Reflections on HABU: No One Knows it All; But A Network of Experts Can Get You Close

Accountants want to help, that’s why they’re in the business. Taking a more consultative approach – rather than sticking with the technical must-dos – can not only make your firm more valuable to your clients’ successes, but also more profitable. 

For evidence, look to INSIDE Public Accounting’s (IPA) 2022 Best of the Best, the highest-performing firms among the 574 that completed IPA’s survey this year. Outshining their peers in dozens of financial and operational metrics, these firms are also putting a stronger emphasis on advisory services than other firms.

For example, business advisory and management consulting account for an average of 19% of revenue for the Best of the Best, compared to just 7% for all other firms that reported revenue from this area. And non-compliance work overall makes up 35% of net revenue for Best of the Best firms, compared to 30% for all others.

The shift from compliance to advisory services has been a hot topic in accounting for years. That’s why Engineered Advisory’s recent Highest and Best Use (HABU) conference in Plano, Texas, introduced CPA firm leaders to experts in a variety of non-traditional, customized services through 25-minute presentations and lengthy networking breaks. The conference served as an incubator of sorts, said Jeff Pawlow, president of the Engineered Advisory family of companies. “I’m never going to be the subject matter expert in 20 things, so I’ve got to partner with people I trust.”

One area where firms can benefit from referral fees, and clients can improve cash flow, is through various tax mitigation strategies. And HABU presenters had plenty of potential options to consider:

IC-DISCs (Interest Charge Domestic International Sales Corporations) – David Spray, president of Export Advisors, says an IC-DISC is a separate, tax-exempt legal entity that benefits exporters of U.S.-produced goods. Because so few companies are eligible ­– maybe 1 in 100 – it’s one of the best-kept secrets of the tax code, he said. Privately held companies that export at least $3 million a year of U.S.-made products may be able to take advantage of the significant federal income tax savings.

Aviation Tax Advantages – A panel of experts explained how to lower the cost of aircraft ownership by streamlining operations and taking advantage of generous tax rules relating to depreciation. Bart Peters, founder and managing attorney of Business Aviation Law, says business clients tell him they won’t buy an aircraft unless they can write it off. “The good news is that you can.” Some write-offs are allowed even if the aircraft is used primarily for personal purposes.

R&D Tax Credits – Kim Lochridge, executive vice president of Engineered Tax Services, says R&D tax credits are underutilized. Even if businesses are operating at a loss, owners can still take advantage of the credit as long as the projects meet a four-part test for eligibility. R&D tax credits are often audited, so it’s important to get it right. She urged CPA firm leaders to educate themselves on how clients can benefit because they are getting numerous pitches from competitors offering to do R&D tax credit work. “Your clients are going to call you and say, ‘Why didn’t you tell me? I just got $100,000 worth of R&D tax credits.’ ” 

Reverse Sales Tax Audits – Businesses that inadvertently overpay sales or use taxes can seek a “reverse audit,” a detailed review of business operations to identify the overpayments and recover those costs. Attorney Alan Tsarovsky of Tax Advisory Group said firms with manufacturing clients with facilities in multiple states, with multiple tax credit programs, may be good prospects for this type of service. New Jersey, for example, offers capital expense credits, while Georgia offers workforce training credits. Tax Advisory Group can efficiently identify overlooked tax credit programs, calculate the benefit, provide a transparent report and provide audit support, he said. “We want a deliverable where everyone is high-fiving.”

Non-traditional advisory services like these can differentiate your firm. Alternative business models are emerging that result in happier clients and more profitable firms, such as a firm Pawlow mentioned that moved entirely to advisory services two years ago. Now it’s four times bigger and no one is working crazy tax season hours, he said.

While some CPAs are moving ahead with confidence, some aren’t sure where to start, or they’re working so hard they don’t believe they have time to reimagine their businesses. Make the time, Pawlow advised. “Have you ever been too busy and not had enough time to stop and get gas? Think about that for a minute.”

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