Top 7 ways accounting and consulting firms can profit from risk management

Your accounting or consulting firm’s business acceptance and continuance processes do not solely fulfill a necessary risk management step; when handled effectively, risk management in accounting and consulting firms can also serve as a powerful tool for increasing your firm’s profitability.

This article looks at how implementing rigorous risk management processes helps your firm avoid costs and increase revenue.

Risk management optimizes the risk-reward balance for increased profitability

One of the main benefits of risk management in business acceptance is that it helps avoid risky clients that offer little benefit to the firm. Even more important, strategic risk management practices can identify clients that present some risk but also potential for significant upside. Over time, taking calculated and informed risks — and avoiding needless ones — will many times lead to increased profitability.

Robust risk management processes can drive private equity investment in your firm

If your firm’s goal is private equity (PE) investment, know that PE firms look favorably upon firms with strong risk management processes. A well-developed risk process signals to the PE firm that your firm has good visibility into the risks your clients pose to your firm as well as how those risks tie to the revenue that clients drive for the firm. The presence of such a well-developed risk process is a key metric that PE firms use when buying stakes in firms as well as a key piece of exit criteria.

For example, if an accounting firm has several clients that are high risk, a private equity firm will make sure that the fees the accounting firm generates from those clients are commensurate with the risk , and, if the fees are not commensurate, the PE house will ask the firm for a plan to right that ship.

Of course, whether your accounting firm would want to accept private equity investment would require its own separate risk assessment process, given that new PE funding can create independence risks.

Risk management focuses business development efforts on prospects that are worth the risk

Another advantage of having a rigorous risk management system in place is that it informs business development efforts. Your business development staff knows not to waste their time and resources on pursuing prospects your firm will deem too risky. Guided by your firm’s clear definition of acceptable risk, professionals can successfully target the prospects your firm would accept as clients.

Risk management supports a favorable impression

If a prospective client contacts your firm, they’ll gain a more favorable impression of your operations if the risk evaluation process is easy and efficient. That favorable impression can generate additional work from the new client as well as referrals to new ones.

Another way risk management can help your accounting or consulting firm win work is by showing risk-averse client you have a reliable risk process in place, such as the kind that the federal government would deem acceptable under the Preventing Organizational Conflicts of Interest in Federal Acquisition Act. This law incentivizes firms to have a reliable process in place for identifying organizational conflicts of interest. Prospective clients are likely to look favorably upon any firms whose risk management processes are rigorous enough for the federal government to accept.

Risk management helps your consulting firm avoid losses from bankruptcy work

To accept court-assigned bankruptcy work, a consulting firm must ensure it discloses any conflicts it may have with any of the hundreds and sometimes thousands of creditors seeking payment from the company declaring bankruptcy. Manually checking such a list would be burdensome and error prone. And if the consulting firm misses a conflict that’s discovered later, the court has the right to end the assignment and deny the firm payment for any work already completed.

Having the right risk management technology in place helps avoid this risk.

Risk management helps your firm avoid costly lawsuits and reputational damage

Another risk is onboarding new clients that may be excessively prone to suing their hired firms for malpractice. When your firm has proper business acceptance and continuance risk management processes in place, there’s a better chance of identifying potentially litigious clients. In other words, effective risk management helps you avoid significant legal costs and the costly reputational damage that results from lawsuits.

Risk management helps your firm grow in a careful, effective way

Accounting or consulting firms that are growing need a reliable risk management process in place for business acceptance; otherwise, as your firm scales, it may take on unnecessary risks that could damage your firm’s long-term prospects.

A manual conflict-checking process will prove unworkable as your firm scales, particularly if you begin auditing public companies.

Risk management in accounting and consulting is too important to risk neglecting

Given the many benefits of an effective approach to risk management in accounting and consulting business acceptance and continuance, having an inadequate approach is too great a risk. Why not eliminate that risk with a trusted partner?

Intapp helps your firm establish a reliable risk management system that accelerates acceptance and continuance procedures while providing a comprehensive view of your risk landscape. Learn more about our approach and the potential upside to your firm.