FEATURE
2020 Vision
Small accounting practices are facing a world of change. Are you thinking ahead?
By Derrick Lilly
As the calendar year rolls over to 2012 and new economic challenges continue to surface, it’s easy to get caught up in the here and now—and, for some, even Mayan doomsday prophecies. But if December 21, 2012 turns out to be just another day of business-as-usual, a strategy for your small firm’s future will become something of an imperative, albeit an often overlooked one.
Since October 2010, the Illinois CPA Society’s Strategic Planning Committee has hosted a number of small practice forums around the state. The objective of these Future of the Small Firm in 2020 forums is to gain invaluable insight into the trends and challenges most likely to impact small firm partners and sole practitioners now and over the next 5 to 10 years. Additionally, the forums help to identify the competencies and resources that will be needed in order to succeed. As it turns out, despite today’s hazy conditions, predictions for the small firm of 2020 are abundant and bright.
A New Landscape
If one word could sum up the forum participants’ outlook to date it would be “optimistic.” Despite current headwinds, there’s little to no doubt that small firms will be standing strong in 2020. One participant even predicted that, “Midsized firms will get squeezed out, resulting in more business for both small and large firms.” In fact, most participants expect their firms to either exist as they are or be more successful.
Anticipating marketplace improvements, forum participants predicted that aggressive merger and acquisition activity would be the key to growth for some, and the key to survival for others.
In either case, the landscape for small firms is bound to change, and those that remain dedicated to their small stature and mission, while also being committed to evolving with the times, will be in a good position to thrive. To do so, the successful small firm of tomorrow will need to think like a featherweight fighter: Be nimble, lean, adaptable and increasingly specialized.
“How we adapt and change will determine whether or not we succeed in the future,” stresses Thomas M. McGreal, CPA, of McGreal & Company PC.
For starters, the mentality that small firms can do all things for all clients will become outdated. In fact, forum participants continually stated that the unrelenting pace of change, glut of regulations and complexity of standards would force small firms to reassess their abilities and services, and to move towards a niche model.
“You can no longer be all things to all people,” says Michael Radencich, CPA/MST, of Trimarco, Radencich, Schwartz & Mrazek LLC. “Small firms and sole practitioners will have to self-assess and focus on what they do best. When you’re trying to do too much you become a jack-of-all-trades but a master of none.”
Simply put, “boutique” is replacing “big box,” and putting this concept into practice is how small firms are expected to outshine larger firms and avoid competition over commoditized transactional services. Overall, participants predicted that focusing core services on top areas such as wealth management, M&As and forensics will prove most successful. Other high-ranking areas include business valuation, IT security consulting, litigation, regulatory compliance and specialized tax planning.
A shift to “niche” may leave some clients wanting or needing more, however.
“Our number one responsibility is to service our clients. Since all firms have limitations, it’s important to build a referral network of highly regarded professionals inside as well as outside the accounting profession to share expertise, ideas and business,” says Radencich.
The key word here is “sharing.” That doesn’t mean clientpoaching, but rather connecting with the right partners to give clients access to the breadth of services they may be demanding.
Ultimately, participants felt that a robust referral network would increase value in their clients’ eyes and drive growth now and in the years to come. Think: “The more you know, the more you grow.”
Teaming With Technology
Technology will continue to be another game-changer for small practices. As one participant emphasized, “Virtual is going to be bigger than big.” And the pace of change shows no sign of slowing.
With the accelerating adoption of technologies like interactive websites, client portals, social media, cloud-computing, paperless document management, video & teleconferencing, and other mobile solutions, small practices are realizing that fewer people can do more work in less time.
In turn, we’re witnessing a departure from traditional hourly billing. As small practices rapidly increase their efficiencies, “value billing” or fixed-price project billing is growing at an equal pace. According to forum participants moving in this direction, such billing models will become staples in small firm revenue growth.
Paul Ziliak, CPA, partner at xkzero, suggests that fixed-price project fees allow clients the comfort of knowing exactly what they are buying, how much they are paying for it, and if or when they’ll have to pay more. Additionally, firms can generate more revenue; client retention should increase as they no longer fall victim to “billing fatigue”; and staff will be more empowered and motivated to perform.
“Our fixed-price model has been an undeniable catalyst for growth, and any small firm can implement these kinds of changes if they commit to a shift in thinking,” says Ziliak, whose ERP solutions consulting practice has seen consistent increases in revenues, profits, and staff and client retention since abandoning traditional timesheets.
Hourly timesheets aren’t the only thing being scrapped. The progression towards paperless offices is a trend that many forum participants believe will become the rule rather than the exception.
“Getting rid of the paper has been a godsend for the firms that have already done so,” says Kathleen Orlando, CPA, of Kathleen Orlando and Associates Inc. “Creating and storing searchable electronic documents has led to space savings, cost reductions, better organization and a newfound ability to quickly navigate complex files. It’s absolutely amazing.” Security concerns, however, are a sticking point for many. CPAs can’t afford to jeopardize the “Trusted Business Advisor” label, and therefore many are slow to adopt emerging technologies that control sensitive client data.
But the simple fact of the matter is, no matter if confidential data is stored in-house or in “the cloud,” a CPA who is vigilant about maximizing security will be able to minimize risk. Participants pointed to data encryption, security systems, password-protection protocols, and secure shredding solutions as only a few of the many ways CPAs can protect their data and reputations while transitioning to a more technologically advanced practice.
The potential for revenue growth and increased efficiencies simply cannot be ignored, especially when technology is also aiding the rapid expansion of the client base. The ability to securely access realtime data anytime, anywhere with today’s mobile devices in essence allows professionals to be available to their clients 24/7—meaning borders and time zones no longer apply.
“Implementing mobile, networking and other virtual technologies gives the small firm a big opportunity to compete with large firms because the limitations of location are eliminated,” says McGreal. “I’m finding that more of our clients are spread across the country. I’ll call some of my broker clients thinking they’re downtown at the Board of Trade when they’re really remotely trading from their condos in Florida.”
Strategic Staffing
In a similar fashion, technology has a clear role in altering the staffing landscape.
First, participants predict staff sizes will shrink or remain relatively unchanged. “Because of technology and how small firms are adapting to it, they don’t need more people to take on more work,” says McGreal, adding that he doesn’t think his staff levels will increase even though revenues and billable hours likely will.
Second, firms are expected to become more flexible with work arrangements than ever before. The practicality of mobile and remote access solutions accompanied by increasing employee demands for greater work/life balance are driving firms to reevaluate the effectiveness of traditional schedules and structures—and, in turn, flexibility is becoming a significant recruiting and retention tool.
“Small firms are particularly well suited to accommodate telecommuting employees and flexible schedules. It adds versatility and allows employees to remain productive even when they aren’t in the office,” says William J. Duffner, CPA, of Duffner & Company PC.
“Allowing remote work and accommodating employees when emergencies or conflicts arise is also great for morale; they feel like the employer is concerned about them.”
However, firms shouldn’t get too caught up in the mentality of, “As long as the client is taken care of, it doesn’t matter where you work,” cautions John W. Currier, CPA. “If remote work is excessive, the firm risks having employees lose connections with co-workers and clients, and lack developing teamwork and interpersonal skills.”
Further concerns over managing, motivating and mentoring a seldom seen staff have many leaders on the fence, but, Duffner emphasizes, “The fact of the matter is, employees can be as unproductive or productive as they want whether they’re sitting in the office or in their family room.”
To find a balance and mitigate abuse, Duffner suggests developing a clear framework for measuring and monitoring offsite productivity and accountability, and clearly communicating expectations in relation to face-time with clients and the balance between onsite and remote work arrangements.
Of course, most importantly, small firms need to recruit and retain staff members who mesh with their culture and are committed to their success. The challenge is preventing the emerging cracks in the talent pipeline from impacting small firms. Besides a perceived shortage of new graduates, CPAs with one to five years of experience aren’t bringing the skill sets to the table that firm leaders expect.
What’s more, the conflicting values and expectations of the different generations inhabiting today’s workplace are presenting more recruiting and retention challenges than ever before. Participants overwhelmingly expressed struggles in finding and mentoring young professionals with the skills and character to succeed at the partner level.
“The most difficult person to find out there is the one with a fire in their belly, ready and wanting to go out and do something with their career,” explains Duffner. “We need more intuitive problem-solvers and proactive candidates who want to move up and make partner.”
One roadblock to successful hiring and mentoring may be firm leaders themselves. “CPAs from the Baby Boomer generation and before take a lot of pride in ownership, having their names on their doors and business cards, and being defined by their careers. However, Gen Y will not be defined by their work, and that just doesn’t compute with our generations,” explains Brad Sargent, CPA, of the Sargent Consulting Group, member of the ICPAS Board of Directors, chair of the Strategic Planning Committee, INSIGHT Magazine fraud columnist, and moderator of the small practice forums. “It’s very hard for us to relate to that because it’s just not our way.”
In fact, Baby Boomer forum participants repeatedly stated that they’re at a loss with younger generations and are unable to connect with them on a meaningful level. Yet they struggle to justify changing their own set ways. More often than not, they measure the value, productivity and character of young professionals against themselves and the norms and values of the Baby Boomer generation; disappointment quickly ensues.
The truth is that common ground must be found in order to successfully move forward. Conformity stunts progression and the firm that fails to evolve with future generations won’t have a future at all. Each generation needs to work smoothly with the other to master new skills and identify ways to succeed as one team. After all, young CPAs are the future of the profession—and their peers are future clients. What’s more, they’ll be key players in many succession plans—a frightening fact for many Baby Boomers nearing retirement.
Struggles With Succession
“I am my firm and my firm is me” is a sentiment shared by many small firm owners. The practices they’ve built through years of hard work and sacrifice are their livelihoods. For many, they’re also their ticket to retirement.
Not surprisingly, participants vocalized that plans to pass off the reins or shutter their doors are hard to swallow, and most intend to put succession planning off for as long as possible. Unfortunately, delayed succession planning has its consequences and frequently limits options for a successful transition.
“You see yourself pushing 60 and thinking, ‘Well, we always advise our clients not to sell when they have to, sell before so there’s time to find the right people,’ but we aren’t even doing that ourselves,” said one participant (who prefers to remain anonymous). Like many of his peers, he and his partners are struggling to weigh the pros and cons of a sale or merger, or continuation of the firm under new leadership. “There’s a lot to talk about. When we look at the bullet points we really don’t know where to even begin.”
Other participants admitted to being in more challenging positions. One closer to retirement shared that he didn’t have a plan or the staff to take over his firm. In that situation, a quick sale has appeal, but without the proper time to prepare, a “fair” offer could be hard to find.
“Most practitioners are guilty of thinking that their practices are worth much more than what people are actually willing to pay in this market,” said another participant. “And none of us know what future valuations will be.”
Many participants simply see themselves working in a reduced capacity. Some say they’ll retire but remain a consultant to the firm. Others hope to remain an active employee with reduced hours and responsibilities after being bought out. Then there are some who plainly state that they’ll work heavily for as long as possible to support family finances and to fund some sort of retirement when they’re finally unable to work any longer. Simply put, most are struggling to navigate the path to a successful transition and comfortable retirement.
All in all, whether your firm’s path is nearing its end or just approaching its first bend, you have to lay a lot of groundwork to successfully navigate the forks, bumps and detours in the road ahead.
Services for Our Public Practice Members
Public Practice Center: The Illinois CPA Society’s new Public Practice Center provides small and midsized practitioners with a one-stop-shop of free and easy-to-access tools needed to achieve practice excellence. These include Technical Resources, Quality Assurance & Education Offerings, and Practice Management Essentials. Plus, live help is available from the Research Specialist, The NETWORK volunteers and ICPAS staff subject matter experts.
Marketing Toolkit: Created specifically for sole practitioners and small firms, the Toolkit provides free, customizable marketing resources such as sample press releases, print ads and posters, as well as a wealth of information on how to best promote business development. You can also sign up to share your expertise as a contact for the media.
Succession Planning: Launched by the ICPAS in conjunction with Transition Advisors, Project MATS (Merger, Acquisition, Transition and Succession) is an on-demand service providing advice, consultation, information, case studies and succession services at no cost to ICPAS members. This service is dedicated to helping members understand their practice value, gain knowledge of current trends, develop a basic succession plan, and enhance their potential for financial reward.
Practice Advantage: This eNewsletter, published twice a month, provides timely news and resources to help public practitioners and firms navigate and succeed in the ever-changing public accounting world. Key features include technical accounting and auditing guidance, IRS briefs, Taxation Committee reports and practice management articles.
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