How Small to Midsized CPA Firms Can Increase Capacity for Growth

The CPA profession is changing rapidly. Today’s accounting firm growth strategies and plans are challenged by many issues, including ongoing consolidation, intense competition for quality CPAs, retaining quality talent and managing a hybrid and remote workforce, retiring baby boomer founders and rainmaker partners, and many other factors. Many firms below the top 200 are struggling to adapt to these challenges and grow revenues other than through fee increases. This new market reality dictates that CPA firms need to change their strategies and adapt to overcome the marketplace obstacles.

How can CPA firms increase profitability, service new clients, and continue to provide quality services to existing clients, all in the midst of the staffing crisis? We believe the answer is a combined strategy of:

  • M&A: Acquiring Firms

  • Culling the Client Base of Low Realization Clients

  • Using Onshore and Offshore Outsourcing

M&A: Acquiring Firms

With the public accounting marketplace changing quickly, M&A is a significant factor to consider in your firm’s future growth. The growth strategies that made a firm successful in the past may not make it successful in the future. Yogi Berra once said, “The future isn’t what it used to be.”

The #1 challenge for most CPA firms is the ability to attract and retain talent to service existing and future clients. Many accounting firm partners are now at full capacity, which is a major deterrent to marketing and an obstacle to engaging new clients. Acquiring firms with talented professionals via M&A is progressively becoming a driver of M&A transactions. M&A presents the potential opportunity to team-up with talented accounting professionals. It also provides the ability to leverage those talents to increase future revenue streams by freeing-up partners to concentrate on practice development and higher levels of client services. Culling ‘C’ and ‘D’ clients of acquired firms frees up much needed capacity to service the buyer’s clients.

Growth through M&A is a viable option for small firms facing significant staff challenges. In addition, M&A provides opportunities to realize synergies between the combined firms that will allow them to cross-sell to existing clients more effectively. M&A provides many potential opportunities, including the following:

  • The ability to generate new leads by adding complementary service lines, niches, and industry specializations.

  • Increasing the number of practice development-oriented partners and staff.

  • Becoming more competitive in the local marketplace by eliminating some of the competition and establishing a stronger brand with prospective clients and referral sources.

  • Creating a more attractive option for other local firms to merge in their practices and create additional growth.

  • Expanding geographically into potentially higher economic growth areas.

  • The ability to provide the combined firm’s clients with additional value-added services.

Culling the Client Base of Low Realization Clients

When CPA firms are adopting a new growth model, it is important to eliminate low realization clients, establish client profitability guidelines, and focus the firm’s marketing initiatives and activities on high-quality targeted clients. As a first step, evaluate each current client to assess the appropriateness of the fees and engagement efficiency. Each should meet pre-determined minimum profitability thresholds. If any client does not produce the desired profitability, the fees should be increased. In no instance should fees remain below the minimum profit threshold.

Some clients may decide that the new fees are excessive and subsequently decide to engage a lower-cost firm. This potentially accomplishes three positive results: (1) allows for replacement of the lost engagements with more profitable work from new and existing quality clients; (2) increases profitability from remaining clients; and (3) allows partners more time and resources to market and pursue quality clients and referral sources.

The most successful CPA firms are selective about which new clients they accept and therefore, they might decline a significant amount of new business. Similarly, you should define your target clients based on your firm’s talents, resources, and specialties. Then you can develop a strategy to market services to these prospects.

Adopt a long-term, continuous marketing strategy that focuses on quality clients and terminating relationships with ‘C’ and ‘D’ clients. The result will be sufficient capacity to handle staffing and seasonal demands.  Marketing for quality, not quantity, may be one of the most important business decisions your firm will make to add value to your practice and ensure the firm’s long-term success.

Using Onshore and Offshore Outsourcing

Today, many firms are successfully using outsourcing to assist in servicing current clients and increase their ability to grow revenues. Many Top 100 CPA firms and some non-100 Top Firms own firms overseas. Outsourcing has provided firms with the ability to grow even during times of tight labor markets. The benefits of outsourcing include:

  • Significant cost savings and increased profitability.

  • Alleviate workload pressure on experienced staff to offer more assistance to managers and partners.

  • Allows for higher-value advisory and consulting services by partners once they can delegate non-partner work to staff.

  • Used as a retention strategy to reduce the staff workload and provide work life balance.

Each year, organic revenue growth is important to the long-term success of CPA firms. Without continued organic growth, profitability will suffer with ever-increasing compensation and employee benefit costs. Firms can only continue to increase fees to existing clients just so much before clients start to push back.

The CPA profession is changing rapidly. Yesterday’s strategies do not work in today’s environment and the time to change is now. Many CPA firms are struggling to adapt to these challenges and grow revenues other than increasing their fees. Successful CPA firms will change their strategies and adapt to overcome the marketplace obstacles.

Nancy