Every week, news of mergers are announced at every size level from sole proprietors to the Top 100. The pace of consolidation is increasing rapidly and will continue to accelerate for the next five years and beyond. The median age for baby boomers is around 62. Baby boomer partner succession demographics and the dynamic market forces such as client demands for more sophisticated advisory services, advancing technologies, and competition for quality staff and clients are fueling M&A. As the landscape is changing daily, firms of all sizes are determining how to position themselves in the marketplace to achieve above average growth, increase profitability and implement succession strategies. Although the marketplace is extremely challenging for all size firms, it’s becoming more of a crisis for firms below the Top 200 to compete effectively. It’s time for these size firms to make tough decisions and implement a course of action in the next couple of years, such as:
- Determining if the firm should merge up now as a strategic approach to dealing with the dynamic marketplace and all its of its competitive challenges rather than waiting for succession issues to force a decision.
- Restructuring and re-positioning its services and industry concentration in the marketplace to target prospective clients that will provide more growth opportunities and increase profitability.
- Investing in outsourced resources for target marketing and lead generation to achieve an average net growth rate of 10%.
- Increasing the levels of state of the art technology in every area of the practice. Kimberly Ellison-Taylor, chairman of the AICPA, said that technology tops the list of the most important trends in the accounting industry. The shift is to cloud computing that leads to greater productivity and capabilities and a fuller integration of technologies. Artificial intelligence and data analysis provide huge opportunities for audit, tax, and client accounting services.
- Managing the firm’s culture before it manages the firm with unintended consequences. Contemporary firms develop strategies to build and define a culture that attracts and retains the best partners and staff, promotes the firm’s values and reinforces those values throughout the firm with consistent implementation. Before leaders undertake changing the firm’s culture, it’s essential to determine what type of cultural alignment is necessary to achieve the desired results linked to the firm’s short-term and long-term strategy.
- Succession planning should be a daily routine. Succession planning is not a program that should take place a few years before client service partners and/or leaders are about to retire. It should be an ongoing daily occurrence that takes into account partner governance and compensation, marketing, recruiting at all levels, and human resource management. Succession planning needs to start at the top with a true sense of urgency. Holding partners accountable for implementing the firm’s succession plan, and compensating them accordingly, is key to the success of the plan.
- Firm leaders need to make the tough decisions for the long-term benefit of the firm and avoid anguish over the short-term repercussions. Now is the time to make these decisions, whether it’s terminating an unproductive partner, disengaging a long-time low realization client, holding partners truly accountable for performance and results, or deciding on a merger. Making the tough and timely decisions is more advantageous in the long-run than maintaining the status quo that is hindering the firm’s future success.
The game and rules have changed in the accounting profession as competition for quality clients and staff is fierce, coupled with pressures from consolidation and baby boomer succession issues. The combination of these factors necessitates great leaders making timely and tough decisions along with adapting to the marketplace changes.
Remember, “It is not the strongest of the species that survive, not the most intelligent, but the ones most responsive to change.” —Charles Darwin