While Big 4 CPA firm revenues continue to slide and second tier CPA firm revenues and profits explode, small CPA firms remain blissfully ignorant of the radical changes currently underway in the CPA profession.
Two surveys conducted over as many years show Big 4 accounting firms steadily but, surely losing clients as the Big 4 accounting oligopoly deals with its tax shelter legal woes and the continuing fallout of the Arthur Anderson demise.
Second tier firms in the meantime have seen revenues explode with many CPA firms in this segment showing double-digit revenue gains up to 40 percent in the last 12 months alone.
So what’s happening at smaller CPA firms where revenue and profit numbers are closely guarded secrets?
Results of an optimistic national survey conducted by the PCPS/Texas Society of CPAs National MAP Survey reported that 14 percent of 2,373 local and regional firms experienced revenue growth of at least 20 percent in 2004.
Looking at those numbers another way, that also means that a full 86% of the reporting firms are showing revenue growth of less than 20 percent, with over half the reporting firms growing at less than 10 percent. Far below the growth rates of the second tier CPA firms.
Should smaller CPA firms be happy with their 2004 growth rates?
Patrick McEvoy of consulting boutique firm CPA Marketing Best Practices urges smaller CPA firms to “wake up” and start looking at their own results the way they would advise clients.
It’s well known in the world of consulting that when a firm is growing at substantially less then the average rate of their competition in their industry, trouble is on the horizon.
It’s an accepted consulting industry norm to treat these firms as “turn around” situation in any other type of industry.
A turn around situation requires a combination of aggressive marketing smarts and cost control. Obviously cost control opportunities are limited at any professional service firms with salaries and fixed overheads accounting for about 50 percent of revenues.
So what about marketing efforts?
Second tier firms have adopted new marketing approaches with a vengeance. Non industry standard methods such as direct marketing, telemarketing, and alliances with complimentary industries have all become the weapons of choice in the hunt for new clients.
They recognize that the opportunity to make significant gains at the expense of the Big 4 is now and that this opportunity may never come along again. No marketing stone is being left unturned.
Meanwhile, the majority of small firms continue to rely on 20 year old out of date approaches like club memberships, word of mouth, hap hazard networking and a few brochures.
McEvoy further adds that small CPA firm partners remain blissfully ignorant of the long term non financial implications to the firm when sub par revenue and client growth continue long term.
I ask them, “How will you hire the best university graduates when you don’t have the revenues to pay them. How will you retain young partners when the revenue sharing pie is bigger at XYZ firm? How will you attract better and larger clients when your service offerings are the same as they were 5 years ago? Who will you hand the firm over to when you retire?”
It’s like trying to persuade the Horse and Buggy industry to “get off their duffs” and start manufacturing automobiles at the turn of the twentieth century. I’ve been in the accounting business for 24 years now and I’ve never seen such tremendous opportunities for the small firms that are simply being wasted concludes McEvoy.
While the smaller firms are “thinking things over,” the smart aggressive firms are well on their way to establishing a new “Big 10” in the accounting world.
Just like smoking cigarettes, old bad habits are indeed hard to break even when you know they’ll eventually kill you.
Written by Patrick McEvoy.