Brave New Accounting World Accountants Advisory Group, LLC

Transcription

1 Brave New Accounting World

2 The Competitive Landscape is Changing Rapidly

3 The Perfect Storm is Forcing Mergers Consolidation Retiring CPAs Quality CPAs Crisis Gender Unfunded Retirements Increased Competition Leadership

4 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

5 Driving Value & Profitability SUPPORT ACTIVITIES Growth Driven Leadership HR & Management Comprehensive Succession Planning State of The Art Technology Target Marketing, PR & Practice Development Recruiting the best talent possible at all levels either directly or through M&A Training, Career Development, Succession Planning, Partner & Staff Performance Management Leading edge services, industry specialization and niches PRIMARY ACTIVITIES Efficient and timely delivery of service Practice & Engagement Management

6 Trends and Predictions in the CPA Profession

7 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

8 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.

9 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

10 The Past Inside Out Staff Services Firm Skill Set Clients Marketplace

11 The New Order of Business Outside In Staff Partners Market Demand Marketing Services

12 Profitability Formula Profitability

13 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

14 Outside - In Services Thru M&A Firm Armanino Carr, Riggs & Ingram CliftonLarsonAllen Cohn Reznick Newly Created Service Acquired Rose Business Solutions Acquired an audit consulting firm Auditeverx and a Texas based wealth management firm Acquired MA based Bankers Advisory Inc. Acquired real estate consultants NOI Strategies

15 Diversifying Services Thru M&A Firm MountJoy Chilton Medely Prager Metis Wipfli Sikich Newly Created Service Acquired KY based HR consulting firm Personnel Profiling, Inc. Merged in NYC based family office services boutique Polakoff & Michelson Acquired Chicago based Regulatory Compliance Associates Merged in Illinois based supply chain consulting firm, Achieve Consulting.

16 Diversifying Services Thru M&A Firm Eide Bailey Glass Jacobson BKD Newly Created Service or Business Acquired a NetSuite Solutions provider. Merged in One Source Financial Acquired Kacinsky & Associates, which provides loan review services to Texas financial institutions.

17 Big 4 % of Firm Revenues Revenue ($Billions) Deloitte PWC E&Y KPMG $13.9 $11.0 $9.1 $6.1 Consulting 51% 31% 36% 22% A&A 31% 41% 37% 42% Tax 18% 28% 27% 36%

18 Top 100 Firms Large % of Consulting Revenue ($Millions) % of Revenues Consulting A&A Tax Crowe $ Plante Moran $ WIPLFLI $ Armanino $ Sikich $ Horne $ SC&H $ WathensMeegan $ Raffa $ KLR $ *28 Firms in the Top 100 have 25% or more Consulting Revenue

19 Firm of the Future

20 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%)

21 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%)

22 The Right Balance of Services

23 Firm of the Future Revenues Integrated Solutions 40% 20% 40% Investment in Non-PA Business Audit and Tax Compliance

24 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.

25 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.

26 Predictions Larger firms will begin to incorporate more cash buyouts in their merger deals to attract quality merger candidates

27 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.

28 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.

29 Predictions More small firms will split-up due to a lack of a consensus on succession planning and the future direction of the firm

30 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.

31 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. Partnership Structure Franchise / Corporate- Type Structure

32 Franchise Chairman & Executive Committee Managing Partner HR & Succession Planning Professional Marketing & Strategic Planning IT & Workflow Optimization Recruiting & HR Public Relations Career Development & Tech Training Benefits Client Retention, Cross-selling, Innovative Service Practice Development & Sales Advertising, Public Relations & Branding Work Flow Management Communications Hardware / Software

33 Phases of CPA Profession Consolidation Small National Large National Local Regional Mega- Regional

34 Consolidation of the CPA Profession Phase 8 (will accelerate in 2016) Mergers of 2 nd and 3 rd tier firms

35 Firm Classification LARGE NATIONAL FIRM OFFICES REVENUE $M McGladrey & Pullen (U.S.) 75 1,471 Grant Thornton 57 1,383 BDO (U.S.) Crowe Horwath CBIZ Clifton Larson Allen CohnReznick SMALL NATIONAL FIRM OFFICES REVENUE $M Baker Tilly Virchow Krause BKD Marcum UHY Advisors Novogradac & Co

36 Firm Classification MEGA REGIONAL FIRM OFFICES REVENUE $M Plante Moran Moss Adams Dixon Hughes Goodman EIDE Bailly Wipfli Carr, Riggs & Ingram Rehmann

37 Firm Classification LARGE REGIONAL FIRM OFFICES REVENUE $M EisnerAmper WeiserMazars Cherry Bekaert & Holland Citrin Cooperman Warren Averett Elliott Davis Decosimo O Connor Davies Withum Smith & Brown Sikich

38 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

39 The Future is Now Fastest Growing Firms in the IPA Survey On average derived 26% of total revenue in nontraditional services and these services increased by 22% Firms range in size from $5 million to $100 million in revenue (average size $35 million)

40 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

41 Firm Business Model

42 Business Segments Business Segment defined a component of a business that generates revenues and costs related to operations Examples of segments in Public Accounting: Assurance areas Audit Review Compilations Tax Business Individual Niches Family Office Alternative Investments Outsourced Accounting

43 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

44 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.

45 Partner Leadership Teams Managing Partner COO Strategist & Visionary Practice Growth Mergers & Acquisitions Goals & Objectives Oversight Succession Planning & Talent Management

46 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

47 Using Talent and Leverage to Build a Firm of the Future

48 Delegation

49 Historical Pyramid Structure Partners Managers Supervisors Staff

50 Profitability Formula Profitability

51 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?

52 Aligning Business Strategy With Performance Management Retain Plan Business Strategy Human Capital Strategy Lead Measure & Align Acquire Talent Results Business Results Deploy Engage Develop

53 Interaction Between Marketing & HR Projected Growth Niche Development Recruiting Promoting the Firm New Services Public Relations Training & Development Niche Talent

54 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

55 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 $ $ 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

56 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 Professional Staff: Equity Partner Ratio A/R Management: Days of Production Locked Up WIP Management: Days of Production Locked Up