plus a brief stroll through the world since bates.
by marc rosenberg
the rosenberg practice management library
sir winston churchill (and others) said: “those who fail to learn from history are doomed to repeat it.” that’s why we discuss the history of practice development at cpa firms.
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read this history and see if your firm has learned from the many milestones in the evolution of accounting firm practice development.
we include innovative practices in practice development as well as historical milestones. they are mostly in chronological order. in some cases where dates are given, it represents when the practice or event began. in other cases, it means the point in time when these practices became widespread among cpa firms.
in the beginning …
cpa practices used to be very simple. all firms did the same thing, soliciting for business wasn’t allowed and there was little competition. it used to be a pretty straitlaced profession.
the sole emphasis of cpas in olden times was technical excellence. if you got results and met clients’ needs, you were able to build a solid reputation and everything else took care of itself.
then things started to change
1977. the bates case was a major turning point for all professional services practice development because it removed the prohibition on soliciting for clients.
for many firms, it took 20 years for bates to finally sink in and affect the way cpa firms were run. (truth be known, many firms still haven’t gotten the news.) but the more aggressive, better-managed firms became active in practice development soon after the bates decision. this continues today.
1980s
newsletters. a major new industry was spawned as a result of bates: the paper newsletter. now free to advertise and solicit business, cpa firms in droves purchased expensive newsletters written by a small handful of vendors. the firm’s name and logo were imprinted on a canned newsletter, making it appear to clients and prospects that the cpa firm wrote the newsletter itself.
the map movement (management of an accounting practice) emerged. map conferences, map roundtables and map publications became very common. partners couldn’t get enough of this new kool-aid. the essence of map was that cpa firms are just like any other company and should be run like a real business instead of a collegial gentlemen’s club.
real businesses routinely focus on such areas of management as these:
- centralized management
- formal marketing and sales
- strategic planning and goal setting
- performance-based compensation for professionals
- developing and training of great personnel
- accountability
but cpa firms tended to focus almost entirely on the technical aspects of their work. as this revelation began to sink in, cpas realized they lacked training and knowledge in these other aspects of running their firm, so they sought these skills like a drunken sailor.
the major impact of the map movement on practice development was to formally introduce several trailblazing innovations in the way cpas think about their firms:
- it’s no longer effective for cpas to sit back and wait for new business to come in unsolicited. they have to do things to make it happen.
- in addition to business development (cpa firm lingo for selling), firms began to create marketing departments that organized the firm’s growth activities and worked in concert with individual business development efforts.
- a major new duty was added to the standard job description of a partner: bring in business. at many progressive firms, one couldn’t be promoted to partner without being a business-getter. accountability was established for bringing in business.
- as firms began to embrace the critical importance of revenue growth, partner compensation systems began to skew the allocation of income heavily to those who were the best at bringing in business, often – and mistakenly – to the exclusion of virtually all other partner duties.
compliance vs. advisory services. a major new set of terms was introduced (i believe by one of the first great national cpa firm consultants, don istvan) at map conferences:
- compliance services (called type i by istvan) are those that clients need but don’t necessarily want. examples include audits required by a bank or the sec and tax returns required by the irs. most clients wouldn’t have audits or tax returns prepared if they weren’t required. for the most part, these compliance services alone didn’t directly improve clients’ businesses.
- consulting or advisory services (type ii) are those that clients both want and need, services that improve clients’ businesses. cpas began to understand that they were not in the accounting business but instead in the business of satisfying clients’ increasingly diverse needs.
referral sources. as partners began doing business development, they pursued referral sources aggressively. networking with bankers, attorneys and others was all the rage – and it worked.
contingent fees and commissions. in 1988, the aicpa voted almost unanimously to allow cpa firms to accept contingent fees and commissions related to their sale of securities and other financial products to clients. prior to this, the aicpa banned these activities. the sale of financial products to attest clients is still not allowed.
cpa firms were slow to react to this change. but by the mid-1990s, coinciding with the consolidator movement, the sale of financial services began to catch on in earnest.
today, roughly one-third of all cpa firms engage in the sale of financial products and related services, with larger firms more likely to pursue this avenue than smaller practices. many firms earn more money in wealth management than they do from traditional cpa firm services. the introduction of this service created one of the largest cross-selling opportunities in the history of cpa firms, rivaling the sarbanes-oxley act in the early 2000s.
the success of financial services was fueled by a creative promotional strategy. cpa firms looked at themselves and realized three things:
- they are their clients’ most trusted advisors, more so than lawyers, bankers, investment advisors and other professionals.
- they can tap into their unquestioned, impeccable image and strong reputation for objectivity and integrity.
- if clients hire cpas for accounting and tax and trust them as general business advisors more than anyone else, they’ll feel comfortable entrusting the management of their money to their cpas, even more than to traditional investment companies.
the association for accounting marketing (aam) was formed. it’s a national trade association of people and firms involved in cpa firm practice development, marketing and business development. their mission is to provide education, community and resources to accounting firms. members include managing partners, partners with marketing duties, marketing directors, sales professionals, firm administrators and growth consultants.
1990s
divergence of the terms “marketing” and “selling.” despite bates, marketing was synonymous with selling for most cpas. in the early 1990s, firms woke up and began to understand that marketing is creating the at-bat and selling is getting the hits. marketing is all about generating name recognition and creating opportunities to sell or close the sale. however, until the dawn of the 21st century, business development at cpa firms consisted primarily of individual selling efforts by partners. firms relied even more heavily on rainmakers than they do today.
cross-selling. adding consulting to cpa firms’ service portfolios caused them to focus increasingly on the powerful business development tactic of cross-selling, the sale of additional services that meet existing clients’ needs.
specialties and niches. this might mean a focus on one or more industries such as real estate or health care. or it might mean a focus on a specialty service such as technology, business valuations, litigation support or estate planning. for some firms, it may mean both.
cpa firm associations. the basic premise of these associations is like the united states’ motto, “e pluribus unum” (“out of many, one”). because 99 percent of all cpa firms are local, those joining an association benefit by loosely associating with dozens of other firms, not just in the u.s, but internationally. this gives association members some of the advantages that larger firms have. from a practice development point of view, member firms benefit from:
- expanded geographic coverage. if clients of a local cpa firm open offices halfway across the country or internationally, their service needs can be satisfied by an association member in that location.
- access to the technical expertise of dozens of firms instead of just their own. again, a great cross-selling opportunity.
- knowledge of best practices at dozens of other cpa firms obtained by attendance at frequent association map conferences.
the common thread of association benefits is that they rescue firms from living in a cocoon.
consulting tagline. as part of cpa firms’ metamorphosis into consultants, it was only natural that they would change their tagline to “cpas and consultants” instead of just “cpas.” and they did.
the internet. considered by many to be civilization’s greatest invention of the last 100 years, widespread internet usage began in the early to mid-1990s, fueled by the development of a windows-compatible browser and the removal of restrictions on carrying commercial traffic. today, the use of the internet to promote, advertise and sell is ubiquitous to organizations, institutions and individuals of all types.
email. the evolution of email largely paralleled that of the internet. email is commonly used to send messages and is used for blogs and for promoting services and products.
bonuses for bringing in business. firms began creating sales commission/bonus plans to provide financial incentives for staff to bring in business.
the consolidator movement. non-cpa firms such as american express, h&r block and cbiz bought hundreds of accounting firms and provided one-stop shopping, in which clients can go to one cpa firm for a multitude of financial and consulting services such as audit, tax, consulting, investments, payroll, insurance, mortgages, strategic planning and technology consulting. clients found this far more convenient than going to separate firms for each service. this movement turbocharged the cross-selling and consulting concepts.
2000s
sarbanes-oxley act (sox). legislation prompted by the enron/andersen debacle of 2001. almost overnight sox created a new multibillion-dollar service almost exclusively for the 25 largest cpa firms in the u.s. interestingly, this also hugely improved revenue for firms below the top 25 because of the trickle-down effect: the top 25 did not have the capacity to handle this influx of major new work and revenue, so they paid less attention to serving smaller compliance clients. smaller clients of top 25 firms were huge clients to those below the top 25. as a result, revenues of these smaller firms swelled, propelling the u.s. cpa firm industry into the golden age of the accounting industry. annual revenue increases from 2002 to 2007 (right before the great recession) were the highest in history, with many firms regularly posting revenue increases above 10 percent. sox work is perhaps the single biggest cross-selling boon to ever hit the accounting profession.
mentoring. before the early 2000s, mentoring was not in the cpa’s dictionary. but as the difficulty of hiring and retaining accountants became dire, firms realized that if partners and other senior personnel proactively worked with staff to retain, develop and coach them, they could greatly improve staff retention and performance.
mentors take mentees (protégés) under their wings for an extended period of time, giving them advice on how to succeed at the firm, counseling them on where they stand and what they need to do to get ahead and, most importantly, helping them develop the skills to advance.
a common mentoring activity is to for partners to improve their staff members’ business development skills by bringing staff along on sales calls. this gives mentees the opportunity to see a pro in action and learn from these experiences.
teamwork and moving away from the “book of business” mentality. one of the most significant growth practices orchestrated by many firms (especially larger ones) is to move away from a focus on individual selling efforts and rainmakers (who are always in short supply) to a team or firmwide approach. here are some of the many team practices:
- in team selling, the lead originator brings to the sales pitch a senior member of the firm who practices in a different discipline. a classic example is the audit specialist bringing along a tax expert.
- institutionalizing clients (a practice more common with larger clients than small) means servicing clients by ensuring that they have multiple touch points in the firm. the goal is for them to rely on and value several firm members, not just one. it improves the odds that if a partner suddenly leaves the firm, his or her clients will stay.
- a firm member who is strategizing how to make inroads with a prospect taps into the firm’s resource pipeline to see if anyone has a contact or an in to make a “warm” introduction. this practice includes pooling and tracking of referral sources.
the common thread to all these team approaches is “no lone rangers.” people are discouraged from hoarding client relationships and encouraged to allow other firm members access to their clients.
the stigma of the term “book of business.” a byproduct of the team approach is a movement away from using one’s book of business as the main way to measure a partner’s overall performance. don’t get us wrong: bringing in business and managing a large client base will always be important. but “book of business” connotes the notion that clients are somehow owned by individual partners instead of being owned by the firm. it’s a term that is anti-team and anti-firm. the mp of a large firm once told me: “we stopped measuring book of business because we didn’t want our partners always looking at their own metrics.”
mergers as a strategy to achieve revenue growth. since the mid- 2000s or so, the accounting industry worldwide, not just in the u.s., has experienced a merger frenzy. this has been fueled by several phenomena:
- baby boomer partners are approaching or reaching retirement age without enough younger personnel to replace them.
- there is a terrible shortage of qualified accountants.
- cpa firms suck at succession planning and leadership development, mainly because (a) excelling in these areas is not a significant factor in partners’ compensation, (b) partners are not trained in leadership development and mentoring and (c) partners either consciously or subconsciously believe that their exit strategy will eventually be to sell out, so they don’t expend much energy to position the firm to remain independent.
social media. with the proliferation of social media, cpa firms were provided with a major new way to promote their firms. the jury is still out on the effectiveness of social media for cpa firm marketing.
what your firm should learn from the history of pd
- understand the difference between marketing and selling.
- never be satisfied with what you have. complacency kills a firm.
- solicit new business; increase your at-bats to maximize the frequency of your hits. stop acting as if the bates decision never happened.
- differentiate your firm from others.
- actively and tastefully promote your firm to clients, prospects and referral sources.
- be sure to get your name out there regularly. use social media, blogs and newsletters effectively.
- run your firm like a real business.
- create and manage an active marketing function.
- establish partners’ accountability to bring in business.
- train staff in practice development with mentoring and sales training.
- aggressively but professionally cross-sell your services.
- develop consulting services to work in tandem with compliance work. provide one-stop shopping.
- offer financial services to your non-attest clients.
- specialize in focused niche and service line areas.
- join aam (the association for accounting marketing).
- join a cpa association to avoid living in a cocoon and to expand your geographic and technical footprint.
- use marketing to drive selling opportunities instead of relying exclusively on individual efforts to grow the firm.
- sell to and service clients in teams.
- consider a merger to supplement organic growth.