Partner's Report for CPA Firm OwnersJuly 2005Increasing Margins: How to Form Alliances with Other CPAs for Profit and GrowthAlliances between individual CPAs and their firms are on the rise. If you haven’t investigated this growing practice-development strategy, now is a great time to do so. To help with your efforts, PR shares pointers from the session, "CPA to CPA Alliances," at the AICPA Practitioners Symposium in Orlando. Growing alliances. There’s no doubt that alliances are flourishing, said Jim Metzler, vice president, small firm interests, AICPA (jmetzler@aicpa.org). And the variety of ways that CPAs and their firms can form alliances continues to grow. A sampling:
Why you should consider an alliance? Metzler listed some of the key reasons for the increased interest and participation in alliances, including:
The Practitioners Symposium session highlighted the alliance activities of two small firms that have taken different but equally productive approaches to forming and maintaining alliances. Solo support. Solo practitioner Peggy Ullmann, of Ullmann & Co. PC (Phoenix; peggy@ullmanncpa.com), participates in an association that includes six other local firms. Each of the participating firms has two to 12 people per firm. She finds it valuable in helping to run her five-person firm, since it brings expertise and support that otherwise would be lacking from a solo practitioner’s life. "We trust and love each other and look after each other," she said. The group’s agenda is very MAP-oriented, and the goal is to provide support and help to fellow members. The participants share technical documentation and training materials, CPE, retirement strategies, and staff. There are also group projects such as bringing in a facilitator to help members with strategic planning and a joint survey among the member firms about staffs’ feelings on management at their respective firms. Some facets of the arrangement are more formal, such as the practice continuation agreement that Ullmann maintains with several other members. Others are more casual, providing a forum for problem discussion and solving. The group has monthly meetings and an annual retreat. Work is also referred among the members, in arrangements that can be casual or formal, depending upon the circumstances. "Competition is not a factor," Ullmann noted. The main goal: "to help each other manage our practices." The members are committed to each other and to being active participants in the alliance, she added. They benefit from being a group and from the fact that all of the member firms are established firms. For instance, the head of the Arizona state society makes an annual visit to update the members on activities and trends, and the group received a private presentation from an outsourcing vendor about its services. The group also joins forces to contribute to the state CPA foundation, she said. "What we do best is hold hands when someone is in trouble," Ullmann said, noting that the group has worked through mergers, de-mergers, divorces, and major staff issues. "We’ve been through it all." Maintaining a small size to the group is seen by the members as key to its success, she explained. "We feel the size of the group is critical—more than seven would inhibit conversation and sharing. We feel four to seven members is the right size. Everyone needs to give as well as take." The benefits do not come easily at times, she admitted, since "we are all chiefs and no Indians." Members rotate the leadership role every six months, and different members have varied strengths in areas such as scheduling and control of the group. "We continue to address the issues and try to make it stronger. There are many challenges. But if you address them, you’ll have an enormous resource." Multiple alliances. William Pirolli, managing partner, Pirolli Deller & Conaty PC (Warwick, R.I.; wpirolli@cpaadvise.com) has taken a different approach with alliances for his small CPA firm. He has a strong alliance with a larger firm—so strong that not only is work referred between the two firms, but Pirolli physically moved his firm of three partners, two staff people, and one support staffer onto the premises of the larger firm. Resources are shared by the two firms, and Pirolli isn’t ruling out the possibility of a merger down the road. Pirolli has had alliances with other firms for years as well, and strongly advocates such arrangements. "Clients come to you for you, not your structure," he noted. He sees alliances as first and foremost a way to strengthen his relationship with clients by ensuring that he can get them whatever services they need. "My firm got out of certified audit and nonprofit—we felt we should do a lot of what we do [rather than a few engagements in other areas]. In each case, I turned to allied firms and made sure the clients all found a home." He continues to refer work to other professionals as needed. "I never have to say no. I just refer it out." What he does is not unique or unusual, Pirolli maintains. "Lawyers have been doing this for years, in the ‘one roof’ concept to share space and overhead costs." Medical doctors also have fruitful alliances, he noted. "I’m like my clients’ general practitioner. I take care of most needs, and spot when they have a brain tumor. Then I send them out for what needs to be done—and then they come back to me." Pirolli does not fear losing clients permanently to those he refers business to, relying upon trust relationships built over time. He agreed with Ullmann that trust is imperative for a successful alliance relationship. With the larger firm where Pirolli now shares space and resources, there is a letter of understanding and "it’s understood we’ll work cooperatively." How you choose a partner firm is absolutely critical, he said. "Firm philosophy and client service philosophy are central," and you should seek out partners whose philosophies dovetail well with your own. While he does obtain referral fees when they are available, this is not the central focus of alliances. Arrangements vary with his alliance partners, Pirolli explained. In some instances, he will seek assistance himself from another CPA, and will bill that to the client. Other arrangements may involve a contract between the referral firm and the client. In general, he will attend meetings under such arrangements. "I’m a control freak, so if it’s my client, I’m always in the room." If no referral fee is available, a more casual arrangement of sharing information at no charge at a later date may happen. "It can be casual," Pirolli said. The main concern: "It gets better service for my clients." The benefits to such alliances do not apply only to small firms, Pirolli pointed out—larger firms have much to gain from alliances as well. This is especially true for regional firms, the ones that are "too big to be small and too small to be big." Small firms can provide the client base for niches that the regionals are developing, since they lack the critical mass to provide the niche services themselves. "Small firms are a built-in market for them." Work can move "upstream" or "downstream." The point is "to focus your practice on what you want to do." Another benefit in these times of increased regulation and independence concerns: Multiple firm alliances can help share client work as the regulatory noose tightens. "For instance, the day is coming when if you do a financial statement, your hands will be tied as to what else you can do. Multiple firms can surmount this" by referring work back and forth. "If there is uncertainty, a lot of firms are being conservative and walking away from work, and this is an opportunity for everyone else." Getting started. Both Pirolli and Ullmann suggest that the best way to search out potential alliance partners is to get involved in your state society or at the national level. "This is where you’ll find the best and the brightest in the profession," Pirolli said. Look for a firm that is different from your own, Pirolli suggested. "The opportunities to leverage the client base will be much better, and it broadens your exposure to a lot of areas." Start slow, recommended Ullmann. "Trust and compatibility are great concerns," and they take time to build between firms. She suggested beginning with shared technology information before moving on to swapping management data. To help assess your needs, Pirolli suggests performing a "SWOT" analysis of strengths, weaknesses, opportunities, and threats. An outline of questions from his chapter on alliances in the AICPA MAP Handbook (www. aicpa.org) is in the sidebar, "Alliance SWOT Analysis." (Source: William Pirolli/AICPA MAP Handbook) |
Alliance SWOT Analysis Begin to consider whether an alliance is right for you by understanding your firm’s billing rates, specialties, and client base. Then, perform the classic examination of your strengths, weaknesses, opportunities, and threats—or a SWOT analysis. This involves performing a "stop/start/continue" assessment of what you want to do or not do, and what you want to continue doing. Ask each member of the professional team, including partners and staff, to answer:
(Source: William Pirolli/AICPA MAP Handbook) |