8 steps to small firm survival

go big or go deep: here’s how.

by domenick j. esposito
8 steps to great

there are approximately 14,000 multi-partner cpa firms in the u.s. and yet, according to accounting today’s 2018 top 100 firms survey, only 100 firms had annual revenues of at least $40 million; the median revenue was approximately $86 million.

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the statistics are staggering. we have many small cpa firms in this country serving the mid-market and, regardless of size, in this emerging economy many firms are finding it difficult to organically grow their audit/tax practices at an acceptable rate (say 6 percent to 8 percent per annum). without healthy profitable growth on the top and bottom lines, any firm will struggle and ultimately die.

so here is the question i ask you to ask yourself and your partners – is your firm too small to endure? if your answer to this question is either maybe or yes, you have to decide which strategic path your firm needs to follow. there are basically two alternatives for most firms:

go big or
go deep

“go big or go home. otherwise, you’re wasting your youth.”

– jack ma

either path will result in what i refer to as building a sustainable brand. deciding which path is right for your firm starts by answering these tough questions:

do you have the wrong mix of client service partners and staff?
is there enough emphasis on firm growth and profitability?
is your firm autocratic and/or is there sufficient leadership?
is there too much or too little partner autonomy?
do you have enough superstars?
do you have too many unproductive partners?
are the partners on the same page strategically?
is your firm too eager to accept and any all clients?
does your firm have enough capital to invest in the future?

the answers to these questions will help you decide which strategic path is realistic for your firm. the next step is to look outward and answer these questions:

going big – i often hear the phrase “bigger is not necessarily better” but i 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? is there an opportunity for your firm to become a clear alternative to the giant four firms or to the next six? is there an opportunity for you to gain market share with larger, more complex clients with presumably better margins?

getting deeper – in your marketplace, is there an industry niche (perhaps commercial real estate, retail, technology) that cries out with opportunity and a need for a specialized cpa firm with market distinction? small firms that are deep with industry expertise usually generate excellent livings for their partners. industry specialization sells with clients, prospects and your partners/staff. so, what does the competitive landscape in your geography look like? is there an opportunity for your firm to be the “go-to” firm for a particular industry?

once you preliminarily decide which strategic path might be appropriate for your firm, there are eight steps that you need to tackle. these are briefly summarized below:

you start with strategic planning, implementation and accountability that requires you to:
- go offsite with a professional facilitator and have a partner retreat – the best way to kick off a strategic plan
- create a vision statement and do a swot analysis
- burn the plan and tactics into each and every partner’s annual goals – this is the best way for you to achieve effective implementation
develop a sound, basic governance and economic model that enables you to:

establish an executive board for effective governance and a senior leadership management 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 tool that will enable successful execution

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. easier said than done as you grow.

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

attract, develop and retain marquee clients through industry, consulting and technical specialization because:

industry specialists, consulting specialists and technical specialists are integral to your 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.

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.” three value-add examples that are byproducts of your annual audit/tax compliance services are summarized below:
- ask clients what they want from their relationship with you – then exceed their expectations. a client service plan sets standards established by your clients that will serve as precise indicators of your value-add.
- owners want to increase their business valuation and their working capital. you can demonstrate that your firm can help by delivering a memorandum identifying ebitda/working capital improvements. communicate your observations not only to senior management but also to investors. they’ll be blown away by your firm’s distinctiveness.
- family-owned businesses can truly benefit from a process that allows the owners to define their strategy, direction and priorities. a client situation review will help your firm to focus on client challenges and how your firm can provide solutions.

consider national and international reach:

arguably there are 11 u.s. financial centers that are absolutely necessary to handle growing companies. without them (if not all then at least one or perhaps two), you are not a player.
global reach, an important vehicle that strengthens your firm’s capabilities, is first obtained through membership in an association. ultimately, if you are looking to go big, you need one global brand.
international business centers in the u.s. are the vehicles to establish a firm/office focus on international business and a means to developing skills and credentials.

make it real through persistent and consistent leadership:

every word the ceo 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

just recently, bkd acquired loeb & troper, moss adams acquired hein, and plant moran acquired eks&h. these are significant transactions and their common theme is to get bigger and deeper.

small and midsized cpa firms need to get on the bus and bulk up. if they don’t, they will become yesterday’s news!

posted on november 30, 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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