profitability requires discipline

19 basic principles to improve operations … but don’t treat them like “flavor of the month.”

by domenick j. esposito
8 steps to great

we all know that improving profitability on a sustained basis generally is a long-term play that requires significant planning, discipline, accountability, implementation and patience.

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unfortunately, the senior partners at many small and mid-sized cpa firms do not possess all of these attributes and therefore are unable to make significant strides in their bottom-line distributions to their partners. while it’s an uncomfortable scenario, it’s reality and almost understandable as many small and midsized cpa firms are thinly managed and do not have the leadership that is necessary to change the inevitable path of merging up.

while improving long term profitability is a complex challenge, there are several basic principles that have the potential for significant operational improvements. once applied, many small and midsized firms incrementally move the needle on the bottom line. nevertheless, we have found that even these basic principles, tried and true, aren’t consistently used at many small and midsized cpa firms because of a lack of organizational discipline.

“in reading the lives of great men, i found that the first victory they won was over themselves … self-discipline with all of them came first.” – harry s. truman

here are the basic principles to improve operations:

strive for a shared vision about your firm’s future and strategies (with partner accountability) that will help achieve success.
promote a “firm first” culture that rewards collaboration.
reach for a high degree of institutional partner loyalty and team effort by placing great emphasis on firmwide coordination of decision making, group identity, cooperative teamwork and institutional commitment.
create a foundation of fairness and a lack of cronyism. when your firm says that certain things matter and they actually do matter, it goes a long way in establishing trust in your firm’s leadership.
insist on a sound economic model that rewards consistent performance.
insist on sound corporate governance that “walks the talk” when the rubber meets the road.
require consistent and persistent leadership by senior partners with a no-tolerance view on individual partners who think that they themselves are “stars” and much more important than the firm itself.
take a hard look at your partner compensation model and ensure that it contains enough transparency and that it supports your firm’s core values and strategic decisions.
attract and retain first-class partners who understand how to build lasting business relationships with clients and contacts.
develop partner goals, holding partners accountable for delivering results, and rewarding compensation when goals are achieved both individually and collectively.
drive industry specialization (the key to a value proposition that differentiates) into your firm’s dna.
emphasize growth on the top and bottom lines at satisfactory rates (say 6 percent to 8 percent per annum) through cross sells and new originations.
create a business development culture that includes everyone within their capacity and skill set.
demonstrate that your firm is different by bringing value to clients that is measurably better than competitors. this is readily achieved when your firm institutionalizes its approach to client service (client expectations) by consistently providing byproducts of compliance services such as observations to ebitda and working capital improvements.
approach client service with multidisciplinary client service teams of audit, tax and advisory professionals.
make it well known that the firm wants marquee clients that build brand awareness and credentials and not simply volume for volume’s sake.
emphasize that long hours and hard work demonstrate high involvement and commitment to the firm.
place an emphasis on continuous education on firm policies, procedures and protocols.
look for smart mergers and lateral hires that add to a firm’s strength, improves its weaknesses and expand its footprint.

implementing these principles does not require brain surgery or dealing with complex longer-term strategies. nevertheless, we have found that many small and midsized cpa firms cannot implement many, if not most, of them on a sustained basis. and again, we believe that it comes down to a lack of organizational discipline.

we have found that many firms pick and choose a number of these principles and treat them as the flavors of the month. emphasis is pushed through their firms for one or two months and profitability improves.

that’s the good news. now the bad news. after one or two months of c-suite muscle, management’s attention wanes and the foot is taken off the gas pedal. slowly people get the impression that leadership no longer is interested in the initiative. if leadership isn’t looking, many professionals will go back to their bad or ineffective habits. it’s human nature.

these basic operating principles are tried and true tools to improved profitability. we believe they can be viewed as low-hanging fruit. they work.

if your firm does nothing else coming out of the tax season, we encourage you to take our list of basic principles, prioritize it for your firm and start driving the most impactful through your operation with persistency and consistency. the key to improved profitability is organizational discipline and determined leadership.

posted on march 28, 2018

dom esposito

about the author

domenick j. esposito was the ceo of grant thornton, vice-chair of bdo, and national growth director at cohnreznick.

he is the author of "8 steps to great: the eight essential strategies driving success at the world's largest cpa firms. and how to apply the lessons at firms of all sizes," published by 卡塔尔世界杯常规比赛时间.

a life in public accounting

in 2016, esposito, then a former ceo of bdo, moved from a 46-year career in public accounting into the next phase of his professional life – consulting to cpa firms, launching a boutique advisory firm, esposito ceo2ceo, that provides advice to ceos, managing partners and other senior partners of cpa firms focused on the mid-market throughout the u.s.

with the launch, esposito authored “8 steps to great," a guide for ceos, managing partners, and other senior partners on how to move their firm to the next level.

cohnreznick national growth director

esposito was one of the most qualified individuals in the country to advise cpa firms on growth and profitability. through 2015, he was national practice & growth director and an executive board member of cohnreznick, llp, a mid-market sustainable brand and the tenth-largest cpa firm in the united states. he oversaw cohnreznick’s go-to-market industry specialization and consulting and advisory service lines. he was also intimately involved in the firm’s mergers and acquisitions and strategic and tactical activities for its public company and capital markets initiatives. dom joined the predecessor firm of j.h. cohn in 2002 as the chief operating officer and executive board member.

dom was also an independent director of ethan allen interiors inc. for several years (through 2014), dom was a member of the nasdaq listing and qualifications committee to the organization’s board of directors. he formerly served as the leader of the new york state society of cpas committee for large and medium-sized firms practice management. he also was an adjunct accounting professor at c.w. post/long island university.

bdo and grant thornton

through october 2002, dom was vice chairman at bdo, a mid-market sustainable brand and the seventh-largest international accounting and consulting firm in the u.s., with almost 50 offices and 3,400 employees. during his brief time with bdo, he was responsible for the alliance distribution network (at the time consisting of over 80 cpa firms, 10 law firms, and 25 consulting firms). he was also responsible for attracting and servicing a number of clients.

from 1979 through 2001, dom was with grant thornton, another mid-market sustainable brand and the sixth-largest international accounting and consulting firm in the u.s., with over 50 offices and 4,500 employees. he joined grant as an audit manager, became a partner in 1981, led the long island office from 1984 to 1986, became assistant managing partner of the new york office in 1986, and from 1988 to 1999, led the new york office. in 1999, esposito became a regional managing partner and for two years, through 2001, was the firm’s chief executive officer.

cpa, partner, mba, leader, influencer, media celebrity

between 1996 and 1998, and while he was ceo, esposito was on the partner board and was also on the board of grant thornton international – the worldwide umbrella organization. in these capacities, he developed strong experience in strategic thinking and execution, international relationships, corporate governance, partnership matters, branding, expense control, client relationships, and new business development.

as ceo, he took grant thornton to record earnings, consummated the largest line-of-business sale in the firm’s history, developed a major joint venture with axa financial, and made the largest practice acquisition in the firm’s history. from 1969 to 1979, esposito was with price waterhouse (now pwc), servicing ibm when he was promoted to manager in 1976.

dom was a cpa, has been quoted in national and local media, and has appeared on radio and cable tv.

esposito also testified before the securities and exchange commission.

he received his m.b.a. from st. john’s university and his b.s. from ferris state university. accountingtoday, one of the leading trade journals for the accounting profession, named esposito one of the most influential people in the profession for two consecutive years.

he passed away in 2021 at the age of 74.

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