As small and midsized CPA firms make the turn from the pandemic to the new normal, there will be opportunities to get stronger and better. Acting quickly and deliberately on these opportunities will determine which firms will prosper and which firms will not and therefore fail or merge-up.
To begin with, now is the time for fresh, critical thinking with regards to some tough questions:
- Does the firm have the wrong mix of client service partners and staff?
- Has there been enough emphasis on firm growth and/or profitability?
- Has the firm been autocratic and/or has there been sufficient leadership depth?
- Has there been too much or too little partner autonomy?
- Has the firm had enough superstars coming through the system?
- Has the firm been plagued with too many unproductive partners?
- Have the partners been on the same page strategically?
- Has the firm been too eager to accept any and all clients?
- Has the firm been too eager to do too many small mergers and tuck-ins that have proven not to bear an awful lot of fruit?
- Does the firm have enough capital to invest in the new normal?
These questions address some basic issues that probably should have been addressed before the pandemic, but since it is not business as usual, now is the time to swiftly deal with them so that your firm can move to important strategic issues and answer the question:
Should your firm shift or amend your strategic plan and re-evaluate your views regarding one of two possible paths:
- Going big. We often hear the phrase “Bigger is not necessarily better,” but we maintain that the marketplace places a lot of importance on size and brand awareness, and therefore bigger is better, because the bigger your firm is, the more likely it is that you are building an impressive client list and many impressive partners and staff. Impressive client lists and impressive partners and staff help you attract high-quality people and new clients and effectively serve existing clients. So, what does the competitive landscape in your geography look like? Do post-pandemic times present an opportunity for your firm to become a clear alternative to the Big Four firms or to the Next Six? Is there an opportunity for you to gain market share with larger, more complex clients?
- Getting deep. In your marketplace, is there an industry niche (say, commercial real estate, retail or technology) that cries out for a specialty firm with market distinction? Small firms that have deep industry expertise usually generate an excellent living for their partners. Industry specialization sells with clients, prospects and your partners and staff. So, what does the geographic competitive landscape in this new normal look like? Is there now an opportunity for your firm to be the “go-to” firm for a particular industry?
If you believe that now is the time for your firm to re-evaluate its strategy, there are seven steps that you need to tackle. These are briefly summarized below:
1. You start with strategic planning, implementation and accountability, which require you to:
- Go off-site, with a professional facilitator and have a partner retreat — the best way to kick off a strategic plan.
- Refresh your vision statement and do a SWOT analysis.
- Burn the new normal plan and tactics into each and every partner’s annual goals — this is the best way for you to achieve effective implementation.
2. Strengthen your governance and economic model that will enable you to:
- Establish an executive board for effective governance and a senior leadership operating team for the day-to-day operational oversight.
- Limit equity partnerships to those who consistently help to perpetuate the firm and build enterprise value.
- Avoid the temptation of the upside-down partner/staff pyramid.
- Use insightful management tools that will enable successful execution.
3. Strengthen your ability to attract, develop and retain first-class partners, and remember:
- An effective HR function is critical to your future partner pipeline.
- Senior managers and laterals have to see a quality firm, one that has a strategic plan to transition to a sustainable brand.
- Your highest-performing partners must become true owners and not merely employees.
4. Develop a performance management and compensation plan that:
- Drives desired behavior. The focus needs to be firm-first, line of business or office second, and individual performance third.
- Evaluates performance in a consistent approach — it’s integral to communications and execution.
- Is viewed as a way of running your firm, rather than merely a means of rewarding partners.
5. Attract, develop and retain marquee clients through industry, consulting and technical specialization, because:
- Industry specialists, consulting specialists and technical specialists are integral to growth.
- Marquee clients are credential builders that provide CPA firms with the “market permission” to grow with “scale.”
- Specialists and marquee clients are prescriptions for providing distinctive service that brings value beyond compliance needs. This is the way your firm will stand out from your competitors.
6. Develop value-added deliverables that are byproducts of your annual compliance services that demonstrate that your CPA firm provides not only superior service but also “value-add.”
7. Make it real through persistent and consistent leadership:
- Every word the CEO/managing partner says, every action taken, has tremendous impact not only among the partner ranks but also throughout the firm.
- Being a leader is very much like being a parent. You need to be persistent and consistent in your words, actions and principles.
In conclusion
These certainly are challenging times and hopefully we will begin to make the turn to healthy and financially successful times soon. It will take some time for leaders of small and midsized CPA firms to ramp back up. While there is time to reflect and tweak strategies, make the tough decisions that are in front of you. What better time to deal with them? In the words of Rahm Emanuel, “You never let a serious crisis go to waste. And what I mean by that [is] it’s an opportunity to do things you think you could not do before.”
