insight magazine

When Diversity Is the Deal

Planning for the growth, sale, or succession of any accounting firm is challenging, but minority-owned firms require special attention to future leadership, mission, and cultural preservation years before decisions get made. By Lisa Wilder and Hilary Collins | Fall 2020

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What’s next for your firm? At some point, every firm leader must make that decision—whether it’s about how to grow or who will take the reins next. Mergers, acquisitions, and succession planning take on new dimensions and only grow more challenging when the firm is diverse, minority-owned, and hoping to maintain its unique culture.

For Kimi Ellen, CPA of Benford Brown & Associates, caring about diversity is just a part of who she is. During her time at a Big Four firm, she met her future business partner, Alyssia Benford, CPA. They bonded over being the only Black people in the room.

“That firm was just not interested in recruiting from places with diverse students,” Ellen says. “So I actually changed that for them.” Ellen went to HR and told them that being the only Black person in the room was challenging and that she was sometimes put in uncomfortable situations when her peers didn’t recognize her ethnicity.

“They asked me where they could find more diverse students,” Ellen says. “I took them to the National Association of Black Accountants conference and showed them how to recruit there. The next starting class had 13 new Black hires. That was all because I wasn’t afraid to use my seat at the table. We always say, if you don’t have a seat at the table, you’re on the menu.”

Ellen and Benford left that firm and started their own in 1996. They created the name to sound more like the older white men who dominated the profession at the time. “Her maiden name was Lee and of course my last name is Ellen,” Ellen laughs. “When people think of firm partners, they don’t think of two Black women in their twenties. We came up with the name Benford Brown & Associates to kind of get our foot in the door.”

In the 24 years since, their firm has thrived, adding a third partner, Tim Watson, CPA, whose father was one of the first 100 Black CPAs, opening a satellite office in Bolingbrook, Ill. and specializing in audits, landing major federal clients.

Building a Business From the Ground Up

Like Ellen and Benford, when Enrique Lopez, CPA founded his firm, Lopez & Co., in 2007, he knew diversity would be woven into every element of the culture.

“Since I founded this firm, it’s grown to a team of seven,” he says. “What makes us unique is that we’re not just diverse in the makeup of our staff, we’re also very diverse in the clients we serve and the business we pursue. Obviously, with most of us being of Latino background, we have the ability to connect with clients who speak Spanish or share our culture. But being diverse is also being open-minded and knowing that mainstream America is the biggest market.”

Edilberto Ortiz, CPA also knows the benefits of a small, diverse firm with a warm culture. He emigrated to Chicago from the Philippines and founded E.C. Ortiz & Co. in 1974, eventually building the firm into a team of more than 40 staff members, including 11 CPAs. Ortiz’s firm has served closely-held business clients in addition to providing financial audits, single audits, and compliance examinations for state government for the past 30 years. Over that time, the firm has built a “family environment” that Ortiz didn’t want to lose as he received offers over time.

This June, he accepted an offer from New York-based Roth&Co. The expanding East Coast firm will allow Ortiz’s team to stay in place and be able to invest more in technology and professional development, while giving Roth&Co. a chance to gain a market in the Midwest.

Ortiz adds that many minority firms have niches and relationships on the ground that expanding firms can benefit from. “All these years, I’ve been looking for a firm I wanted to buy, but we were able to secure no change in leadership and continue doing the same thing we are supposed to do,” Ortiz says, who will stay with the firm.

The State of Diversity

Minority-owned firms with specialized experience and diverse teams will be attractive in a consolidating CPA industry where mature leadership is getting closer to retirement. A landmark 2014 Global Accounting Alliance report noted that about half of all U.S. CPA firms would likely lose at least one partner or principal to retirement over the next five years.

Diverse firms with deep experience might find themselves in an attractive position as a result, says Dan McMahon, CPA, managing partner of Integrated Growth Advisors, which assists accounting firms with expansion and succession plans. Being able to demonstrate hiring and promotion patterns for diverse teams will increasingly be a plus that majority- and minority-owned firms can take advantage of either independently or with partners.

“It’s all about building a more competitive and valuable firm,” he says. “Over the course of my career, I’ve learned that public accountants truly do serve the unique communities they work within. That’s why you’re a certified ‘public’ accountant. And, for this reason, it’s important to be reflective and representative of the communities we’re part of.”

According to the AICPA, in 2018 minorities represented 29 percent of all professional staff in public accounting firms, a significant jump from 1995’s 8 percent. And today more than half of all accountants and auditors are women, according to a June 2020 report by Catalyst. Additionally, people of color made up close to half of graduates with accounting degrees, according to that same report, with 41 percent earning bachelor’s degrees and 46 percent earning master’s degrees. But this increasingly diverse workforce has not yet made it into firm leadership.

When senior firm leaders start thinking about M&A or succession planning, McMahon says preserving or increasing team diversity is more than a deal point: It’s simply a good business idea. Yet he notes that the industry still needs to make significant improvement in minority recruitment in firms large, small, and independent. According to the AICPA, 84 percent of CPAs employed by CPA firms in 2018 were white, as well as 91 percent of the partners. “We have a long way to go in bringing diversity to leadership roles in the profession,” he stresses.

For minority-owned firms, it’s not about bringing diversity to leadership roles, but maintaining it. Leaders of diverse firms have to keep diversity in focus in every strategic decision they make.

Planning Ahead

Ellen sighs when asked about how she wants to hand her firm off. “I think about that every day. I literally have a 20-year plan starting this year,” she says. “I’m watching some older firms who are just not handling it well. I’m really focused on grooming my team and growing the next generation, but I’m open to a merger if it’s right.”

For diverse firms who are looking to maintain what makes them unique as they expand, grow, and possibly sell or merge, it’s essential to have a clear vision for the future. Like Ellen’s 20-year plan, Lopez says it’s important to have a vision for how your firm will be marketable in the future. “In five, 10, 20 years, what advantages are you going to have? For us, we’re a diverse firm and beyond that, we’ve found our specialties and really pursued those. Rather than becoming okay at a lot of things, we’ve focused on being really good at a few things,” he explains.

How should a leader at a unique firm like these approach succession planning or a sale or merger? “Start thinking about it when you start the business,” says Maria Prado, CPA, co-founder of Chicago-based Prado & Renteria. The story of the founding of her firm is similar to Ellen and Benford’s. Prado and her business partner Hilda Renteria, CPA were college friends at the University of Illinois at Chicago and decided to form their partnership early in their careers while working in the audit department at the First National Bank of Chicago (now part of JPMorgan Chase). The firm, at its 30-year anniversary, now has a staff of more than 25 that serves private companies, government agencies, and nonprofits. “Some of the work we love to do best are the challenging projects, working with organizations in the middle of change who may have had changes in their accounting staff,” Prado says. “We can support them and put the puzzle back together in a way that will give them greater confidence in their financial stability.”

But Prado laughingly admits that she and Renteria didn’t exactly take their own business advice when they started their firm, and the deep succession discussion they’re having with their team that takes everything they’ve built over the history of their firm into consideration is a puzzle that’s still a work in progress.

“We’re examining how we can distinguish ourselves, not just for our external clients, but for our internal team,” Prado explains. “Because one of the characteristics that’s really important for us to maintain is our corporate culture, which includes continuing the focus on team leadership development, creating internal and external trust-based relationships, and achieving outcomes as a result of integrity.”

Growing and Grooming the Firm

For minority-owned firms, planning for the future while retaining what makes them unique can be a challenge.

Lopez says that developing internal talent at his firm has been incredibly rewarding for him and is his first choice for firm transition when he retires. “I love developing my own people. I love seeing them grow and achieve their ambitions and goals, but I also remain open to outside opportunities,” he says.

“To really grow, you can’t limit yourself to people who share your cultural background,” Lopez admits. “Don’t close your eyes to the diversity that’s outside of your heritage. Don’t get too comfortable in that place. Diversity means being truly open to other groups that you’re not so comfortable with and learning more about them. That will give you a wider appeal.”

That “wider appeal” could be critical in the future. “There’s going to be more consolidation, more acquisitions and mergers in these next few years,” Lopez predicts. “I’m open to that. I don’t want to limit our potential.”

Like Lopez, Ellen is extremely focused on growing her practice and expanding into new areas that will make her firm extremely desirable to potential buyers. “I have a strategy that touches a lot of different areas in the hopes it will grow my practice into something really great when it’s time for us to exit,” she says. One aspect of that strategy is developing the next generation in and outside of her firm. “I didn’t have a mentor when I was coming up in the profession, so I really focus on growing the next generation of Black accountants,” Ellen shares. “I talk to young CPAs and tell them to go and get all the experience they can now and come back in 10 years and maybe we can talk about you buying my practice. I don’t want to die at my desk!”

On a serious note, Ellen says her team is committed to only merging if the relationship is right. They have entered serious discussions about merging with other Black-owned firms several times over the years, but it’s never been a good match. “I think you have to be very thoughtful about M&A and make sure the culture is going to mesh,” she says. “One of the most important things for diverse firms facing M&A is knowing when to say no.”

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