Firms gear up for advisory, grapple with retirements, and take aim at bigger competitors.
By CPA Trendlines Research
The Rosenberg MAP Survey
In the new 2019-2020 edition of the annual Rosenberg MAP Survey, the leading national benchmarking study for firms of all sizes, the average firm is growing at 7.7 percent, up from 7 percent in last year's study and reversing a two-year decline.
Meanwhile, organic growth, excluding mergers and acquisitions advanced to 5.9 percent from 4.3 percent, "proving that the accounting profession is really cultivating a focus on business development efforts," according to the authors, led by Charles Hylan of The Growth Partnership and Marc Rosenberg of Rosenberg Associates, who founded the study 21 years ago, making it the longest-running such benchmarking project in the profession. (And available from CPA Trendlines here.)
Additional highlights of the new report include:
- Income per partner hit $470,000, 6.6 percent higher than the prior year.
- There's a noticeable increase in the percentage of partners over the age of 50 among smaller firms, suggesting a dearth of succession candidates or exit strategies.
- Meanwhile, mandatory retirement provisions are proliferating, in a clear effort to make room at the top for a new generation.
- The keys to profitability, more than ever, are billing rates and partner-to-staff operating leverage
- Firms are clearly moving from compliance services to advisory services, smoothing out revenue beyond the traditional busy season.
- The percentage of female partners increased two percentage points to 23 percent at the multi-partner firms.
- Firms of all sizes are increasingly offering investment advisory services.
"In the accounting world," cautions lead author Hylan, "we understand that profits can cover up a lot of issues within a firm. But, as the accounting profession experiences the transformation that will take place over the next several years, weak areas of firms will be exposed."
Hylan notes weaknesses in strategic planning, lagging investment in organic growth, general resistance to change, paltry capital spending, a tight labor pool, and an epidemic of a lack of accountability at the highest echelons of firms.
Hylan urges readers of the report to "think about how your firm will proactively deal with our changing profession."
And yet, the profession may be at a turning point.
Calling last year a watermark, consultant Allan Koltin, says in the report, "I believe the accounting profession finally embraced the fourth industrial revolution," adding "the accounting profession won't be exempt from the changes, obstacles, and opportunities."
"It’s a struggle for many firms," says Gale Crosley in her analysis. "The in-place leaders have dealt with a relatively calm landscape of change for years. The sheer number and velocity in business dynamics are enough to make one’s head spin."
Meanwhile, a new generation is taking over, according to Sarah Dobek of Innovautus. "The most important takeaway is that firms are embracing change and not just talking about it."
Dan Hood, editor in chief of Accounting Today, poses some of the most important questions firms are facing: "What kind of firm do we want to be? We know we’ll be somewhere else in five years, but where? Do we want to commit to the move to advisory, and how? How deep do we need to dive into technology, and what kind of resources will that require?"
"From a technology perspective," according to Roman Kepczyk of Right Network, "the march to cloud applications and hosted providers has become the de facto standard, with fewer and firms maintaining their own networks except to run those applications that are not yet available in the cloud."
Terry Putney, a mergers-and-acquisitions broker with Transition Advisors calls the M&A pace "frenzied." And, "the number of sellers is increasing at a much greater pace than buyers," shifting the advantages to the buyers.
At the same time, many firms are increasingly focussing on the client experience, according to Carrie Steffen at The Whetstone Group. "The concept of client experience is relatively new to the accounting profession," she says. "But in a landscape where competitive differentiation is based on client service, the process of surveying clients to ask what they value most about the relationship – and then training people on how to deliver that consistently – is garnering a lot of attention."
Angie Grisson, at The Rainmaker Companies, says "The lines are blurring on what services are considered traditional. Services including technology-focused and more advisory and consultative are becoming more mainstream. Companies are asking for solutions to diverse problems ranging from managing communication internally, expansion, integration and strategic problem-solving to name a few. I am seeing accounting firms stepping up to address these opportunities."
August Aquila, of Aquila Global Advisors, addresses the issue of high-echelon accountability. "When faced with difficult issues, many CPA firm leaders are reluctant to address them head-on. They'll call in a consultant to help them identify the problem (which they already know) and ask for recommendations. But, then they fail to carry out the prescription. But not making the hard decisions causes more internal (and sometimes external) damage than making them."
"There continues to be a growing divide," says Jennifer Wilson of ConvergenceCoaching, "between the firms that understand what’s coming and are investing in change, and those who don’t, who are denying or resisting change, holding back their firms as a result."
Chris Fredericksen at Frederickson & Co. sees firms coming off a boom year and turning increasingly to remote workers and outsourcing to handle the demand. "The country that made the most progress is the Philippines," Frederickson says, "where many people speak relatively fluent American English. "
In the rush to advisory services, Carl George of Carl George Advisory, cautions firms to retain a balance with compliance work. "The reason: advisory is more sensitive to a slowing economy or recession and firms must also prosper during those times."
With firms struggling to meet the myriad needs of their clients, Michelle Golden River of Fore LLC, says smart firms recognize their limitations. "These firms accept they can’t do it all themselves. Contracting for these resources is wise in that it brings a fresh perspective, greater expertise."
Business development advisor Art Kuesel sees firms working hard to drive organic growth. "So, many firms are currently fine-tuning their business development training and coaching programs, as well as assessing their people’s capabilities to contribute to business development."