Is Your CPA Firm Best-in-Class?

Embracing and implementing these traits could catapult your CPA firm into the top 5 percent.

I recently spoke at a conference where the theme was identifying traits of high performing firms and their leaders. One speaker presented a bell curve describing best-in-class firms. The vast majority of firms fell in the middle or “bell” part of the curve, leaving just small percentages of firms to the left or right of the bell. However, I would suggest that the percentage of typical local firms (revenue up to $15 million) that fall to the right side of the bell curve — the best-in-class firms — is 5 percent or less. Wouldn’t you like to be one of them?

What Is a Best-in-Class Firm?

Sam Allred and Allan Koltin are two superstars of CPA firm practice management. Both have been consulting to CPA firms for more than 20 years and are known for their keen insight gained from working with the best and the brightest. The essence of their presentations, together with my own experiences and observations, suggest that the following traits make a best-in-class firm:

• Strong partner unity. Best-in-class firms are run by partners that really like each other, live and breathe the firm’s core values, and leave little conflict unresolved (there’s always going to be conflict, even at firms with strong partner unity). Simply put, performance is going to be better when you like the people you work with, trust their judgment, seek their counsel, and look forward to coming to work every day. This applies to CPA firms in spades, many of which struggle with the “herding cats” mentality.

• A focus on collaboration. Best-in-class firms employ members that embrace collaboration and helping each other out. When a partner’s help is needed, for example, they never think “what’s in it for me?”

• Culture is everything. Culture is one of those hard-to-define words, but you know it when you see it. Partners at best-in-class firms have a shared belief that culture trumps strategy and production.

• Staff engagement matters. Best-in-class firms foster environments where staff are highly engaged every day and feel excited about the work they do.

• Clients count. Too many firms fall into the trap of becoming mass-production machines; get the work in, get the work out, and move on. At best-in-class firms, the goal of every engagement is to make clients better while getting the work done. How can you truly think creatively and proactively about making your clients better if you’re mired in production overload?

• There’s no status quo. Best-in-class firms are highly successful because it’s their common belief that they must continually change and evolve and regularly challenge the status quo — even when successful and profitable. In working with firms on important changes, I can’t tell you how many times I’ve heard “That’s the way we’ve always done it and it’s worked well for us all these years. Why fix it if it ain’t broken?”

• Leadership is valued over business. This belief is quite a stretch for most production-oriented firms who value the almighty billable hour as if it’s the Holy Grail. But best-in-class firms compensate and value leadership — not just by the managing partners or board but by all partners — higher than origination, billable hours, and book of business. In similar fashion, partner compensation at best-in-class firms is often linked with client satisfaction. Client satisfaction is the performance trait beyond all others that partners at best-in-class firms want to score “A’s” on.

• Client needs are always considered. Going together with seeking client satisfaction, best-in-class firms understand that the majority of clients need consulting help, not just accounting and tax compliance services, and work hard to diversify their services to meet clients’ needs.

• Development is key. Shattering the fictional image that CPAs lack personality, high performing partners are rarely seen alone in or out of the office. This is especially true when they’re on sales calls; they almost always take somebody with. Partners who are better business developers and/or have the biggest client bases are committed to delegating clients to others to both develop staff and replenish revenue. They don’t worry about their compensation going down because of transferring clients to others because they know their firms’ income allocation system would never do something so foolish.

• Succession is top of mind. All the traits above play into having a great succession plan in writing. Best-in-class firms understand that the best succession plan equals solid practice management, characterized by terrific leadership, growth, and great staff.

Now, what’s the obvious thing missing from the traits above? Observation number one should be that there are no metrics stated, especially income per partner. You’ve all heard the iconic refrain from the great baseball movie “Field of Dreams”: “If you build it, they will come.” In other words, implement a great idea and success will follow. Embrace and adopt these traits and your firm is likely to become a best-in-class firm, which typically leads to enviable profitability.

Observation number two, I hope, is that there isn’t one firm in the country that would disagree that these traits are important. But if less than 5 percent of all typical local firms are best-in-class, what holds back the other 95 percent?

First, most CPA firms adopt a flawed organizational model. Firm leadership usually plays second fiddle to client service and production and isn’t valued highly when it comes to compensation. Partners are compensated primarily for short-term accomplishments — usually production metrics — with little else mattering. So, partners are too busy working in the business instead of working on the business; they’re focusing on client activities at the expense of leadership, staff mentoring, and strategic plan execution. As a result, partners develop an “I’m too busy for that other stuff” mentality, perhaps without realizing it. They work on one client project after another without stepping back to work on the things that will make the firm best-in-class.

Second, a degree of complacency sets in for many firms, subconsciously preventing them from really trying to become best-in- class. Admittedly, it’s hard to blame them. Their income per partner is $400,000 to $500,000. The average partner will pocket $15 million to $20 million in compensation and retirement benefits during their ownership tenure. Partners love their jobs and their clients, who (hopefully) love them back. With little partner accountability (not a good thing), life is good.

In fact, partners reading the list of best-in-class traits above will see that becoming a best-in-class firm will require significant changes in the ways they think, the ways they work, and the ways their firms operate. Simply, many partners aren’t willing to make these changes. To be frank, many firms lack the high degree of partner cohesion, unity, and leadership necessary to focus on and commit to being best-in-class.

With this being my final INSIGHT column to you, I’ll leave you with this challenge: Review the traits of best-in-class firms at your next partner retreat and brainstorm what your firm needs to do to embrace and fully implement them. Start by taking a step back and asking yourselves if you even want to become a best-in-class firm. I’m so pumped up writing this article that I’m almost willing to facilitate your firm retreats for free!

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Perennially cited by Inside Public Accounting as one of the 10 most recommended consultants in the country, Marc Rosenberg, CPA is a nationally renowned consultant, author and speaker on CPA firm management, strategy, mergers, and partner issues. His 14 practice management books are available at https://rosenbergassoc.com/shop/. Marc can be reached at 847.251.7100 or [email protected].