CPA Trendlines

14 Clues Your Firm is Headed for Merger

And 5 things you can do about it.

by Rick Telberg

The next 15 years could see as many mergers or acquisitions among accounting firms as we’ve seen in the last 100, according to conventional wisdom.

The reasons, of course, are well-known: simple demographics. The baby boomer generation that built today’s CPA industry is facing retirement. And the accounting business is not alone. Indeed, U.S. industries across the spectrum are facing the same issues of wealth transfer, knowledge shortage and looming changes in ownership control and management culture.

So every CPA and finance executive could be affected by this megatrend in one way or another.

If you’re planning to retire any time soon, the rest of this article is not for you. You either know what you need to do or it’s too late to help you.

But if you belong to the next generation of CPAs, the generation that’s going to take over from today’s retirement-minded partners and managers, then read on. This post is for you.

While the baby boomer generation plots its exit strategies, many among the Millennials, Gen X-ers, and Gen Y-ers are chomping at the bit.

Dominic Cingorelli and Bill Reeb are here to help you catch the signs of an impending merger at your firm.

Both are CPAs and consultants to the profession through The Succession Institute and the new two-volume set on succession planning, “Securing the Future.” The set may be as relevant for up-and-coming partners-in-training as it is for anyone structuring a firm strategically for the future.

Look for these eight signs that your firm will be shopping for an upstream merger when the partners-in-control come to believe:

1. We can get more for our retirement benefit from a merger.

2. We don’t believe that the remaining partners have the leadership ability.

3. We don’t believe that the firm will stay together after we leave.

4. We have some partners who refuse to be held accountable.

5. We are short on talent, either at the junior-partner level or the next tier down.

6. Our financial results are not particularly shiny.

7. We have a specialty niche and talent pool that requires a bigger client base than we can access.

8. Our business processes and practices are somewhat out of date.

And look for these six signs that your firm will be looking to acquire another firm when you start hearing:

1. We need more market share gains than we’re getting now.

2. We’d like to add some new services. We don’t have the people for now.

3. We need to prop up a marginal office or expand geographically.

4. We are short on talented people.

5. We have too many partners around the same age and we don’t think our junior partners have the leadership ability for the firm to continue over the long run.

6. We have some partners who refuse to be held accountable. (Yes, this item is in both lists.)

Whether your firm is looking upstream or downstream, you can tell from just looking at those lists, what you need to do. Starting with:

1. Develop your client skills and build a book of business.

2. Dig in to a specialty and become the acknowledged go-to person for all technical questions on the topic.

3. Pay attention to your firm’s financials.

4. Help upgrade operating procedures and technologies.

5. Ask the partners the tough questions about the future of the firm.

Whether the old guard knows it or not, Next Gen CPAs are waiting in the wings. Your time is here.

Copyright 2010 AICPA.

Six Ways to Save a Client Today

Local accounting firm redefines “R&D” for client retention and business development. How to keep clients happy and build your business.

by Rick Telberg

At most companies, “R&D” means “research and development.” But at Dugan & Lopatka CPAs in Wheaton, Ill., every staffer knows it means client “retention and development,” as in business development.

Lopatka

Like many firms faced a couple years ago with the credit crash and ensuing Great Recession, Dugan & Lopatka’s attention was wrenched from landing new clients to serving the clients they already had. “We started a renewed focus on client retention and business development,” according to Managing Principal Jerry Lopatka, who dropped me a line in response to “Do You Know the Secrets of Happy Clients?”

Dugan & Lopatka has 45 people, including nine principals. It specializes in the usual small- and medium-size business lines — manufacturing, distribution, real estate and construction. This tax season, they’ll probably do about 750 returns.

Today, what the firm abbreviates as “Biz R&D” “is a daily focus for all of us,” Lopatka says.

The firm’s “Biz R&D” program contains six building blocks, which may be intuitive for many and familiar to anyone who has studied relationship marketing or consultative selling:

1. Going the extra mile on the current engagement.

• Conducting extra analysis using business-intelligence tools like BizBench.
• Bring the project in earlier than promised.
• Or hand-deliver reports and discuss in person.

2. Increasing the amount of client contact.

• Visit at every opportunity.
• Schedule business meetings near mealtimes to grab some extra quality time over a nice meal.
• Invite the client into the firm’s office.

3. Building the business relationship.

• Help the client network with your other clients.
• Offer free seminars for the client’s staff.
• Refer new business to the client.

4. Building the personal relationship.

• Understand their goals in life and business.
• Get hard-to-find tickets to big games or shows.
• Remember birthdays and anniversaries.

5. Increasing knowledge of the client’s industry.

• Read the same trade journals they do.
• Learn all you can about their competitors.
• Join them at trade shows.

6. Increasing knowledge of the client’s company.

• Spend time with the junior managers.
• Understand the company’s power structure.
• Meet the boss.

Of course, the firm’s leadership knows that the “R&D” plan would mean nothing without support from the staff. So they launched it at a firm-wide meeting, tied it into training consultant Troy Waugh’s Five Star Client Service Model.

On top of that, Lopatka nudges them with an early-morning daily e-mail. By the time you read this, the firm may be posting those notes on a blog, open to clients and prospects. Check their Web site.

Is all the effort worth it? What’s the ROI, every CPA asks. “I can’t quantify it,” Lopatka admits. “But I’m afraid what to think if we didn’t have the program.”

“We try, but we can always do better,” he says. “As I often tell our employees — our good clients are on our competitor’s radar screen.”

Let that be fair warning to Dugan & Lopatka’s competitors, as well.

ARE THEY ON THE RIGHT TRACK? Dugan & Lopatka is one of many firms pioneering new techniques and strategies for successful CPA firm management. What’s working at your firm? Tell me and we’ll share the best ideas.

Copyright 2010 AICPA.

Teresa Mackintosh: The Client of the Future for Accounting Firms [VIDEO]

Demographics Shifts Aren’t Just about Staffing. Clients Are Changing Too.

When it comes to bridging the generation gap, most accounting firms focus on what it means for their staff and their own firms.

But there’s another dimension to the demographic shifts that are bringing Gen X’ers and Millennials into positions of influence — the shifting client base.

In this 3:28-minute clip, Teresa Mackintosh, senior vice president and general manager for workflow and service solutions in the Americas Professional Division of Thomson Reuters’ tax and accounting unit, explains how those demographic trends are changing the client of the future.

Today, she notes, the workforce is made up of 48% Gen X’ers, 38% Baby Boomers, 10% Millennials, and a few Traditionalists. But that’s not at all the client base for today’s CPA firms.

According to data from Thomson Reuters, the aging client base is much more pronounced than the aging workforce.

“As a whole,” she says, “firms are not successfully serving that layer of younger demographic.” If firms don’t try to capture that generation today, she wonders, will they be there as a market in the future? “We really need to worry today about what clients will need tomorrow?”

More from Mackintosh here:

• Message to Accountants: Master the Pace of Change or Get Left Behind [VIDEO]
• How to Find Opportunity in the New Normal
  

See more videos at the YouTube CPA Trendlines channel here.

Top 7 Most Clicked CPA Links This Week

What accountants and finance executives are reading

1. AICPA INSIDER: Top Secrets of a CPA Start-Up http://ow.ly/1fNGo
2. How do accountants define “success?” http://ow.ly/1eZUh
3. John Jantsch: It Is Make a Referral Week! http://ow.ly/16KiPh
4. Do You Know the Top Seven Growth Areas for CPAs? http://ow.ly/16J2pG
5. Jim Boomer on Accountability: The Lifeline of Firm Success http://ow.ly/16KZB6
6. The Accountant in the Modern World – Francine McKenna http://ow.ly/16LKdM
7. Rita Keller on Tom Peters: CPA Managers Need to REALLY Manage [Video] http://ow.ly/16LweU

Source: www.twitter.com/cpa_trendlines

CPA Net Income Per Partner Surges 16%

The surprising thing about  AOMAR’s CPA Firm Practice Management Survey 2010 is that there were so few surprises. The study turned up very few significant changes between 2009 and 2010.

Of course, it’s possible that the major metrics could lag a year and show up in next year’s survey. Or, it could mean that firms have been more resilient than many would care to boast about.

One good sign you can’t ignore: Net income per partner increased by over 16 percent. (What recession?)

• Leverage = Total personnel ÷ total number of equity owners.
• Utilization = Chargeable hours of the firm ÷ total personnel.
• Billing Rate = Standard fees ÷ firm chargeable hours.
• Realization = Net fees ÷ standard fees.
• Profit Margin = Net income ÷ net fees.
• Net Income Per Partner (NIPP) = Leverage x utilization x billing rate x realization x profit margin.

Source: Accounting Office Management & Administration Report, February 2010. Subscribe here: subserve@ioma.com.

Sandra Wiley: Keep Recruiting [VIDEO]

Even in a down economy…

Even when you don’t think you need the staff, great talent can attract new business you never expected.

Here’s a tip from Sandra Wiley’s presentation “Moving Human Capital From Paralysis to Growth,” Recorded Aug. 16, 2009, at the pre-conference session of the Boomer Technology Circles™ All-Circle Summit.

Are “Amazon Tax” Laws Backfiring on States?

So Says The Tax Foundation

via The Tax Foundation

Citing significant budget shortfalls and the inability to collect sales taxes on many Internet-based transactions, a number of states are considering the adoption of “Amazon taxes.” Such laws, nicknamed after their most visible target, require retailers that have contracts with “affiliates”—independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business—to collect the state’s sales tax.

Contrary to the claims of supporters, Amazon taxes do not provide easy revenue. In fact, the nation’s first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue. For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax.

Amazon taxes also do not “level the playing field” between brick-and-mortar and online businesses; the laws actually mandate disparate burdens on online businesses. Litigation over the constitutionality of Amazon taxes is ongoing, with scholars on the left and right disputing their wisdom and legality.

Enacting an Amazon tax law also sends a signal of hostility to businesses engaged in interstate commerce, runs the serious risk of retaliation from other states and from affected businesses, and undermines efforts to improve the uniformity of state sales taxes.

Key Findings

• Frustrated by their inability to impose tax collection obligations on companies with no substantial connection to their state, several states are considering the adoption of “Amazon” tax laws. Such laws currently exist in New York, Rhode Island, North Carolina, and Colorado.
• An Amazon tax law requires retailers that have contracts with “affiliates”-independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business-to collect the state’s sales and use tax.
• Amazon taxes are unlikely to produce revenue in the near term. New York continues to face a lengthy legal constitutional challenge. Rhode Island has even seen a drop in income tax collections due to the law.
• Amazon taxes do not level the playing field between brick-and-mortar and Internet-based businesses because they require Internet-based businesses to track thousands of sales tax bases and rates while brick-and-mortar businesses need to track only one.

Unconstitutionally expansive nexus standards like the Amazon tax undermine legal certainty, burden interstate commerce, and harm economic growth.

Get the full report – FREE DOWNLOAD from The Tax Foundation