Know what I find fascinating? Despite all the “opportunity flags” that consultants have presented to the marketplace regarding the margin in advisory and consulting, very few Top 100 Firms have seriously pursued the paradigm shift from an accounting firm model to a professional firm model.
Why is this? Could it be because of a lack of inertia? Is it because of fear of failure? Is it because of a hesitancy to invest some of the profits being generated from the accounting and tax compliance practices? Or is it simply because they don’t have a champion qualified to execute on the strategy?
Whatever the reason, the opportunity remains large. The greatest growth and margin opportunities for midsized CPA firms continue to be with the advisory and consulting services as midmarket entrepreneurial companies with revenues between $400 million and $2 billion outsource specialized, non-core skills to deal with business challenges, including cybersecurity (which has the greatest potential for serious growth), that they cannot handle internally.
Regarding cybersecurity, in today’s world, technology has become crucial to business success as it allows businesses to collect vast quantities of data, qualify the value of that data, and employ that information to benefit their customers. As businesses form relationships with their customers, they are being entrusted with even more information that translates into fine-tuned marketing approaches with greater returns.
Because so much of this data is transmitted through the internet and stored digitally, it is subject to cyber crimes and cyber errors. For many companies, the financial costs and business damages have been huge. A company’s reputation becomes tarnished and its commitment to its customers is called into question. Customer trust, once lost, is difficult, if not impossible, to regain. Regrettably, many mid-market businesses believe they are too small or obscure to warrant the interest of professional hackers. The FBI has noted, however, that cyber criminals are aggressively targeting mid-market businesses. According to a study by Symantec, over 30% of all cyberattacks are targeted toward these companies. Since these companies typically have less sophisticated security systems, cyber criminals see these businesses as easy targets.
The comprehensive nature of the initiatives required to adequately address cyber threats requires multiple experts with varying capabilities. The knowledge, experience and skills required to address these challenges stretch across several disciplines: strategy, risk management, operations, IT, compliance and legal. Since most companies do not have the people or the resources in-house to effectively deal with these challenges, a midsized CPA firm is a very natural “go-to” provider and the opportunities are enormous.
The 2021 worldwide information service consulting market is approaching $20 billion, and it’s growing. While numerous firms are providing cybersecurity services, approximately 65% of the market is limited to the very largest consulting firms, including the Giant Four. The remaining 35% of the market is represented by national and regional CPA firms and boutiques that currently provide less thorough and established services.
Despite all the opportunity, many midsized CPA firms do not have a truly successful advisory practice. Instead, they have “wishful thinking” surrounded by an ad hoc set of service offerings.
Building a comprehensive and successful advisory practice
Here are some tips to consider as your firm starts building out an advisory practice. First of all, CPA firm leaders need to understand the state of their advisory services that are usually scattered around the firm with different partners. Discuss the current leadership and organizational structure, and discuss talent. Discuss the current services, revenue, profitability, client demographics, industry focus, firm integration and partner support. What challenges exist today? What is good about the firm’s advisory practice today? Where can the firm advisory practice improve? How do the firm’s leaders see the advisory practice growing over the next five years?
Some typical characteristics of a successful advisory practice are it has a well-crafted architecture, not ad hoc. It is not opportunistic; it should be grounded in a thoughtful strategy. It should be a well-integrated practice within the firm, not a bolt-on. It needs to be market driven, talent driven, technology driven, future driven and firm driven.
Where does a firm start? Do a comprehensive analysis of the firm’s existing client base, the services provided today and by whom, along with the competition and market dynamics. Create the initial footprint. Then brainstorm on what could be, in terms of services, talent, technology, marketing, client acquisition and financial architecture.
Develop a strategic plan for year one, two and three. If you need a new leader, should it be a partner from within the firm, or should you recruit from the outside? Do you need to acquire the right firm to accomplish this? Set up a timeline for services and talent timeline. Target your client demographics. Develop your go-to-market strategy by service and industry. Set up your financial plan, with expected investments and ROI. Sell the strategic plan internally at the firm and then execute on it. But keep monitoring, adjusting and monitoring the plan.
Advisory services are the North Star that most midsized CPA firms are seeking, but building a successful advisory practice requires patience, talent, leadership and investment. It also requires a well thought out strategic plan, much like any other business venture to overcome the primary cause of failure experienced at most firms. If a midsized CPA firm is not building an advisory practice, it’s missing out on the opportunity to transform itself from an accounting firm to a professional services firm, with the greatest revenue and margin growth vehicle moving forward. If you continue to snooze, you will continue to lose!
