to simple, streamlined explanations. An advisory service takes information you got from bookkeeping and creates actionable plans for you to take with your business. 

When it’s working correctly, your advisor (CPA) will give you tailor-made advice based off your business and the advisor's previous experience. Here’s what an advisory services isn’t: It's not a CPA telling you what to do. Instead, they’ll provide you with options you’ll have on how to move forward – then empower (educate) you to make decisions. 

An example of advisory service for an auto repair shop

Here’s a good example of how advisory service might work. Recently we talked with an auto shop owner and went over their latest financial statement. In it, we noticed that they weren’t as busy as they had been in the past (and should be now). We asked a couple of questions to understand if it was a volume or car count issue – or if it was that they weren’t closing as much on the leads they had. 

It turned out that this company had lost a great service advisor and had replaced that hire with someone internally who didn’t have training (and their heart wasn’t in it). That person was paid significantly less than what it would cost to replace a service advisor at a competitive salary (about 90k). The shop owner said that they couldn’t afford it.

The way we saw it, they had two options.

1. They could train the person they have now, invest in them, and hope that eventually they could close at the same rate.
2. They could hire someone at that 90k price point to get back to the conversion rate their shop was used to.

Ultimately, that decision is up to the shop owner, but it’s our job as an advisory service to give them the best options available to them. 

How to decide which CPA firm to go with based on advisory services?

This one is pretty simple, since advisory services are so often tied to experience – you’ll want to work with a CPA firm who has clients who already work in your industry. Shop around, but you’ll probably want to go with a CPA firm rather than a single “yearly” type accountant. Why? Well, most of those operations are one-man-bands. If they’re bogged down in the day-to-day tasks, it’s going to be hard for them to get above the weeds to focus on your advisory needs. 

Are there legal or regulatory requirements for providing advisory services like there are for bookkeeping?

It’s funny, there are no regulatory requirements. Maybe that’s because the advisory component is so individual to the company, but for the most part there aren’t any regulatory requirements. In fact, many times new CPAs will still be trying to find black and white answers, since that’s what the CPA exam requires, instead of looking for several options. 

Can I receive advisory services on a project-based system or does it necessitate a long-term engagement

The easiest way to understand this is to understand how advisory services work within the plan of your business. Think of this as a three tiered system. 

1. Bookkeeping is the act of gathering accurate data and getting it into your system. This is the most basic function of a CPA’s job.
2. Accounting is the act of taking that data and creating it in a presentable, accurate form – like a financial statement.
3. Advising is the third step, after you have the necessary information and can act on it to better plan your business.

You need all three steps, so when a potential client comes to us and wants to skip straight to advising, it gives us some pause. Internal accounting needs to happen first (things like collecting bills and recording sales), then you need good external accounting (financial statements), before you can move on to where you want your business to go. 

That said, it’s natural to want more advice on big one-off projects like opening a new store or retargeting a growth strategy. For that, you should never be afraid to contact your accountant or CPA firm to get advice on those decisions. 

Is *just* bookkeeping services ever right for a business?

Yes, absolutely. Some businesses, especially small businesses, may not need the extensive planning and advisory services as other businesses. It doesn’t mean that they shouldn’t be thinking this way or working on their business, but that’s a question we ask potential clients all the time:

Is it worth it? 

When we ask that, we’re asking for both of us. Is the ROI that you’ll get from hiring a firm like Kaizen the right answer? Well, the answer isn’t always as clear as just judging the size of your company, which is why we evaluate these situations on a case by case basis. Instead, it’s about your business’s needs – which is why it’s important to book an interview call with any potential CPA firm you may be interested in. Learn what their style is, learn how they communicate. With these ideas more fully realized, you’ll be able to make an informed decision about your next CPA hire. 

If you're looking for an experienced advisor, schedule a call and let's talk.