By Ira Rosenbloom, Chief Operating Executive, Optimum Strategies.
Private Equity (PE) has certainly been a headline-grabber these days—and it will likely continue to be so. Of course, taking a step toward PE or a Capital Partner is not the answer for every firm. To be a better practice, and to gain longevity and security, firm leaders must think and act in bold ways that should not be restricted to PE or Mergers and Acquisitions (M&A).
Think about the bold actions taken during the COVID pandemic. Firms had to adjust their practices to fit the new reality—and many did it quickly and adeptly.
Every firm—no matter the size—can take bold, positive steps to become more successful and sustainable. Here are 10 ways to strengthen your firm and perpetuate success.
- Develop operational partnerships and/or joint ventures with service providers.
Go beyond a simple referral fee or commission for sending work to outside service providers. Think creatively. Invest in the success of the line of service and grow it together. Be engaged in the partnership to grow the businesses.
CPA firms routinely refer out cost segregation studies, HR recruiting, technology, and cybersecurity just to name a few. Clients are going to need a growing list of services you’re not going to have. Create true joint ventures with the service providers so you all can have a meaningful stake in the growth and success of the service line.
- Partner with your staff in the outcome of engagement performance.
Look to team members to find efficient, quality methods of improving the way you handle jobs—and incentivize them in that regard with bonuses that include a reward for enhanced engagement performance.
Empower employees to find ways to improve profit margins on common jobs with enhanced technology and/or more pragmatic approaches.
Incentivize team members to prevent scope creep. Be sure you have a state-of-the-art time management system that can capture add-ons and monitor budgeted services.
- Collaborate with competitors on an outsourcing/offshoring platform.
There’s a big learning curve with offshoring/outsourcing at first. Many firms are at a disadvantage because they can’t cut the right deal with the right people.
If two or three smaller practices create an agreement with a firm offshore, they can come up with a better method of controlling the process. They may all need to engage a project manager to help.
- Live to a Technology Mission Plan
The rapid changes in technology and their impact on CPA firms requires not only an increased commitment of financial capital, it also requires a firmwide mission to lead through technology. No two firms are the same, so leading will vary and will require ongoing input from standard CPA firm technology advisors and nontraditional advisors.
Firms should create a technology advisory board to include local university professors, graduate students, and service providers to create a mission plan and to hold the firm accountable.
- Maintain a fixed percentage of firm revenue as cash capital.
Often, CPA firms will take out all the cash profit at the end of the year.
Except for a rainy-day fund, which is always relevant, leave cash capital to invest in new initiatives. Most major businesses do this. Set a percentage of revenue as the annual capital holdback and monitor it every other year
- Pursue fractional partners.
When it comes to succession and growing the leadership bench, accounting firms have typically followed a conventional path for partners.
Life and lifestyles require a new look for the partner position. Fractional partners need to be a part of your team. It’s more than simply a “part-time” position.
Fractional partners may have a smaller stake in the business but should be 100 percent invested in the client base they manage—and in the firm’s future. Fractional partners must have goals like other partners, but goals must take into consideration the fractional nature of their role.
- Create alternative practice structures: Add non-CPA equity partners.
Typically, PE-driven machines divide an accounting firm into sections. There’s usually one for attest, which PE can’t own since the owners must be CPAs. Then, there’s either a tax firm and an advisory firm or a tax and advisory firm.
There is nothing to say your firm can’t do the same thing. Make it easier to add non-CPA specialists who are essential to building your practice.
- Elevate average earnings for all by mandating profit escalation.
Set your goals for average compensation to be 10-15 percent above the reported information for a firm of your size. This is not just about paying more; it is about having the performance results to pay more.
Keep your base salaries on the higher end of market but create the true excess results by being ultra-profitable. If you have this kind of profitability, make it a business-wide perspective: Everyone should make more.
Broadcast the higher pay of your firm internally and use it powerfully to recruit.
- Cull clients that are in the lower 20 percent of profitability.
Twice a year—maybe after tax season or after the bulk of the year-end work and again before you start the next cycle—look at those clients that are not delivering the profitability you need to grow.
Design a profitability enhancement plan if you choose to retain the clients or just dismiss the clients.
- Emphasize value billing.
A significant number of services CPAs provide is not accurately valued with hourly billing. Firms must use a value approach so as not to penalize for speed and accuracy and to properly capture complexities.
At the same time, basic compliance reaches a peak in value. Use alternate billing rates to migrate to a value billing platform.
Find other ways to explore this method of value-added services, such as subscription, concierge, and membership-based approaches to better reflect your value. Add it into your billing.
CPA firms today need to be bold—and find every way to ensure their firm remains sustainable and successful. Be bold and make positive steps to become the firm you are meant to be.
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