Whether you procure services from the Big Four, middle tier firms, or smaller local firms, there are some common strategies that will help sourcing and procurement teams to maximize the value they get when buying services from accounting firms.
This piece does not focus on pure, cost-driven commodity buys, where you don't care who is providing the service or what levels of expertise they have, and the scope and deliverables are very clear and pre-determined. In that case, procurement professionals have all the tools they need to run RFPs, set up competitive auctions amongst competing suppliers, push on price, and contract effectively. That is your bread and butter, and we don't have too much useful advice for any professional skilled in that mode. BUT -- beware of assuming that all of what you seek from accounting firms ought to be in that mode.
For many services, your internal clients care very deeply about the quality of the service you procure, the expertise and experience of service providers, the working relationship with the accountants, their level of knowledge about your company, and the value of the advice and management insight they get (For more on key supplier negotiations, see this link.
Where value, and not just pure cost, matters to you, here are some simple rules of thumb to keep in mind:
Find ways to lower the cost to the accounting firm providing service to you
At the end of the day, every professional service firm is selling their time. Even when the engagement is contracted on a fixed-price basis (rather than "time and materials," where the meter is running and your bill is for a number of hours by level of professional), the service provider invariably thinks about the profitability of the engagement in terms of the hours required to get the work done. One way to the lower cost to you, without sacrificing any quality, expertise, attention, or product, is to help them be more efficient and productive in serving you. Look for ways that your existing internal team can deliver work papers, reports, and data to the accounting firm at a time, and in a form, that is most efficient for them in terms of their work processes. Once you have a tentative agreement on the scope of services and fees, make sure you ask: "Is there anything we can do to make it easier for you to perform the engagement; anything we might do to enable you to save some time and us to save some fees?"
Negotiate rates and hours, not just total fee level
This is counter-intuitive for some procurement teams -- especially those who put "savings" up on their "scoreboard" based on reduction in prior year's fees. If the work for your company is growing from year-to-year, based on increasing size, scale, and complexity of the services you require, holding the fee constant could actually be a huge "win" for you. If you can get the firm to commit to a 5% decrease in rates, even though the hours will increase substantially, that is effectively a discount of 5% from last year's fee, even if the bill has risen from year to year. Similarly, if your auditor has new procedures that create greater automation or more efficiency, or is able to move substantial numbers of hours offshore to an Indian affiliate, at least some of the benefit from reduced rates and/or hours should be passed along to you -- if you just look at gross fee levels, you may miss some of these opportunities for gain-sharing in a fair way.
Look for low-cost things you can do to give value to the accounting firm
Your accounting firm may be willing to reduce your fee in exchange for things you can do that cost you nothing at all (and, even if they will not reduce the fee, they may still give more value through preferred staffing, better access, and extra advice). It is always worthwhile asking about this. Some of the kinds of things that give value to the firm, at no cost to you, might include: (a) introducing them to executives from other companies; (b) referring them to others in your network; (c) participating in a business event (e.g., serving on a panel of presenters) jointly with them; (d) promising to "consider" them for future work; (e) letting them know early about opportunities; or (f) offering to serve as a reference account.
Look for low-cost things they can do to for you
As you get close to finalizing your arrangements, check with them to see if there is anything they might be able to do to add additional value to you (e.g., additional management advice; feedback on the performance of your finance team; benchmark data they may have; insights into more efficient processes and procedures; referrals if you are recruiting). They might not have anything, but there might be something they could easily pass along that would add value -- you never know until you ask.
Negotiating with your accounting firm may initially appear to be a "win/lose" dynamic where every marginal dollar you add to the fee hurts you, and every dollar of fee reduction is a dollar less for them. However, keeping the simple tips above in mind may enable you to turn some of the conversation into a more collaborative, joint discussion about how to expand the pie, rather than just a distributive conversation about the size of the fee.
- Mark Gordon, Partner at Vantage Partners