Beyond Partner Accountability

by Joe Tarasco, Accountants Advisory Group

The No. 1 issue in CPA firms today is partner accountability, according to a recent AICPA survey, and there have been no shortage of articles and discussions on the issue over the last five years. And yet, many firms continue to struggle. Why is it that even after implementing an accountability-based system many firms fail to achieve the next level of success through improved partner performance? Do firms use the lack of partner accountability as an excuse because they are in denial over the underlying problems that exist in their organizations?

Partner accountability programs are meant to guide partners in developing their goals and objectives and measure performance, not improve results. Achieving greater levels of firm and partner success extends beyond partner accountability. Here are some examples:

  • As Jack Welch said, “If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don’t have to manage them. The whole game of business revolves around one thing–you build the best team, you win.” The same is true in accounting firms. The best accountability system will be useless if a firm doesn’t have a winning partner team. Demanding that partners be accountable for performance that they are not capable of achieving is only delaying inevitable failure. This is a significant element in the denial syndrome at many firms that have plateaued.
  • Partner accountability is flawed from the start in firms that don’t provide the proper infrastructure for marketing, HR and IT to support the partner’s goals and objectives.
  • The most fundamental of all management skills is delegation. Partners need the appropriate number of talented staff, whether they are professionals or administrative staff. Effectively using delegation to achieve higher levels of partner performance is a significant factor in building a successful firm of the future.
  • Firms need strong leadership that has the ability to make tough decisions and is held accountable for ensuring that partners are a united, synchronized group that are capable of achieving the goals and objectives of the firm. Good leaders encourage investment in their firms and motivate their people to be passionate innovators to gain an edge on their competitors. Accounting firms that are willing to redefine themselves and how they operate in order to achieve higher levels of success understand the need for good leadership. Good leaders play to win, and that is often the difference between success and mediocrity.
  • Some partners possess natural talents to achieve the required performance competencies on their own. Nonetheless, all partners can benefit from a formal professional development training plan. This process should include structured and ongoing efforts to assess partners’ progress toward developing expected competencies. Partners can also benefit from regular reviews that tell them if the firm is satisfied with their progress during the year and what additional steps they need to take.

Put together a passionate, winning team with good leadership to take the firm to the next level of success. Don’t let partner accountability be the No. 1 issue in your firm.


The Game Changed—You Need an Elite Quarterback to Win

By: Joseph A. Tarasco, Accountants Advisory Group LLC

Going back through the history of prior Super Bowl winners, the old axiom for a winning formula was a combination of a strong running offense with a dominating defense. However, the rules and the game have changed and now favor teams with talented (elite) quarterbacks who are also very good leaders. That, combined with a good offensive line, is the new winning formula.

Similarly, the game and rules have changed in the accounting profession. In order to have sustained increases in growth and profitability, along with developing succession plans, firms need an “elite” leader with an “offensive line” of very talented partners.

Firms can no longer play defense—they must play great offense to win since competition for quality clients and staff is fierce, coupled with pressures from consolidation and baby boomer succession issues. Just as there are very few elite quarterbacks in the NFL, there are few elite leaders in public accounting, which is one of the reasons why only approximately 2% of multi-partner firms in the country exceed $15 million in revenues. The following are some similarities between elite quarterbacks and elite partners:

  • Elite quarterbacks are not born elite, but grow into this status over time, gaining the trust of their team members, just as successful leaders of CPA firms evolve into this role over a number of years. It takes time to attain elite partner status and the partners have to be willing to be managed and trust the leader.
  • Elite quarterbacks are respected leaders not because of their title, but because of their performance on the field and their ability to instill confidence in their team and to motivate them.

Similarly, CPA firm elite leaders are respected for their accomplishments in outstanding performance in client service, new business development, teamwork, respect for others, managing difficult change, and in establishing confidence in their other partners to exceed expectations.

  • Elite quarterbacks are masters of their playbooks and study game films of them in great detail in order to correctly execute the offensive plays during the game. Elite leaders in CPA firms study their competition and the marketplace in order to provide the types of services that are in demand and to gain a competitive advantage over their competitors for clients and quality staff.
  • Elite quarterbacks know when to change the play at the line of scrimmage very quickly when an unexpected defensive formation is presented. Elite leaders change their firm’s plans when the marketplace, competition, and events change by making timely and sometimes tough decisions to overcome obstacles to success.
  • Elite quarterbacks are great clock/time mangers and manage their game plan accordingly. Elite CPA firm leaders manage strategic plans with a sense of urgency and are not complacent about leading their firms to the next level of success.
  • Elite quarterbacks can hide shortcomings of other players by making adjustments at the line of scrimmage, throwing an accurate ball, etc., but they can’t do it all themselves. Elite quarterbacks understand that football is a team game. Elite CPA partners are able to sustain their success and the firm’s success by serving as enablers of talent, culture, teamwork, and positive results.

Whether it’s an elite quarterback or CPA firm leader, the common element is that they know how to establish the conditions necessary for their teams to succeed and how to bring their professionals together to achieve shared goals and objectives. They play the game to win, not to just play it, and inspire others to do the same. Having elite partners lead the firm with a winning game plan that is consistently executed by all the firm’s team members will take the firm to the next level of success.

Accountants Advisory Group is a strategic consulting firm that incorporates state of the art practice management, marketing and human capital strategies to assist CPA firms in achieving long-term success and profitability. To learn more about Accountants Advisory Group and RedZone Practice Management, please contact Joseph A. Tarasco at 845-265-9046 or


Whitepaper: Effective Team Management A Challenge in the Virtual Workforce

The virtual workforce in the U.S. ballooned from 9.5 million in 1995 to 13.4 million in 2010, growing to an estimated 20-30 million people currently working remotely at least once per week.

According to new whitepaper from global consulting firm PI Worldwide, despite more employees embracing – and even expecting – a distributed work environment, research indicates low levels of confidence in the ability of managers to adequately motivate, coach and develop employees within a virtual environment.

The whitepaper titled, Managing the Challenges of the New Virtual Workforce: The Use of Personality Data to Build and Develop High Performing Virtual Teams, examines the pressures facing leaders to manage and develop teams operating virtually and the benefits behavioral assessment data provides for enhancing communication, collaboration and efficiencies across different time zones and cultures.

“The most successful virtual teams are led by managers who understand what motivates and drives performance at the individual and team levels, assigning people to tasks in line with their natural behavioral styles,” says Nancy Martini, President and CEO of PI Worldwide.

“Managers who apply behavioral insights produce teams that function with stronger working relationships, communicate more effectively and deliver on the team’s collective goals.”

According to a Forrester survey cited in the whitepaper, “effective communication” is a top concern for managers of remote teams (49%), followed by “managing projects and deadlines successfully (43%)” and “creating consensus during decision-making (43%).” Martini notes additional challenges of remote team management include:

  • Difficulty in building a shared sense of purpose
  • Over-reliance on electronic communications
  • Low team cohesion and trust
  • Less satisfaction with the team experience.

In a remote working environment, it can be difficult for team members to build rapport or a sense of camaraderie which can jeopardize productivity.

Through behavioral assessments (sometimes called personality assessments), Martini says, managers can uncover the natural behavioral characteristics of team members to better define high performance, facilitate workflow, reduce conflict and improve group synergy.

Download a complimentary copy of the whitepaper and view the infographic at

The Defining Dozen: 12 Metrics CPA Firms Should Track

This time of year, CPA firms are fully engulfed in their busy season, but is your firm operating at peak efficiency? Questions to consider: Is your firm making the most of current relationships and doing all it can to expand into new ones? While there are many metrics CPA firms use to evaluate quantitative performance, here are 12 metrics than can provide more qualitative feedback. These metrics can help CPA firms measure their reach with clients and provide insight into how well processes already in place are helping to identify opportunities with clients. Lauren Prosser, Manager of Advisory Services, Sageworks Inc. provides the defining dozen. Visit AICPA Insights for  the full article.

Thought Leaders Show Clients Why They Should Work With A “Firm Of The Future”

CPAs are known for being historians. The two service offerings they are best known for, preparing tax returns and preparing financial statements, are of course historical in nature. However, successful business clients, wealthy individuals and families, need more than a recitation of history.

Examples of forward-looking services include: business cash flow and profitability planning, business risk mitigation, real-time financial statements, business process attestation, income tax planning, business succession planning, and family wealth transfer planning. All of these are forward-looking applications.

If your firm is not performing these, or similar services, then your firm is probably a firm of the past. To be relevant in the world-wide economy of the present and the future, firm’s must be able to adapt to move far beyond the traditional services of income tax and financial statement preparation.

Here are eight attributes of future-forward-thinking firms:

  1. Paperlessness.
  2. People. Does your firm have racial and gender diversity? Do you outsource basic functions? Are your partner ranks all male? Do you offer “flex time” and/or “job sharing?”
  3. Work Flow. Do you have a clearly articulated process that you use for Project Management, or are your process based on “the tyranny of the urgent?”
  4. Technology. Do you utilize technology effectively? For example, do you have client portals, and are they “in the cloud?”
  5. Extreme Seasonality. Do you make time to meet with your clients in March and April, and in September and October, are do you staff disappear into the black hole of during busy season(s)?
  6. Billing by the Hour. Does your firm bill by the hour, or do you utilize some form of fixed pricing, so clients are never surprised by a bill and are encouraged to call you with questions?
  7. Marketing. Can you differentiate your firm from your competition? Can you articulate the “why?” Or do you define your firm by the minimum expectations that a client would have, such as by a mission statement that says, “We are a full-service CPA firm that provides timely and personal service” or “Founded in 1946, we are one of Townsville’s oldest and largest CPA firms.”
  8. Succession Planning. Do you have a coherent business plan, to transfer thought leadership and intellectual capital from the current leaders to younger generations?

Firms of the future think seriously about these attributes, and continuously strive to grow and improve in these areas.

AICPA Survey: Business Executives Glum on U.S. Economy

Senior-level CPAs are less optimistic about the prospects for the U.S. economy, the AICPA reports in its third quarter Economic Outlook Survey of CEOs, CFOs and other finance professionals in U.S. companies.

In fact, the survey says executives are more pessimistic now than they’ve been in 12 months on the outlook for their companies. “For the first two quarters in 2012, more than half said they were optimistic about their organization’s prospects,” says Arleen Thomas, AICPA’s senior vice president for management accounting. “Now, only 44% say so.”

Few respondents, at 9%, plan to hire new personnel, a figure that is down from 12% last quarter and the lowest rate of the past 12 months. In addition, 11% said they have too many employees.

The CPA Outlook Index fell four points to 63 for the quarter. The index is a gauge of executive sentiment using nine survey measures set on a scale from 0 to 100. Larger numbers mean more positive sentiment. Each component of the index fell this quarter compared to the previous quarter, with U.S. economic optimism showing a decline of 13 point to 41, the biggest drop. However, all index measures are higher now than in the third quarter of 2011.

The survey was conducted in August and included 1,365 responses from CPAs who hold leadership positions in their companies. You may review the entire survey online.

One Partner’s Journey…Finding Lauren

Sometimes the measure of a successful accounting firm has nothing to do with its skills managing numbers and everything to do with the resources it brings to bear in a crisis.

And some crises have nothing to do with clients. One year ago, Robert Spierer, a tax partner at New York City-based Perelson Weiner (FY11 net revenue of $18.1 million), received the phone call that is every parent’s nightmare. His daughter Lauren, a petite 20-year-old, blue-eyed Indiana University student, had gone missing.

Local and national news media reported the story, publishing and broadcasting the image of Lauren’s sunny face and describing a full-of-life sophomore who had disappeared from a seemingly safe college town in the heart of the Midwest.

Some numbers do matter in this story: May 8, 2011, Mothers Day, marked one year, 365 days, since Spierer and his wife, Charlene, last saw their daughter. The early morning of June 3, 2011 was the last time Lauren’s whereabouts were confirmed. She was reportedly last seen in the area of 11th Street and College Avenue in Bloomington, after a night out with friends.

The Spierers dropped their lives in New York and rushed to Indiana to begin a new, unimaginable chapter in their lives. And nearly every member of the firm followed in time, assisting in a massive search for their colleague’s daughter.

Thousands participated in the effort, combing through wooded areas, streams and lakes from dawn to dusk. Some of Spierer’s colleagues stayed in Indiana for extended periods; others made multiple trips back and forth. Some firms within IGAF Polaris, Perelson Weiner’s professional association, made donations and members from around the country flew to Indiana to help with the search, and to offer any and all support they could.

“That was, of course, incredibly supportive,” Spierer recalls. “Unfortunately, I was unable to give any attention to any one person or group who came out because it was a terribly difficult and hectic time.”

“Rob and I have been together for 30 years,” MP Ronald Weiner tells IPA, “and we have shared a lot of experiences together. Most of them have been very, very good before this tragedy. And in the view of our firm, family always comes first – it’s really quite simple – and all actions have flowed out of that.”

Spierer, who lives in Westchester County, N.Y., spent the first 90 days after Lauren’s disappearance in Bloomington.

Despite the tragedy, Weiner says of Spierer: “His sense of client responsibility never left him.” The firm made sure Spierer’s clients’ needs were met, Weiner says. “Each of us stepped up, pitched in and helped out and did what was needed.” Spierer periodically visited clients, but also accepted offers of help and was able to spend much of 2011 in Indiana.

While the official search for Lauren ended months ago, the Spierers are working with the Bloomington Police Department and a private investigator to gather more information about their daughter’s whereabouts. 

The Spierers have not given up hope of finding their daughter, although they’ve conceded in recent months that it’s unlikely she’s still alive. Their work today extends beyond solving the mystery of their daughter’s disappearance to educating others about protecting themselves.

“I just hope that students around the country are being careful about who they spend their time with, and are careful about getting themselves home safely and watching out for each other and making that an important aspect of their social interaction,” Spierer says.

Those who care about Lauren’s disappearance can make a direct impact on the lives of others by supporting safety initiatives in their local communities, Spierer says. He encourages others to join efforts to stop drunk driving or prevent drug use, for example, or support legislation that strengthens safety measures.

Rob and Charlene Spierer joined with student government associations to lobby for passage of the Indiana Lifeline Law, which Gov. Mitch Daniels signed into law in early May. The statute addresses the fact that, too often, young people don’t make a call for help in a life-threatening situation for fear of the legal repercussions, sending the message that medical care is the top priority.

The law provides immunity for some alcohol-related offenses, such as underage drinking or public intoxication, to those who request medical assistance for someone in need. The law also covers those who receive medical assistance due to a request by someone else. The caller must cooperate with police. The Department of Health says that more than two dozen Indiana residents under the age of 21 have died due to alcohol poisoning since 2004.

Spierer says that if the law were in place when his daughter disappeared “it’s certainly possible” that the events of June 3, 2011 would have ended differently. “Part of it goes to the character of the individuals you are with,” he says. “They have to care enough about you as a person to even reach out for help. If you’re unfortunately with people who don’t know you, who don’t care about you, this lifeline law isn’t going to help you.”

He believes “without a doubt” that someone knows what happened to his daughter. Numerous appeals have been made to get answers, “but unfortunately, our efforts have been unsuccessful, and we’re hoping that person will one day have a crisis of conscience and help us find our daughter.”

Spierer describes Lauren as a loving, fun person with a zest for life. She enjoys fashion, and attended many concerts with her father, as she appreciates the music of the ’60s and ’70s. She has a special place in her heart for the elderly. “I can always see her lovingly looking at an older couple being happy together, it really touched her heart,” Spierer says. “Lauren is just as wonderful a daughter as a father could wish for.”

Lauren’s sister, Rebecca, like her parents, has Lauren on her mind constantly. She earned a master’s degree in social work and works in New York City.

As the one-year anniversary of Lauren’s disappearance approaches, the media spotlight has once again turned on the case and the Spierers’ lives. “We live with this every day,” Spierer says. “It doesn’t go away, but there are some days that are more difficult than others.”

On June 3, “We’ll be together with family and we’ll get through it together.” Partners and staff at Perelson Weiner, and staff and member firm colleagues of IGAF Polaris continue to support the Spierers in whatever way they can.

“We are all family” is a sentiment heard often by those who are close to the Spierers.

Being there to help with the search, to lend an ear, to support client relationships, to pray for Lauren’s return and to help put the pieces of “normal” back together are just some of the ways that friends and colleagues of the Spierers will continue to support the family through this life-changing experience.

After all, at the end of the day, some things are more important than the numbers.

Get Ready For Your Next Partner Retreat

Despite a sluggish economy, IPA’s Most Recommended Consultant Sam Allred says that more firms are organizing partner retreats to help improve firm results.

Allred conducted a keynote and breakout session at the first annual PRIME Symposium in November 2011. Allred is the founder and director of Upstream Academy, a CPA firm consulting practice in Helena,  Montana. At the first PRIME Symposium, Allred told guests that the most important reason that a firm will hold a partner retreat is to develop positive, lasting change in a firm financially, operationally or via relationships.

“The ultimate goal is to become a better firm and the partner retreat needs to be a catalyst,” Allred says. “It’s a big commitment on the part of the firm from a cost and time standpoint.”

For any retreat to be successful, its agenda must be developed and supported by the executive team, he says. That leadership group should decide what positive changes need to occur and how best to discuss or communicate the need for these changes during a retreat.

The topics that are part of the agenda can range from an array of subjects, from financial to operational to strategic, he says. There is a fine line between how detailed the topics get and how many are covered, but there is no reason why positive, lasting changes that come out of a partner retreat may have an array of components designed to help the firm become more efficient and profitable.

Some of the more common topics that are discussed during a retreat can include better partner unity, ways to compete more effectively in the marketplace, enhancing or adding new services, implementing new technologies, developing future partners and improving marketing strategies.

“There really is not a top five list that is common among most professional service firms,” Allred tells IPA. “The firm’s leaders need to look at how the firm is doing from all angles and concentrate on ways they can best improve various types of performance.”

But perhaps the most important consideration is that the topics and agenda should be developed by the executive team, or in a smaller firm the MP, he advises. Firms that have human resources or marketing professionals create the agenda, or administrative assistants providing the content typically do not benefit from such retreats.

“The worst disasters that I see are when the organizing of the retreat has been turned over to someone who is not involved in running the firm,” he says. “I don’t mean to sound harsh but when that happens it’s like rolling the dice and you’re much less likely to have any positive outcomes. You might as well save your money. Having management organize it will help the partners feel more comfortable.”

The recession has forced firms to hold partner retreats because many realize that there needs to be a better balance between short and long-term growth and development. And these retreats don’t have to be particularly lengthy, although retreats lasting one day are rare, he says. Allred recommends a two-day retreat with an evening social function at least one of the evenings.

The purpose of a two-day (or one and a half day retreat) is that it allows partners to digest the topics that were discussed on the first day, and then possibly come back in day two to discuss those topics and develop plans for executing on how to “move the needle in a positive direction,” as Allred says.

“Very few retreats are more than two days because that can cause anxiety among the partners who need to do client work and may be missing opportunities for (billable) hours,” he says. “But you want to spend enough time to make it worthwhile.”

Allred also recommends that partner retreats spend as much of the agenda on how to execute on the stated goals as creating them in the first place.

“You need to leave the retreat knowing what the next steps are,” he advises.

Some professional firm retreats will utilize guest speakers or very specific, social events that allow partners to interact in a formal way. While having a dinner or “fun” event at the conclusion of the retreat, such as a round of golf or trip to the bowling alley can be fun, the part of the retreat discussing steps to improve such things as productivity and profitability should remain focused on those subjects, he says.

Guest speakers in general are often a waste of time and money. They can prevent partners from becoming engaged in the overall event, he cautions. Trivia contests or “game show” segments can result in partners losing their focus.

“Participatory elements or speakers can get in the way of the value of partners spending time together,” Allred says. “You see these events added to the agenda when a retreat hasn’t been properly planned for. It’s really nothing more than fuller time. You want to wisely use the time that you have.”

It is a given that retreats should be held offsite, away from the office where phones are ringing, associates are requiring assistance and stacks of files reside.

The cost of a retreat can be significant. But the offsite location doesn’t have to be ornate. An inexpensive conference center or room can be the site of the meeting, in some cases even a local chamber of commerce meeting room or hall can be obtained. As the economy has struggled in the last several years, those firms that do hold retreats are often spending less money on them, including the cost for food and refreshments.

“The reason to have a retreat is to get that dial moving in the right direction,” Allred says.

“Even if you are growing revenue you may not be improving margins. Or your staff may be overworked and unhappy. There are always elements of your firm that require some level of improvement and this can be one of the best venues to communicate with each other.

Best Practices:

  • A retreat should have clearly defined purposes. Spell out what you want to accomplish.
  • Retreat results must be carefully planned to fit in with ongoing firm activities.
  • Consider inviting senior associates who are likely to be future partners of the firm. Their input can greatly enhance the retreat’s results.
  • The executive or management team must be held accountable for implementation and getting the final results.
  • Retreats that are held close to the office will be less stressful for partners to get to and from.
  • A good agenda will identify each item with its stated goal or objective, who is responsible to lead the discussion or exercise, and the beginning and ending time of the item.
  • Everyone must understand that the retreat is not an end in itself. It is simply one step in a continuous effort to improve the firm.
  • It’s important to stress that discussions at the retreat are meant to produce concrete outcomes that will make a real difference in the firm. It’s not a time to simply “have discussions.”
  • As you plan the retreat, carefully consider what information is required for the partners to make necessary decisions.
  • If the group is large, use breakouts to optimize participation and get better, more creative thinking.
  • It is critical to the success of the retreat that the leaders of your firm be present – physically and mentally. Consider adopting an attendance commitment. Establish ground rules and or an attendance commitment.
  • Use time limits for discussions. Good consensus building exercises will lead to effective decisions.
  • Follow-up is absolutely critical. If you cannot commit the energy to ensuring effective follow-up, then it is better not to do the retreat at all.
  • The leader needs to ensure that decisions or agreements are recorded.

The Top 10 Mistakes In Setting Goals

For years, leaders have been evaluated by means of a “Does Not Meet/Meets/Exceeds” scale. The problem with this, according to the Studer Group, is that it doesn’t really tell you what the leader accomplished. A far more fair method is the use of a clear, objective, and weighted evaluation based on specific goal achievements.

The evaluation makes use of a one-to-five rating system for each goal, with the leader who exceeds expectations earning a five. And every goal is assigned a weight – a percentage  – based on its importance so that leaders know where to put the most energy.

Here are the top 10 most common mistakes made during the first year of a rollout of such a program and how they can be avoided:


  1. Inappropriately assigning organization-wide goals to middle managers.
  2. Goals are over- or under-valued in their assigned weight.
  3. Leaders share the same weights for a goal, even when the responsibilities don’t impact the weights.
  4. Instead of the outcomes, tactics such as projects or processes are used as goals.
  5. Designating regulations as goals when they’re really expectations.
  6. Leaders fail to accept responsibility for far-reaching goals they directly impact.
  7. Lack of uniformity in measurement.
  8. Leaders are allowed to “cherry pick” the goals to meet instead of the most important.
  9. Setting numerical targets where all leaders move up at the same rate.
  10. The goal is achieving a prestigious reward as opposed to the outcomes themselves.

Strategies for Growth: The Triangle Offense

Q:       At a recent conference, you spoke about the “triangle offense” as a current growth strategy that many CPA firms are using. Can you provide some background on this term and share the key elements of it?

A:        In the 1990s, the Chicago Bulls (with Michael Jordan and Phil Jackson) used the triangle offense to win six NBA championships. I’ve been using the term “triangle offense” (see Exhibit 1) to define what I see the majority of Top 200 CPA firms doing when it comes to growth strategies. Simply stated, the three triangles include a strategy for organic growth, growth from mergers and acquisitions (M&A), and growth through free agency/lateral talent.

Q:       Could you talk specifically about the first triangle, organic growth, and which components are a part of it?

A:        Organic growth clearly has been flat since the start of the recession and 2008 through 2010 has definitely been the flattest three-year growth period over the past decade for most firms. Having said that, we observed firms re-commit to growth in 2011 in a way that we have never seen in the past. Whether it is partners with big books of business who are passing them on to other client service partners so they can free themselves up for additional rainmaking, or a price war like we have never witnessed before, guerilla marketing strategies have taken over. I have also found that firms have been making strategic investments in talent, such as chief marketing officers and business development people in a way that they have not done previously. Specifically, firms are much more focused today on winning new clients, new projects, and have a greater focus on cross-selling services to existing clients. Finally, we are also seeing more firms go “out of the box” a bit and get into many new products and services through which they can make money unrelated to time by pricing their results on a contingent-fee or commission-based approach. While this has been popular in the area of financial services, firms are now branching into additional areas, such as corporate finance, tax savings, and other related fields.

Q:       The second triangle you mentioned was M&A. Is this any type of merger or is there a more precise strategy to it?

A:        We’ve seen two major changes in the M&A area. One is that many mergers today are more strategic in nature, as opposed to succession-planning oriented, which quite candidly had been the main focus in many of the mergers that have taken place over the past decade. The second big trend clearly is what McDonald’s has previously referred to as “supersizing.” In the past couple of years, there have been more mega-mergers of firms $25 million and above (see Exhibit 2) than in the last 20 years combined. I believe that many of these firms have had great success with prior mergers and now are looking to take it to the next level. Locals are becoming regionals, regionals are becoming mega-regionals, mega-regionals are becoming nationals, and nationals are becoming global firms, literally overnight. I don’t expect this trend to slow down in the near future.

Additionally, many of the mergers taking place today are now much more surgical in nature, in which they focus on the expansion of a specific industry, service line area, or sometimes broadening their geographic focus. A very popular merger today is one in which the acquiree wants to be the “foundation” firm for an out-of-town buyer that wants to expand its geography into a new region. While there have been a handful of what I’ll refer to as “mergers of equals,” this is still the exception to the rule and while I think there will be some in the future, they probably will come from very large firms that have cleared many of the hurdles that often arise in mergers of equals between smaller firm.

Finally, as the economy returns, I think we’ll start to see more “out of the box” mergers, whereby firms will buy specialty boutique and consulting practices that, for the most part, are non-CPA firms.

Q:       You have referred to the third part of the triangle as free agency and/or lateral talent. Can you shed some more light on this?

A:        When Arthur Andersen went out of business in 2002 and the PCAOB created Sarbanes-Oxley, I believe it forever distanced the Big Four from the middle market (privately-held companies with revenues between $25 million up to $1 billion). While the Big Four are back “dabbling” in the middle market today, it is clearly a short-term pricing strategy to keep their people busy and I believe their involvement in the middle market will go away in the next one to two years. What this created within the Big Four firms for many of the middle-market partners was a feeling of “second-class status” where all of the excitement was around Fortune 1,000 companies with relatively little focus on the middle market. What this has created has been a mass exodus of very, very talented managers and partners who have left to pursue new career opportunities in the Top 200 CPA firms. These firms have found great rainmakers, client service partners, and industry or service-line leaders and have found that this strategy can produce growth without some of the hassles that sometime come with M&A. It is clearly more of a “surgical strike” to obtaining talent and, to paraphrase the old saying, “If you can obtain the talent, the clients will follow.” I have also seen firms use this strategy to open up in a new geographic area, whereby they may recruit one to two partners (along with some staff) away from a firm, as they have found this strategy to be much more effective than transporting some of their own people into a new geographic area where they have limited contacts and knowledge.

Q:       You closed one of your recent presentations by saying, “If you don’t grow, you’ll die (worse yet, it will be a slow death.)” Please share with our readers exactly what you mean by this.

A:        When it comes to CPA firms, if you can’t continue to grow the firm, top young talent won’t stick around for a long time with each generation. CPA firms have to continue to grow great leadership, great rainmakers, and great client handlers. If they can’t continue to excel in all three areas, typically the firm will begin to erode, not necessarily overnight, but over a period of years. I have seen many second-generation firms essentially come to a screeching halt because the second generation didn’t have the type of leadership and rainmaking skills that the first generation had. They hoped that they could essentially “milk” the client base for another decade or two. Unfortunately, what they’ve learned is that with aging (or retiring) partners, oftentimes their client bases are of a similar age and those businesses typically sell, go out of business, or when the business is passed to the next generation, that generation uses the opportunity to find a new CPA firm.

I also find that some of the more unprofitable firms have limited or no growth strategies. When this sets in, they frequently hold onto the proverbial “C clients” longer than others, based on the theory that something is better than nothing. And, if they were to get rid of these clients, they have little to no confidence that they could replace them with new, more profitable business.

About the author: Allan D. Koltin, CPA is the CEO of Koltin Consulting Group, based in Chicago,  Illinois. Allan specializes in the areas of partner compensation, firm governance, profitability, strategic planning, succession and mergers and acquisitions. Allan can be reached at either or 312-805-0307.