The Denial Trap in Public Accounting

Denial is running rampant with many accounting firm partners below the top 100 firms in the country. Denial has always been a problem for accounting firm partners; however, the difference now is the large number of firms facing tough succession planning issues over the next 10 years.

Established firms which 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 have difficulty making tough decisions to adapt to an ever-changing CPA firm marketplace. They have not bought into Charles Darwin’s theory of survival of the fittest — “It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to change.”

The CPA profession has changed significantly, i.e., ongoing consolidation, lack of quality CPAs, baby boomer partners retiring at a rapid pace, increased competition, etc. Many firms are having difficulty adapting to this change 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’s hard to overcome denial because it is a comfortable state of mind — it normally means avoiding change. It’s seeing, but not admitting the obvious.

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

  • That the firm can be successful in the future without strong leadership at the Managing Partner level.
  • That merging in top-heavy generalist firms with low partner-to-staff ratios is a good merger strategy.
  • That firms, with little or no succession planning in place, can avoid merging into a larger firm because of the remote possibility that a firm of younger, successful partners will merge in and provide an exit strategy for the firm’s retiring partners.
  • That the firm can achieve higher levels of growth and retain, train and develop quality staff without making an investment in human resource professionals.
  • That running the practice day-to-day is a preferential strategy over developing a strategic plan for two-to-five year intervals with partner accountability for implementing the plans.
  • That promoting managers to non-equity partner status, as a succession or retention strategy, will benefit the firm in the long-term.
  • Thinking that a compensation system primarily based on collections, rather than on comprehensive partner performance, will motivate younger partners and managers to stay and build the firm of the future.
  • That it’s 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.

The time to deal with denial is now. The real challenges and difficult decisions, such as succession planning, must be confronted instead of avoided, in order to take the firm to the next level of success.