The Denial Trap in Public Accounting

RedZone_StrategicThe CPA profession has changed significantly, i.e., ongoing consolidation, lack of quality CPAs, baby boomer partners retiring at a rapid pace, increased competition for new clients, fee sensitivity for compliance-type services, etc. Many firms are having difficulty adapting to this change and are in denial regarding succession planning and the related new market reality that firms need to be run like businesses.

Denial is also more endemic among firms with older baby boomer partners. This is because it is often a result of stubborn adherence to a once accurate perception of reality that has become obsolete in a changing marketplace. It is hard to overcome denial because it is a comfortable state of mind: it normally means avoiding change. It is seeing, but not admitting, the obvious.

The following are more common “denial traps” in CPA firms:

  • The firm can be successful in the future without strong leadership at the managing partner level.
  • Merging in top-heavy and generalist firms with low partner-to-staff ratios is a good long-term merger strategy.
  • The firm can retain, train, and develop quality staff without making an investment in contemporary human resource professionals.
  • Running the practice day-to-day is a preferential strategy over developing a strategic plan with a defined end game for two- to five-year intervals, with partner accountability for implementing action plans.
  • Promoting managers to non-equity partner status, as a retention strategy, will benefit the firm in the long-term.
  • Utilizing a compensation system primarily based on collections, rather than on comprehensive partner performance, will motivate younger partners and managers to remain with the firm and be innovative and creative professionals who will build the firm of the future.
  • It is acceptable to fail at implementing annual retreat action items and plans because the partners are too busy, and the tasks at hand will eventually be accomplished.
  • Partners and staff will be successful at business development without professional in-house or outsourced marketing support.

Established firms who have had success in the past are more likely to be “in denial” because the old way of doing things worked well for them. However, they are now having difficulty making tough decisions to adapt to the dynamic public accounting marketplace.

Do not fall into the denial trap. It may be difficult to cut the firm loose.