The Eight Essential Strategies Driving Success at the World’s Largest CPA Firms.
And How to Apply the Lessons at Firms of All Sizes
Complete with forms, worksheets, and examples.
By Domenick J. Esposito, CPA
Formerly: Grant Thornton CEO, BDO Vice Chair, and CohnReznick National Growth Director
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The renowned big-firm CEO finally reveals the secrets that can make any firm into a growth and profit machine.
CEOs and Managing Partners at Today's Leading CPA Firms
"On the Money" ... "Indispensable" ... "The Magic Sauce" ... "Exceptional" ... "Practical" ... "Terrific" ... "A Great Read" ... "Very Exciting" ... "Insightful" ... "Gems" ... "Very Informative" ... "Thought Provoking" ... "Roadmap for Greater Success" ... "Valuable" ... "Excellent" ... "Strategic"
Dom Esposito has written a terrific book that should be read by everyone who leads a CPA firm. He has clearly and succinctly set forth what is unique about CPA firms. Most importantly, he has created a nice framework for those interested in building a mid-market sustainable brand while maintaining (or even improving) the essential culture of their firm.
– Frank Longobardi, CPA
Partner/CEO, CohnReznick, LLP
This book is a great read for CPA firm leaders. It provided me with practical insight from a professional I have respected and admired for many years. Dom Esposito is the real deal. His chapter on national and geographic reach is on the money.
– Arthur F. Bell, Jr., CPA
Managing Member, Arthur Bell, CPAs
Never before has there been a book by a former CEO of a CPA firm to today’s CEO. The opportunity we have to grow our business is very exciting. And this book, particularly the area of serving the private and public capital markets, will help us navigate the waters.
– Jim Pitrat, CPA
Managing Partner, SingerLewak LLP
Dom Esposito, a CPA who has “been there and done that," has provided us at Berdon with several gems that will prove to be very beneficial as we navigate our future path. I found Chapters 6 (on attracting, developing and retaining marquee clients through industry, consulting and technical specialization) and 10 (on national and geographic reach) particularly insightful.
– Mark G. Bosswick, CPA, J.D., LLM
Managing Partner, Berdon LLP
I recommend the book to all firms that aspire to build a firm for the long term. I found the chapter on attracting, developing and retaining first-class partners very informative and thought-provoking.
– Stephen W. Christian, CPA
Managing Director, Kreischer Miller
This book takes 46 years of experience and presents a roadmap for greater success. I found it to be a practical guide on what to do and not do, as my partners and I move our firm to greatness. It’s a very easy read!
– Michael L. Daszkal, CPA
Managing Partner, Daszkal Bolton LLP
Changing a CPA firm from a merely good firm to a mid-market sustainable brand requires discipline and a cultural shift as well as years of consistent and persistent leadership. This fine book summarizes the do’s and don’t's, and the good, the bad and the ugly on how to re-engineer a firm. I found it very insightful.
– Bruce A. Madnick, CPA
CEO, Friedman LLP
Dom Esposito’s book provides valuable advice to CPA firm CEOs who want to “run with the big dogs” and develop and grow their firms into mid-market sustainable brands.
– Charles D. Raich, CPA
Founder/Partner, Raich Ende Malter & Co. LLP
From strategy to partner development, and from quality growth to delivering on profitability development, Dom Esposito has charted a course for all CPA firm CEOs to follow. This book is an exceptional roadmap on how to build an “institution” for the long haul.
– Brian Mandell-Rice, CPA
Managing Partner, Hein & Associates LLP
In twelve easy-to-read chapters, this book captures the magic sauce that is necessary to start or continue to move a CPA firm to a sustainable brand in the mid-market. The book will give any mid-market managing partner some great takeaways and food for thought.
– Frank Schettino, CPA
Managing Partner, Anchin Block & Anchin LLP
An excellent compendium of indispensable advice for CPA firm CEOs, managing partners and other senior partners on going from good to great. A must read.
– Kevin J. Keane
Managing Partner, O’Connor Davies LLP
While accounting firms offer a range of business advice to their clients, there are relatively few sources of strategic thinking about the business of accounting. Dom Esposito helps explain why so few firms are able to develop a truly distinctive brand and achieve the magic combination of scale and profitability in the accounting industry. As a former CEO with hands-on experience building a small accounting firm into a top ten player, Dom speaks from experience about the essential choices partners and senior leaders need to make in an industry when "business as usual” is no longer enough to succeed or even survive.
Drew Bernstein, CPA
Co-Founder/Partner, Bernstein & Pinchuk LLP
Chapter 1 – Answering Two Basic Questions
For Firms that Want to "Run with the Big Dogs"
Chapter 2 – Strategic Planning, Implementation, and Accountability
Developing Your Strategic Plan
Taking It to All Your Partners
Firmwide Balanced Scorecard
Chapter 3 – A Sound, Basic Governance and Economic Model
Economic Modeling and Operating Metrics
Equity and Non-Equity Partners
Guidelines for Elevating Non-Equity Partners to Equity Partner Status
Guidelines for Promoting Senior Managers or Directors to Non-Equity Partner Status
The Upside Down Partner/Staff Pyramid
Solutions for The Upside Down Pyramid
How Many Partners Do You Really Need?
Average Collected Rate Per Hour
Three Management Tools to Improve Metrics
Chapter 4 – Attracting, Developing and Retaining First-Class Partners
Implications for Making the Transition to a Mid-Market Sustainable Brand
Key Processes for HR to Focus on in the Future
Example: HR Structure for The Future – Needs Analysis
Example: HR Structure for the Future – Job Descriptions
Critical Success Factors for Your HR Leader During the Transition
Attracting New Partners, Including Laterals
Developing Existing Partners
Important Components of Performance-Based Compensation Process
Retaining the Highest-Performing Partners and “Rising Stars”
Chapter 5 – Developing a Performance Management and Compensation Plan
Management Objectives for the PMCP
Design and Development Approach
Partner Performance Measurement
Metrics for Measuring Differing Activities and Capabilities
Five Major Steps Toward Implementation
Identifying the Range of Acceptable Performance for Each Performance Measurement
Examples of Forms to Be Used to Drive Consistent Partner Behavior
Individual Partner Balanced Scorecard
Example: Individual Partner Goal Achievement Form
Chapter 6 – Attracting, Developing and Retaining Marquee Clients through Industry, Consulting and Technical Specialization
Why Marquee Clients Are Important
Distinguishing Your Firm from the Rest
Attracting Marquee Clients
Market Trends by Service Area
The Private and Public Capital Markets
Potential Barriers to Successful Market Penetration
Aggressively Pursuing Capital Markets Business
The Bottom Line On Capital Markets Business
Key Success Factors for Developing and Growing a Capital Markets Practice
Chapter 7 – Distinctive Service Through the Client Service Plan
Key Elements of the Client Service Plan Process
Example: Client Service Plan
Chapter 8 – The EBITDA/Working Capital Improvements Memorandum
Example: The EBITDA/Working Capital Improvements Memorandum
- Current Process – Issues and Opportunities
- Desired Process
- Comparing Current with Desired Processes
- Suggested EBITDA and Working Capital Improvement Action Plan
Chapter 9 – The Client Situation Review
Effective CSR Must Include Senior Members of Client Team
High-Performance Business Framework
Example of Client Feedback Letter
Chapter 10 – National and Global Geographic Reach
Significant Issues, Challenges and Opportunities
International Business Centers – Global Business Plan
International Business Centers – Leadership and Structure
Chapter 11 – Merger Combinations
CPA Firm Valuations
Approaching the Market
Identifying Viable Candidates
Working the “Circuit”
Making Sure It Feels Right
Negotiating and Closing the Transaction
Example: CPA Firm Combination Packet
Example: Confidentiality and Non-Compete Agreement
Chapter 12 – Making It All Real Through Persistent and Consistent Leadership
Avoiding The Traps
How I Performed as a Leader, and What I Take Away
Summary of Key Takeaways by Chapter
From the Foreword by the Author
Scaling for Growth
This book was not written for small boutique firms that are happy to remain boutiques. It was written for those CPA firms whose partners want more for their firms. They want quality growth. They want to build a CPA firm brand with institutional scale. And they want substantial partner earnings.
In my view, that vision is clearly attainable. There is a great opportunity to take a merely good firm and move it up several notches to a sustainable brand, and that opportunity exists in the mid-market space as a principal focus. It’s where the Big or Giant Four are neither credible nor qualified, and thus bring little value beyond their letterhead – which often brings with it expensive fees, poor service and an attitude that it’s “my way or the highway.”
Changing your CPA firm from a merely good firm to a mid-market sustainable brand undoubtedly requires discipline and a cultural shift as well as years of consistent and persistent leadership.
A CPA firm CEO once told me: “We operate our firm to make it feel like family. It’s special.” In many ways he was right, but arguably he was also wrong. When I heard him, my reaction was: “My family is very important to me – but it is outside of my professional career. My partnership is the vehicle that provides my family with a very comfortable lifestyle. But it’s my business – not an extension of my family.”
Today, no single CPA firm owns the mid-market, while many operate in it. In fact, only six firms today are building the kind of sustainable brands to challenge the Giant Four. That’s it! I refer collectively to them in this book as the Next Six. Only six. And not one of them is the “category killer.”
The Mid-Market Opportunity
The mid-market remains a vast and largely untapped opportunity in a huge and growing sector of the U.S. economy. The United States Census Bureau estimates the entire tax, accounting and bookkeeping services industry at $158 billion a year in revenues, with profit margins, compensation, and growth among the best in the economy today and forecast to improve even more in coming years. To be clear, the top tier of the market for CPA firms is reserved for a handful of truly transnational organizations. The Giant Four – PwC, Deloitte, Ernst & Young and KPMG – account for more than $43 billion in U.S. fee income alone. What I call in this book “The Next Six Firms” – RSM at $1.5 billion, Grant Thornton at $1.4 billion, BDO at $883 million, Crowe Horwath at $687 million, CBIZ at $600 million, CliftonLarsonAllen at $598 million – are locked in a do-or-die competition to build sustainable brands on a par with The Giant Four. That’s only six. And not one of them is a “category killer,” the term of art reserved for businesses that are alone or so dominant in their chosen market sector that no other firm can compete as profitably.
For sure, a handful of the biggest CPA firms cannot – and should not – dominate the broad American mid-market of American enterprise. In fact, the U.S. is home to some 50 million businesses in all. Of course, more than half of them are small or single-employee entities, according to the Small Business Administration. And most of them – not all – have an accountant. But they aren’t the vast mid-market opportunity that this book is about.
Building a Sustainable Brand
This book is about the innumerable opportunities for CPA firms serving the nation’s 200,000 mid-market companies, accounting for $30 trillion in private sector revenue and 30 million jobs. Every single one of them has a CPA firm. Sometimes more than one. But only a few thousand CPA firms are properly prepared to seize the opportunities. Hopefully, this book will help change that.
The CPA industry structured like a giant, inverted pyramid, with a few large firms at the top, dominant in their revenue and their payrolls. At the bottom are the single-owner, solo, or sole proprietor firms. By the time a firm hits about 20 employees, the complexities of management and control require new systems and disciplines that far too few firms have properly prepared for. And as the firm grows, so do it’s strategic and management issues.
Run with 'The Big Dogs'
The opportunity is there for the taking. This is a primer with key takeaways on what is required to build a powerful mid-market sustainable brand and, yes, potentially the category killer. It summarizes the do’s and don’t's and the good, the bad and the ugly on how to re-engineer your firm. Or, said another way, it helps you focus on what matters if you want to “run with the big dogs.”
But the most important takeaway from this book is that you need to take a strategic path and not deviate from it by chasing low-hanging fruit or other distractions.
Many firms don’t think strategically. They don’t know where they want to go or how to get there. Many don’t even think beyond a two- or three-year period. They look simply to make a good living for their partners – without taking a longer-term strategic view of how to elevate their firm toward sustainability. But eventually the short-term tactical mode of operation catches up with such firms – limiting their growth – and, as a result, they either merge up or perhaps die. Poof!
Leading a CPA firm is more challenging than ever. Slow organic growth and talent shortfalls make it very difficult. CEOs, managing partners and other senior partners must always be up for the game, and be able to quickly adapt to a shifting landscape for services. They have to creatively identify value differentiators, lead others through change and become champions of change themselves. This is particularly important if they want to be more than just a merely good firm. There is, in fact, an opportunity to become a mid-market sustainable brand.
The Magic Sauce
So what is the magic sauce, you may ask. How do you start moving your firm from a merely good firm to a sustainable brand in the mid-market? The magic sauce is contained in the chapters in this book. The “nuggets” or key messages, simply summarized, are:
- You need strategic planning, implementation and accountability.
- You need a sound, basic governance and economic model that includes at least two classes of partners.
- You need first-class partners who know how to build, maintain and grow people relationships which, in turn, help to build and grow a CPA firm.
- You need an effective performance management and compensation system that aligns with your strategy.
- You need to attract marquee clients through industry, consulting and technical specialization.
- You need national and global geographic reach.
- You need merger combinations.
- You need persistent and consistent leadership.
As the old saying goes, “A CPA firm CEO doesn’t build a business; a CPA firm CEO builds a firm that builds a business.”
– Dom Esposito, CPA
About the Author
Dom Esposito, CPA
In 2016, Dom Esposito, a former CEO of a national CPA firm, decided to move from a 46-year career in public accounting into the next phase of his professional life – consulting to CPA firms. He has launched a boutique advisory firm, Esposito CEO2CEO, that provides advice to CEOs, managing partners and other senior partners of CPA firms focused on the mid-market throughout the U.S. Concurrent with the launch, Esposito authored a book titled “8 Steps to Great: The eight essential strategies driving success at the world’s largest CPA firms” – a guide for current CEOs, managing partners and other senior partners on how to move their firm to the next level.
CohnReznick National Growth Director
Esposito is one of the most qualified individuals in the country to advise CPA firms on growth and profitability. Through 2015, he was National Practice & Growth Director and an Executive Board member of CohnReznick, LLP, a mid-market sustainable brand and the tenth largest CPA firm in the United States. He oversaw CohnReznick’s go-to-market industry specialization and consulting and advisory service lines. He was also intimately involved in the firm’s mergers and acquisitions and strategic and tactical activities for its public company and capital markets initiatives. Dom joined the predecessor firm of J.H. Cohn in 2002 as the Chief Operating Officer and Executive Board member.
Dom is also an independent director of Ethan Allen Interiors Inc. For several years (through 2014), Dom was a member of the NASDAQ Listing and Qualifications Committee to the organization’s Board of Directors. He formerly served as the leader of the New York State Society of CPAs Committee for Large and Medium-Sized Firms Practice Management. He also was an Adjunct Accounting Professor at C.W. Post/Long Island University.
BDO and Grant Thornton
Through October 2002, Dom was Vice Chairman at BDO, a mid-market sustainable brand and the seventh largest international accounting and consulting firm in the U.S., with almost 50 offices and 3,400 employees. During his brief time with BDO, he was responsible for the Alliance Distribution network (at the time consisting of over 80 CPA firms, 10 law firms, and 25 consulting firms). He was also responsible for attracting and servicing a number of clients.
From 1979 through 2001, Dom was with Grant Thornton, another mid-market sustainable brand and the sixth largest international accounting and consulting firm in the U.S., with over 50 offices and 4,500 employees. He joined Grant as an audit manager, became a partner in 1981, led the Long Island Office from 1984 to 1986, became assistant managing partner of the New York Office in 1986, and from 1988 to 1999, led the New York Office. In 1999, Esposito became a regional managing partner and for two years, through 2001, was the firm’s Chief Executive Officer.
CPA, Partner, MBA, Leader, Influencer, Media Celebrity
Between 1996 and 1998, and while he was CEO, Esposito was on the Partner Board and was also on the Board of Grant Thornton International – the worldwide umbrella organization. In these capacities, he developed strong experience in strategic thinking and execution, international relationships, corporate governance, partnership matters, branding, expense control, client relationships, and new business development. As CEO, he took Grant Thornton to record earnings, consummated the largest line-of-business sale in the firm’s history, developed a major joint venture with AXA Financial, and made the largest practice acquisition in the firm’s history. From 1969 to 1979, Esposito was with Price Waterhouse (now PwC), servicing IBM when he was promoted to manager in 1976.
Dom is a CPA, has been quoted in national/local media and has appeared on radio and cable TV. Esposito has also testified before the Securities and Exchange Commission. He received his M.B.A. from St. John’s University and his B.S. from Ferris State University. AccountingToday, one of the leading trade journals for the accounting profession, named Esposito one of the most influential people in the profession for two consecutive years.