In the context of a CPA firm, a sustainable brand is a firm that has both scale and “market permission” to service complex, sizable, multiple domestic and international location companies that have an appetite for growth and private/public capital that translates into services that it needs from a CPA firm beyond basic accounting, auditing and tax compliance. To have scale, a CPA firm needs to have about $250 million in revenues with healthy equity partner compensation. Receiving “market permission” from investment bankers, attorneys, private equity groups and industry peer groups to service their mid-market clients or portfolio companies gives CPA firms the ability to grow their brands and prosper over the long term. Without scale and “market permission”, a CPA firm is destined to be a merely good firm.
In the U.S. public accounting profession, there are three tiers of CPA firms. The Top Ten CPA firms are the sustainable brands:
All ten firms in Tiers One and Two are great sustainable brands because, pound for pound, they have the best partner/staff talent, a stable of identifiable marquee clients, worldwide branding, industry credentials, quality leadership and an infrastructure that will continue to propel them over time. Most important, in addition to all the good things that come with scale, they all have “market permission” to service complex, sizable, multiple-location clients that raise private and public capital as they grow. Their CEOs, managing partners and other senior partners are very smart and energetic business leaders. Their colleagues are partners with deep subject matter expertise who serve as trusted business advisors and consultants to many successful companies.
Many Tier Three CPA firms, while quality organizations, will either merge-up into mid-market sustainable brands or fail. If they don’t merge-up or fail, they will continue to bump along – with the destiny of being forever merely good firms with mediocre average partner earnings.
This perspective is not focused on building a Tier One (as there is no real opportunity except for the consulting space) or a Tier Three firm. Instead, this perspective is focused on building a Tier Two firm that ranks between #5 through #10, i.e., the Next Six, because that is where the
opportunity is for aspiring CPA firms that want to “run with the big dogs”. In Our Opinion, the opportunity is there for the taking.
Of utmost importance is that you need to commit to a strategic path toward becoming a mid-market sustainable brand and not deviate from it by chasing low-hanging fruit or other distractions. Unfortunately, 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 in this decade 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.
So, what is the magic sauce, you may ask – how do you start moving your firm from a merely good firm to a mid-market sustainable brand and start running with the big dogs? The magic sauce requires 8 steps or building blocks:
It is not easy trying to transform a small CPA firm into a mid-market sustainable brand. Some partners will resist the transformation and, in some cases, try to undermine the effort. Other partners won’t understand how the transformation could realistically be achieved. This “noise” is to be expected but it can’t be tolerated as it acts as a drag on the firm. If the path to becoming a mid-market sustainable brand requires some partners to “get off the bus”, so be it. Leadership has to put firm first and continue building a firm that can take advantage of the opportunities in front of it.
Dom Esposito, CPA, is the CEO of ESPOSITO CEO2CEO, LLC — a boutique advisory firm consulting to leading CPA and other professional services firms on strategy, succession planning and mergers, acquisitions and integration. Dom, voted as one of the most influential people in the profession for two consecutive years by Accounting Today, authored a book, published by www.CPATrendlines.com., entitled “8 Steps to Great” which is a primer for CEOs, managing partners and other senior partners. In Our Opinion, is a continuing series of perspectives for leading CPA firms where Dom shares insights, experiences and wisdom with firm leaders who want to “run with the big dogs” and develop their firms into sustainable brands. Dom welcomes questions and can be contacted at either firstname.lastname@example.org or 203.292.3277.