plus: nine fatal flaws in the accounting firm business model.
by marc rosenberg
the role of the managing partner
one purpose of strategic planning is to address trends taking place in the profession to ensure that the firm isn’t caught flat-footed when major changes or opportunities present themselves.
more: 13 traits of the best managing partners | top issues for millennial managing partners | the managing partner’s secret weapon | how a good managing partner impacts profitability | how a great managing partner impacts firm growth | compensation is no way to manage partners
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believe it or not, most of these trends have not changed much over the past decade or so. and the global pandemic only served to disrupt the status quo and accelerate long-standing trends.
it’s the managing partner’s job to examine these trends and analyze what the firm should be doing to address them.
current trends
1. the impact of the covid crisis has been a shock to the system, and – let’s not kid ourselves – the effects are broad and lasting.
of course, tax season couldn’t be worse timing for cpa firms. firms all over the world are struggling with so many issues directly exacerbated by the crisis. for example:
- greater use of video conferencing and other technology to enable firms to operate effectively
- closing offices; limited or no in-person client meetings
- the financial health of clients and its impact on our firms’ cash flow
- productivity of our people working from home, especially those with young children
- creating ways to do audits remotely
- firms communicating with and mentoring their personnel
- messaging to clients
2. diversity and inclusion. our industry has a long way to go to reflect the diversity of the communities we do business in. while progress has been made, it’s up to current and future managing partners to change the landscape on this issue.
what managing partners need to do: proactively seek out opportunities to hire, develop and promote people who bring racial, cultural, gender, sexual orientation and disability diversities to the workplace. listen to their perspectives and make it clear through policies and visible actions of leadership that including diverse team members in our profession is a priority. support high school and college initiatives geared toward promoting diversity in accounting to develop a pipeline of talent.
3. baby boomers retiring in droves. this is expected to continue for many years to come.
what managing partners need to do: lead the charge by:
- developing strong leadership development programs
- keeping the bar high for admittance as an equity partner. retiring boomer partners don’t need to be replaced one for one. pursue the non-equity partner route with greater vigor.
4. baby boomers retiring later. we’ve shifted succession.
what managing partners need to do: constantly evaluate the impact of these later retirements on the firm’s succession plan. determine if these late retirements are having an impact on staff retention, especially with young stars. managing partners need to be continuously evaluating the performance of partners as they age, making sure they still demonstrate value to the firm.
5. technology. firms have never been more successful than they are today, but those that fail to embrace the coming disruptive impact of technology changes may become extinct.
what managing partners need to do: be on top of these changes, networking with other managing partners and cpa industry it experts to learn how firms are implementing new technology as it become available. don’t be the firm that waits until the competition masters the new technologies to start learning them.
6. services provided. today, audit, accounting and tax services comprise 80-90 percent of all cpa services at firms $25 million and under. experts project that audit revenue will fall by two-thirds (that’s one-third of today’s revenue!) as these coming technology changes begin to take hold. tax work will also be affected in a major way. this means that cpa firms will need to re-engineer themselves in the coming years by replacing traditional compliance revenue with new revenue sources. consulting is the #1 candidate for this revenue shift. as this happens, firms will increasingly change their taglines to lead with consulting, then accounting and tax.
what managing partners need to do: stay ahead of this alarming trend and start developing new revenue sources, especially consulting, today.
7. firms continue to suck at succession planning. only 20-30 percent of first-generation firms make it to the second. among the causes are retiring boomer partners, firms’ inability to develop new partners, the ongoing labor shortage and too much short-term thinking.
what managing partners need to do: embrace the succession planning part of your job description. make sure your days are spent on activities to strengthen your firm tomorrow as well as today.
8. merger frenzy. this is well into its second decade, with no slowdown in sight. the number of sellers keeps increasing. firms see mergers as a way to augment organic revenue growth, which many find underwhelming.
what managing partners need to do: relentlessly explore opportunities to merge in smaller firms. at the same time, make sure sellers are a good strategic fit with your firm and avoid overpaying for them.
9. demand for labor today. the profession continues to struggle, as it has for 20 years or so, with a shortage of labor.
what managing partners need to do: make sure your firm is pursing the two main methods to address the labor shortage: (a) continuously recruiting in a highly effective manner with expert recruiters and (b) retaining and developing the staff that you have.
10. demand for labor tomorrow. with new technology, firms may be reducing their dire need for staff for the first time in their lifetime. robotics is predicted to automate or eliminate up to 40 percent of basic accounting work within the next several years.
what managing partners need to do: continually monitor the ability of new technology to do what was previously done by people.
11. technologically trained accounting majors. this is one of the best ways to stay relevant to the cpa profession of tomorrow.
what managing partners need to do: make sure your firm is modifying recruiting processes to focus more on hiring those with advanced technology skills, not just an accounting education.
12. sluggish organic growth. business has been good, not great. overall, revenue growth is around 8 percent, but nearly 25-35 percent is from mergers. that leaves a modest 4-5 percent organic growth.
what managing partners need to do: champion robust, innovative marketing and business development initiatives.
13. retirement/buyout agreements. two trends:
- buyout valuations will decline because of the shorter life of audit revenue streams, caused by technological changes.
- increasing numbers of firms are tightening up their partner agreements by providing for buyout reductions if retiring partners fail to comply with provisions for transitioning clients and giving notice.
what managing partners need to do: take a close look at your buyout agreement and tighten up the provisions in these areas.
14. cpa firms’ outdated operating model. it’s becoming more and more apparent every day.
just a few examples:
- partners are way too billable.
- there is too much focus on doing compliance work and not enough on growing consulting services.
- partners practice as silos instead of as a firm.
- outsourcing is rejected.
- the bar is too low for making someone an equity partner.
- revenue growth relies too much on individual partners’ business development skills instead of firmwide marketing initiatives.
- firms fail to walk the talk on their staff being just as important as their clients. very few firms have a clear, meaningful factor in their partner compensation system for partners who excel at developing staff into leaders.
- managing partners are way too involved in serving clients. they need to spend more time managing their firms.
- succession planning is ineffective because deep down, the partners think they can always merge up if they fail to develop new partners. reality: it has become much more difficult to find buyers willing to merge in firms at attractive terms.
what managing partners need to do: fight complacency by the partners. get your firm to change with the times.
2 responses to “the 14 trends crushing today’s accountants”
bob marsh
while i agree with most of which you said. #2 i take issue with. we have diversity in our firm based solely on merit & expertise, nothing more, nothing less.what you are suggesting is that we hire as “affirmative action” which is morally reprehensible. also, you cannot hire that way because you will create a division in your firm. people know when you hire based on those ways and that creates favoritism syndrome. we have different viewpoints and we respect everyone’s freedom to that. ideologically, moral attributes all vary but the reflection of most of today’s culture creates division. all of this “wokeness, crt is anti american and by “compromising “ in this shows either you are weak in standing up for our values that have made this country great, or you are part of the problem not the solution,
jonathan baron
very well said, marc. these trends were evident 15 years ago, and covid-19 is an accelerator for the impact the trends will have on the profession. i was not a fan of his overall leadership style, but one of my favorite quotes is from jack welch “when the pace of change on the outside is greater than on the inside, the end is near.” i don’t think “extinct” is too strong of a word for many firms.