{"id":78651,"date":"2020-08-23t12:00:51","date_gmt":"2020-08-23t16:00:51","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=78651"},"modified":"2023-10-05t09:19:51","modified_gmt":"2023-10-05t13:19:51","slug":"what-smaller-firms-must-do-to-become-firms-of-the-future","status":"publish","type":"post","link":"\/\/www.g005e.com\/2020\/08\/23\/what-smaller-firms-must-do-to-become-firms-of-the-future\/","title":{"rendered":"what smaller firms must do to become firms of the future"},"content":{"rendered":"
<\/a>12 trends to consider.<\/strong><\/p>\n by marc rosenberg<\/span><\/i> it used to be common for practice management conference agendas to include a panel of luminaries \u2013 prominent consultants and rock star managing partners \u2013 to make predictions for the cpa industry. as an up-and-coming consultant (who was too new to be invited as a panelist), i saved several years of these predictions to see if, years later, the predictions came true.<\/p>\n more: <\/b>when managing partners can\u2019t<\/span><\/a> | <\/span>don\u2019t let exiting partners double dip<\/span><\/a> | <\/span>how covid impacts partner retirements<\/span><\/a> | <\/span>covid-19: how your firm can respond<\/span><\/a> | <\/span>8 ways comp systems get partners to do what the firm needs<\/span><\/a> | <\/span>buyers name 20 big merger turnoffs<\/span><\/a> | <\/span>why governing by partner ownership is bound to fail<\/span><\/a> i was not<\/strong> surprised to find that only 10 percent of these predictions came true. (examples: the demise of small and midsized firms; outsourcing to become mainstream; tax law simplification.) i vowed then, as i continue to do today, to refuse invitations to make predictions. ninety percent of all cpa firms can be considered \u201csmall.\u201d for purposes of this post, let\u2019s consider \u201csmall\u201d as firms under $10 million of annual revenue. these firms may wonder: what do we have to do to be viable in the future?<\/p>\n the following are not predictions. they are trends that, to varying degrees, have already begun, mainly at top 10 firms. many are moving at a snail\u2019s pace for smaller firms. whether or not these trends will have a major impact on small firms and when<\/strong> they will occur is anyone\u2019s guess. but make no mistake about it: if you want your firm to be a firm of the future, these are the things that your firm should be brainstorming at your upcoming partner retreats.<\/p>\n advanced technologies<\/strong> such as data analytics and artificial intelligence. most experts in these technologies see their full impact at small firms in five to 10 years, a relatively short time horizon as sea changes go. one of the main impacts of these technologies will be to significantly decrease revenue from traditional compliance services such as audits and income tax returns, perhaps as much as one-third of what they are today. put that in your pipe and smoke it!<\/p>\n more consulting to replace the lost compliance revenue. <\/strong>the cpa profession has already seen this impact in the form of assisting clients in getting ppp loans and getting the loans forgiven. there are many others.<\/p>\n clients\u2019 needs will continue to get more diverse<\/strong> and cpa firms will need to satisfy these needs with a larger array of service offerings. firms that limit their service portfolios to tax returns and write-up work may be left out in the cold. the more enlightened firms will continue their decades-long quest to retain their \u201cmost trusted advisor\u201d status.<\/p>\n mergers of non-cpa firms.<\/strong> it\u2019s really weird. in practically every other business, revenue growth is revenue growth, whether it be organic or via mergers or acquisitions. but the cpa industry always goes to great pains to cite their revenue growth excluding<\/strong> mergers. it\u2019s almost like growth via mergers somehow doesn\u2019t count. it\u2019s only natural that cpa firms will be doing more and more mergers with non-cpa firms as they seek revenue sources beyond accounting compliance to satisfy their clients\u2019 needs. it\u2019s been happening with regularity at the top 100 firms for several years now. many large firms are now doing more mergers of non-cpa firms than accounting firms. it\u2019s only a matter of time until smaller<\/strong> firms start acquiring non-cpa firms as a strategy for providing consulting work to replace lost compliance revenue.<\/p>\n wealth management. <\/strong>from the mid-1990s through the early 2000s, this was the hot new service. the large firms today are super-active in this area. some small firms got into it, but it has leveled off the past 15 years or so. today, only one-third of all firms under $20 million provide wealth management services. yet, these providers will tell you they make more money on wealth management than cpa work. as firms continue to hunt for ways to provide consulting services to clients, wealth management will become a \u201cusual suspect\u201d for change.<\/p>\n outsourcing.<\/strong> similar to wealth management, there was a time at the turn of the century when outsourcing tax and accounting was all the rage. but it never happened to any serious extent at smaller firms. but with the increasing commoditization and revenue shrinkage of compliance services, outsourcing is a natural tactic for firms to adopt.<\/p>\n specialization and niches.<\/strong> long the focal point of large firm marketing, specialties and niches have largely been eschewed by small firms, mainly because smaller firms didn\u2019t need to adapt. their compliance revenue from generalist practices has been so strong for decades that they have been reluctant to fix something that isn\u2019t broken. but again, the golden goose of compliance is going to dramatically change in the next 10 years or so, so firms will have to specialize more. many extraordinary changes throughout civilization occurred simply because there was no choice.<\/p>\n beyond geographic boundaries for clients and staffing.<\/strong> the long-term impact of covid-19 will amaze us all. it\u2019s already started. running our practices remotely before the virus was kind of a luxury, an outside-the-box tactic used sparingly and only when necessary. but because of covid-19, firms have rapidly learned that they can run their firms quite effectively when virtually 100 percent of the firm is working remotely. if there ever is a time when the virus is over, few think that the world, let alone cpa firms, will ever go back to working mostly face to face in an office. this will inevitably expand the geographic boundaries of firms\u2019 markets for clients, referral sources and staff.<\/p>\n higher bar for equity partner.<\/strong> the bar for making equity partner in most of the world is considerably higher than it is for the u.s. and canada. this is an area that has already been changing in a meaningful way at smaller firms. the rosenberg map survey<\/a> shows that the ratio of professional staff to equity partner has been increasing steadily for the past six to seven years or so as firms have realized that they don\u2019t have to promote every decent manager to equity partner as a staff retention tactic.<\/p>\n more attention to staff development.<\/strong> when asked, most partners agree with the notion that the firm\u2019s staff are just as important as its clients. but they don\u2019t walk the talk. partners at many firms are \u201callowed\u201d to be mediocre at staff development as long as their production numbers meet expectations. this will and must change.<\/p>\n more sophisticated performance-based compensation for partners. <\/strong>in the past 20 years, most multi-partners have migrated to performance-based systems, away from non-performance-based methods such as ownership percentage, seniority and pay-equal. but more change is needed. firms need to recognize important performance attributes in areas other than<\/strong> traditional performance measure like finding, minding and grinding. these other factors include mentoring staff, firm management, teamwork and adherence to the firm\u2019s core values.<\/p>\n more remote work.<\/strong> before the covid-19 virus, working remotely was kind of a luxury, done on an as-needed basis. our proprietary research shows that 15 percent of all billable hours worked prior to the virus had been worked remotely by cpa firms. post-virus, we expect this figure to at least double. this will require changes in the way cpa firms manage people and work. some of the bigger challenges will be (a) getting over the need to physically see staff at their desks to ensure that they are actually working, (b) measuring staff\u2019s performance and (c) finding substitutes for the short, informal, impactful face-to-face mentoring\/training talks that for decades have been the backbone of developing staff.<\/p>\n if you want your firm to become a firm of the future, these topics should be on your partner group meeting agendas, and action plans established.<\/p>\n","protected":false},"excerpt":{"rendered":"
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\nbut modeling the future based on trend analysis is quite different than predicting the future. and that\u2019s what this article is all about. since the dawn of mankind, we have lived in a changing world. we know that changes will occur, but few know exactly what<\/strong> the changes will be and when<\/strong> they will happen.<\/p>\n