What happens when today’s practice management principles become obsolete?
This article is adapted from the forthcoming book, “SevenKeys to Successful CPA Firm Management”
In today’s competitive and rapidly changing business environment, change management may be the single most important skill for every CPA.
Technology, demographics and globalization are demanding new business models from accountants. In some ways, the traditional principles of management of an accounting practice (MAP, for short) are under such pressure that they may never be quite the same again. Today, it seems, there is no single best way to run a firm.
For sure, just “keeping up” is a major challenge for many professionals, according to variety of authorities. “Keeping up” with tax and accounting rules or “keeping up” with technology emerge again and again on the short list of troublesome issues for CPAs, according to the American Institute of CPAs.
But “keeping up” is not a strategy. Not a strategy for success, anyway. Many of the most successful firms I’m seeing these days are going beyond “keeping up.” Or, I should say, are going around “keeping up.”
The lesson from these firms is that you don’t need to “keep up,” at least not in the traditional sense. These firms teach us that success depends not on doing many things adequately, but on doing a few things with true excellence and distinction. CPA Trendlines Research shows repeatedly that the firms that embrace change, that are “early adopters” of new technologies, and that breed a culture of innovation most consistently display higher growth rates and superior financial results.
Today, new business models are being invented, tested, revised and tested again. Much is happening within the CPA profession, but real change could come just as likely, and more significantly, from outside the CPA world. Accountants are experimenting with non-partner firms, built more like networks of solopreneurs, than partnerships. Corporate governance structures have been tried at many firms, and seen much success. But just as often today, accountants are creating collaborative collections of people and skills.
Accounting firms have options today they never had before. Options to compete. Options in ownership. Options in staffing. Options in off-shoring and outsourcing. Options in technology. Options in management and governance. Indeed, the chief innovation in the CPA firm industry in the past 30 years is not, as is often said, technology. Technology doesn’t change anything in and of itself; it simply expedites, according to Bruce W. Marcus writing in “Professional Services Marketing 3.0.” No, change in the CPA business is driven by competition. And competition drives innovation. In turn, innovation is creating a diversity of options for progressive firms.
So, is the whole notion of MAP as we know it antiquated? Remember, the term MAP only came into the profession’s lexicon in the 1970’s. Before that, operating a CPA firm was hardly deemed a science. By the 1980’s, with the advent of competition and innovation unleashed by a 1977 Supreme Court decision (Bates v. State Bar of Arizona) bringing CPA marketing out of the closet, firms were in dire need of standard systems and procedures to manage their practices like a business. And the profession grew.
Through the 1990’s, CPA firms expanded at a rapid clip, so fast and profitably in fact, that they attracted the attention of Wall Street speculators looking to roll up dozens or hundreds of firms into new national companies. Some worked and are still here today. Most didn’t and aren’t. Then in the early 21st Century, when the dot-com boom went bust, when Enron exploded and Arthur Andersen imploded, and when the government passed the Sarbanes-Oxley Act, the profession took off again, with assurance services in such high demand that the biggest issue was a staff shortage.
Now comes the Great Recession of 2007 and finding staff is no longer the main priority. In a matter of months, the accounting and bookkeeping sector had shed about 80,000 jobs, or almost 10% of its workforce according to U.S. Labor Department data obtained by CPA Trendlines.
At the moment, CPA firms are cautiously enjoying a moderate recovery, chastened about over-hiring, motivated to drive efficiencies with new technologies, and with many feeling more urgent than ever before to make their exit before the economy turns again.
With the options available to CPA firms today, we're now seeing a mix of business models.
- You can start a firm with a laptop and a cell phone in a corner of Starbucks.
- You can do accounting without being an accounting firm.
- You can do no accounting at all, just bring in the clients and ship the back-office work out of state or out of the country.
- You can be global as a soloist, or you can be a global firm that operates like a bunch of soloists.
There's even a model for an accounting business that operates for free; it makes it's revenue on advertising.
And how long will the 1040 business be around? Some 12 million customers disappeared from the paid-preparer market between 2010 and 2012 as they adopted do-it-yourself software programs.
The profession seems poised, I believe, for a great leap forward. Who knows what it will be? Maybe, in fact, it won’t be one leap, but many. Whatever comes next will be built on the diversity of today’s rapidly widening options.
Looking at how diversity has affected other spheres -- looking at it through historical, sociological, and technological lenses -- suggests that the change will come so quickly we won't see it coming.
In fact, the next big thing is probably already here. We just don't know it yet.