View
4
Download
0
Category
Preview:
Citation preview
Brave New Accounting World
© 2015 Accountants Advisory Group, LLC
The Competitive Landscape is Changing Rapidly
Consolidation Retiring CPAs Quality CPAs
Crisis
Gender Increased
Competition Leadership
Unfunded Retirements
The “Perfect Storm” is Forcing Mergers
© 2015 Accountants Advisory Group, LLC
The Changing Landscape will Determine: • Positioning in the marketplace for types and size of
clients • The types of staff and partners to be recruited and
how to compete effectively for quality new hires • Types of niches and specialty services • Staff training and development • Compensation methods and techniques • Growth through mergers
© 2015 Accountants Advisory Group, LLC
Driving Value & Profitability
PRIMARY ACTIVITIES
Growth Driven Leadership
HR & Management Comprehensive Succession Planning
State of The Art Technology
Target Marketing, PR & Practice Development SUPP
ORT
ACT
IVIT
IES
Practice & Engagement Management
Training, Career
Development, Succession Planning, Partner & Staff
Performance Management
Leading
edge services, industry
specialization and niches
Efficient
and timely delivery
of service
Recruiting the
best talent possible at all levels either directly or
through M&A
© 2015 Accountants Advisory Group, LLC
Trends and Predictions in the CPA Profession
© 2015 Accountants Advisory Group, LLC
Predictions—More Mergers as a Competitive Strategy
• Marketing/Lead Generation and HR resources (recruiting, training, retention development)
• Additional technical and advisory resources • Expand geographic reach • Leadership & governance • Administrative resources • Defensive—competing against future consolidation
and larger firms with more resources in the local marketplace
© 2015 Accountants Advisory Group, LLC
Predictions
• The need for continued growth and competitive pressures will drive greater client specialization and expert niche services which will accelerate niche M&A transactions.
© 2015 Accountants Advisory Group, LLC
Positioning to Compete with Larger Firms
To Remain Competitive and Increase Growth, Firms Need to Develop Marketing and Selling Techniques Leading to New & Innovative Services
© 2015 Accountants Advisory Group, LLC
The Past—Inside Out
Firm Skill Set
Staff
Clients
Marketplace
Services
© 2015 Accountants Advisory Group, LLC
The New Order of Business—Outside In
Market Demand
Staff
Marketing
Services
Partners
© 2015 Accountants Advisory Group, LLC
Profitability Formula
Profitability
© 2015 Accountants Advisory Group, LLC
Outside-In
• What the firm did in the past may not make it successful in the future
• Build the services, staff and partners around the needs of the marketplace
• Train partners and staff in areas that the market demands
• Hire for in-demand services • Design outside-in targeted marketing and lead
generation programs • Use mergers to accomplish the outside in - strategy
© 2015 Accountants Advisory Group, LLC
Outside - In Services Thru M&A
Firm Newly Created Service Armanino Acquired Rose Business Solutions Carr, Riggs & Ingram Acquired an audit consulting firm—
”Auditeverx” and a Texas based wealth management firm
CliftonLarsonAllen Acquired MA based Bankers Advisory Inc.
Cohn Reznick Acquired real estate consultants—NOI Strategies
© 2015 Accountants Advisory Group, LLC
Diversifying Services Thru M&A
Firm Newly Created Service MountJoy Chilton Medely Acquired KY based HR consulting firm
Personnel Profiling, Inc. Prager Metis Merged in NYC based family office
services boutique Polakoff & Michelson
Wipfli Acquired Chicago based Regulatory Compliance Associates
Sikich Merged in Illinois based supply chain consulting firm, Achieve Consulting.
© 2015 Accountants Advisory Group, LLC
Diversifying Services Thru M&A
© 2015 Accountants Advisory Group, LLC
Firm Newly Created Service or Business Eide Bailey Acquired a NetSuite Solutions provider.
Glass Jacobson Merged in One Source Financial BKD Acquired Kacinsky & Associates, which provides loan
review services to Texas financial institutions.
Big 4—% of Firm Revenues
Deloitte PWC E&Y KPMG Revenue ($Billions)
$13.9 $11.0 $9.1 $6.1
Consulting 51% 31% 36% 22% A&A 31% 41% 37% 42% Tax 18% 28% 27% 36%
© 2015 Accountants Advisory Group, LLC
Top 100 Firms—Large % of Consulting Revenue
($Millions) % of Revenues
Consulting A&A Tax Crowe $665 50 28 22 Plante Moran $411 33 41 26 WIPLFLI $163 37 34 29 Armanino $113 53 21 26 Sikich $97 55 30 15 Horne $67 45 34 11 SC&H $58 40 17 43 WathensMeegan $49 56 22 22 Raffa $37 32 53 15 KLR $35 35 30 35 *28 Firms in the Top 100 have 25% or more Consulting Revenue
© 2015 Accountants Advisory Group, LLC
Firm of the Future
© 2015 Accountants Advisory Group, LLC
Top 10 Implementation Challenges
• Challenges in replacing the skills of departing owners (50%)
• Transitioning clients from retiring partners/ principals (41%)
• Partners’ reluctance to relinquish work relationships (41%)
• Challenges in training/mentoring internal staff for partner/principal roles (40%)
• Reluctance of partners/principals to retire (42%)
© 2015 Accountants Advisory Group, LLC
Top 10 Implementation Challenges
• Challenges on funding payments to exiting partners/ principals (20%)
• Loss of leadership (17%) • Remaining owners’ lack of shared vision on business
goals/governance/direction (15%) • Ownership conflict—partners taking large
compensation packages with less workload (14%) • Dealing with the unexpected (14%)
© 2015 Accountants Advisory Group, LLC
The Right Balance of Services
© 2015 Accountants Advisory Group, LLC
Firm of the Future—Revenues
40%
20%
40%
Integrated Solutions
Investment in Non-PABusiness
Audit and TaxCompliance
© 2015 Accountants Advisory Group, LLC
Inability to Retain Women in the Profession
• Adding to succession planning problems • Very few firms have been successful in designing and
implementing flexible and part-time career paths.
© 2015 Accountants Advisory Group, LLC
Predictions
• More partners will work beyond the normal retirement age due to lack of sufficient partner level talent and unfunded buy-outs. The new 65 is becoming 70.
© 2015 Accountants Advisory Group, LLC
Predictions
Larger firms will begin to incorporate more cash buy-outs in their merger deals to attract quality merger candidates
© 2015 Accountants Advisory Group, LLC
Predictions—Market Reversal
• In 5+ years, there will be a shift from a seller’s market to a buyer’s market as larger firms get more selective in M&A transactions and there are more baby boomer partner firms coming on the market with no succession plan.
© 2015 Accountants Advisory Group, LLC
Predictions
• Firms will outsource more work overseas (India, China & the Philippines) through outsourcing companies and international affiliations as fees become more competitive. Quality accountants will be used for more valued services
• Firms in high labor and rent areas will acquire firms in depressed and lower cost areas and shift compliance work to them to maintain fee competitiveness and increase profitability.
© 2015 Accountants Advisory Group, LLC
Predictions
More small firms will split-up due to a lack of a consensus on succession planning and the future direction of the firm
© 2015 Accountants Advisory Group, LLC
Predictions
50% of the firms below the Top 200 will merge upward, laterally merge, or split-up in the next 15 years due to succession planning problems and a lack of partner consensus on the vision of the future of the firm.
© 2015 Accountants Advisory Group, LLC
Partnership Structure “Franchise / Corporate-Type” Structure
Predictions—Partnership Structure
The partnership structure will fade away and be replaced by a “franchise / corporate-type” structure in the top 300 firms in the country.
© 2015 Accountants Advisory Group, LLC
Franchise
Chairman & Executive Committee
HR & Succession Planning
Managing Partner
Recruiting & HR Public Relations
Career Development & Tech Training
Benefits
IT & Workflow Optimization
Work Flow Management
Communications
Hardware / Software
Professional Marketing & Strategic Planning
Client Retention, Cross-selling,
Innovative Service
Practice Development & Sales
Advertising, Public Relations & Branding
© 2015 Accountants Advisory Group, LLC
Phases of CPA Profession Consolidation
© 2015 Accountants Advisory Group, LLC
Local
Regional
Mega-Regional
Small National
Large National
Consolidation of the CPA Profession
• Phase 8– (will accelerate in 2016) Mergers of 2nd and 3rd tier firms
© 2015 Accountants Advisory Group, LLC
Firm Classification
LARGE NATIONAL FIRM OFFICES REVENUE $M
McGladrey & Pullen (U.S.) 75 1,471
Grant Thornton 57 1,383
BDO (U.S.) 52 833
Crowe Horwath 29 687
CBIZ 103 600
Clifton Larson Allen 29 598
CohnReznick 26 575
SMALL NATIONAL FIRM OFFICES REVENUE $M
Baker Tilly Virchow Krause 29 475
BKD 34 446
Marcum 17 385
UHY Advisors 15 204
Novogradac & Co. 18 103
© 2015 Accountants Advisory Group, LLC
Firm Classification
MEGA REGIONAL FIRM OFFICES REVENUE $M
Plante Moran 20 433
Moss Adams 20 429
Dixon Hughes Goodman 29 338
EIDE Bailly 22 195
Wipfli 22 181
Carr, Riggs & Ingram 21 171
Rehmann 20 109
© 2015 Accountants Advisory Group, LLC
Firm Classification
LARGE REGIONAL FIRM OFFICES REVENUE $M
EisnerAmper 6 283
WeiserMazars 8 157
Cherry Bekaert & Holland 12 131
Citrin Cooperman 6 115
Warren Averett 14 114
Elliott Davis Decosimo 18 110
O’Connor Davies 8 108
Withum Smith & Brown 12 106
Sikich 11 106
© 2015 Accountants Advisory Group, LLC
Why Aren’t There More Same Size Mergers?
• Egos, leadership, management and control • Name • Culture • Leases • Location • Unreasonable expectations • Compensation, retirement benefits, and equity • Excessive time in negotiating the Term Sheet • Insurance • Previously undisclosed risks and liabilities
© 2015 Accountants Advisory Group, LLC
The Future is Now
Fastest Growing Firms in the IPA Survey
• On average derived 26% of total revenue in non-traditional services and these services increased by 22%
• Firms range in size from $5 million to $100 million in revenue (average size $35 million)
© 2015 Accountants Advisory Group, LLC
The Future is Now
Fastest Growing Firms in the IPA Survey
• Half of the firms have a business development (sales) professional
• Two-thirds have a niche strategy generating a minimum of 20% of all firm business
• Two-thirds have a strategic plan for each main revenue service
© 2015 Accountants Advisory Group, LLC
Firm Business Model
Business Segments
• Business Segment defined—a component of a business that generates revenues and costs related to operations
• Examples of segments in Public Accounting:
© 2015 Accountants Advisory Group, LLC
Assurance areas • Audit • Review • Compilations
Tax • Business • Individual
Niches • Family Office • Alternative Investments • Outsourced Accounting
Segment Leader Responsibility
• A strong and effective manager and leader, capable of attracting, mentoring, retaining and developing talented and productive staff
• A true team player and collaborator, translating knowledge and experience into strong and productive relationships internally and externally
• Goal minded and able to motivate staff to accomplish segment objectives
© 2015 Accountants Advisory Group, LLC
Segment Leader Responsibility
• Effectively and constructively lead change • Work with the MP & Marketing Director to
determine activities and actions needed to implement business development programs that generate leads and increase segment revenue
• Collaborate with segment partners and managers to increase realization rates by enhancing efficiencies, work flow optimization, scheduling techniques, timely billing of out of scope work, etc.
© 2015 Accountants Advisory Group, LLC
Partner Leadership Teams
© 2015 Accountants Advisory Group, LLC
COO
Managing Partner
Goals & Objectives Oversight
Practice Growth
Strategist &
Visionary
Succession Planning & Talent
Management
Mergers & Acquisitions
Budgeting Personnel Costs
• % of compensation to revenues at all time highs • Budgeting the firms personnel costs will force
partners to make better business decisions as to the use of professional resources
• Will force firms to: • Cull low profitable clients • Make greater use of efficiencies and work flow
optimization • Delegate work to the lowest level possible • Terminate career comfort zoners and underachievers
© 2015 Accountants Advisory Group, LLC
Using Talent and Leverage to Build a Firm of the Future
© 2015 Accountants Advisory Group, LLC
Delegation
© 2015 Accountants Advisory Group, LLC
Managers
Staff
Partners
Supervisors
Historical Pyramid Structure
© 2015 Accountants Advisory Group, LLC
Profitability Formula
Profitability
© 2015 Accountants Advisory Group, LLC
Partner & Staff Structure
• Are partners being held accountable for delegating work and increasing profitability on their engagements?
• Do we have enough “quality” staff in the appropriate positions to have a successful delegation process?
• Are we properly developing and coaching our staff? • Is the firm’s scheduling process taking into account
the proper matching of work and talent and career development?
© 2015 Accountants Advisory Group, LLC
Aligning Business Strategy With Performance Management
Plan
Acquire
Engage
Develop
Deploy
Lead
Retain
© 2015 Accountants Advisory Group, LLC
Measure & Align
Business Strategy
Human Capital Strategy
Talent Results
Business Results
Interaction Between Marketing & HR
© 2015 Accountants Advisory Group, LLC
Recruiting Promoting the Firm
Training & Development Niche Talent
Projected Growth
Niche Development
New Services Public Relations
The Time to Change is NOW
“It is not the strongest of the species that survive, not the most intelligent, but the ones most responsive to change.” —Charles Darwin
© 2015 Accountants Advisory Group, LLC
Comparative Statistics—IPA Survey
Description IPA Average
IPA Best of the Best
Net Revenue Growth Rate (Organic only) 5.7% 8.5%
Net Revenue per Charge per Hour $154.20 $190.50
Net Revenue per Partner $1,054,933 $2,549,660
Net Revenue per Professional $217,026 $262,405
Net Revenue per Employee $174,234 $217,455
Net Revenue per Square foot $564 $732
Firm-wide Utilization (All Prof. staff incl. equity partners) 65.4% 66.2%
Charge Hours per Prof. (Excl. equity partners) 1,410 1,406
© 2015 Accountants Advisory Group, LLC
Comparative Statistics—IPA Survey
Operations IPA
Average IPA Best of
the Best Firm wide Utilization (All Prof. staff excl. equity partners) 69.2% 67.1%
Percentage of all charge hours by Prof. Staff 83.3% 89.8%
Personnel Costs as Percentage of Revenue 45.8% 43.8%
Professional Staff: Administrative Staff Ratio 5.0 5.4
Professional Staff: Equity Partner Ratio 7.6 9.8
A/R Management: Days of Production Locked Up 55.0 45.0
WIP Management: Days of Production Locked Up 25.2 24.1
© 2015 Accountants Advisory Group, LLC
Recommended