Newsletters - Partner's Report for CPA Firm Owners

June 2005

Regardless of your firm’s size, you must take steps to help train and develop staff and plan for future leadership. Four firms of various sizes shared their approaches in a session at the Missouri Society of CPAs’ Management of an Accounting Practice Conference in Kansas City. Two effective strategies: Forming alliances with other CPA firms, both larger and smaller, to work on pieces of engagements the firms couldn’t, for various reasons, take on in their entirety; and using targeted marketing programs.

Why alliances succeed. Alliances and joint ventures are ways for CPA firms not only to take advantage of the "trickle down" of engagements and new types of work that have been created post Sarbanes-Oxley, but also to provide quality work to staff during "non peak" months of the year, said Kyle Hawk, partner with Swindoll Janzen Hawk & Loyd LLC (McPherson, Kan.; kylehawk@sjhl.com; www.sjhl. com/). The $1.8-million firm has four partners, 12 professionals, and four support staff year round, and finds alliances to be an excellent way to obtain work for staff during the slower months.

The work is a better option for this firm than developing additional niches. "Niches are hard because you often need partners or other dedicated expertise," Hawk explained. "We wanted to keep entry-level staff busy. We realized we could help bigger firms with work we couldn’t totally do ourselves."

The firm obtains work via contacts partners have made through their involvement with the AICPA and other organizations. "I was surprised how easy it was to make these contacts and how fast the work came in," Hawk said. Alliance engagements include:

• Partnering with Deloitte on the audit for the state of Kansas.

• Working with a Washington, D.C. firm on FEMA (Federal Emergency Management Agency) compliance audits.

• Working on a government engagement with an Oklahoma firm.

• Working on a Sarbanes-Oxley engagement with a Connecticut firm.

Swindoll Janzen has also partnered with smaller firms on engagements, Hawk noted.

The firm has had such a glut of opportunities that it has passed on more engagements than it has accepted. The travel required for many of these engagements can discourage staff from participating, and some requests conflict with the firm’s existing workload.

Making the most of marketing. One key to successful marketing involves planning and targeting your initiatives.

Niches are working well for Padgett Stratemann & Co. LLP (San Antonio; ray. berend@padgett-cpa.com; www.padgett-cpa.com/), said Ray Berend, managing partner. The firm has $12.5 million in annual billings and more than 100 people. Each niche is staffed with a team of audit, tax, and consulting personnel devoted to that specialty and has its own annual plan with goals. The niches bring the firm higher than average billing rates, greater realization, and better marketing results in terms of time leveraging and overall return.

The firm has found the niche team approach to be an excellent training tool, and staff are passionate about their work, Berend said. Padgett Stratemann has learned that the best leader of a niche needn’t be a partner, but must be someone with passion and the right skills.

Niches along with aggressive and varied marketing are working well for Casey Peterson & Associates, Ltd. (Rapid City, South Dakota; www.caseypeterson.com), said Susan McCormick, firm administrator. This firm has six partners and 16 CPAs, and a total of 33 staff, with $2.2 million in annual revenues. It has niches in business valuation, financial planning, and financial services (investment and insurance), and added medical billing and onsite accounting services for clients as its most recent niches.

"We’re a very active marketing firm, and we’re proud of our efforts," McCormick said. The firm updates its marketing plan annually and communicates it to staff, who then must develop individual marketing plans. "We allow them to write their own plan, which is much better than forcing them to do activities they fear." The firm expects more of managers, including meeting revenue goals.

Casey Peterson spends 3% of revenue on marketing, which is higher than average among CPA firms, but the firm is committed to that spending and makes effective use of it, McCormick explained. Marketing initiatives include:

• Radio, TV, and newspaper and other print ads.

• Developing client referral sources by being visible sponsors of clients’ children’s sports teams, advertising for client-sponsored events, and golfing with clients.

• Items such as shirts, pens, cups, and a booth for shows.

• A thrice-yearly newsletter written by staff.

• Charity promotions and staff volunteering activities.

• Seminars and local Chamber of Commerce activities.

Finally, the firm devotes resources to internal marketing or employee relations, holding monthly social events or learning lunches, welcome lunches for new staff, and marketing "monsters" given quarterly to staff with a bonus to reward marketing efforts. Managers get a "kudos" budget to use to reward their staff with massages, gift certificates for dinners, and so forth.

The firm has a full-time marketing director who is "of great value to us," McCormick said. Even a part-time marketing professional can save time and let partners focus on what they enjoy and do best.

Differentiation is the key to the success of even the smallest CPA firm, according to David McIntee, founder, McIntee Fusaro & Associates, LLC (Kinnelon, N.J.; www.mcintee.com). The four-person firm not only has niche practices, including business valuation and not-for-profits, but the extensive networking efforts of its principal partner have brought the firm alliances and new opportunities. "Survival today takes being a specialist," he said. Although the firm does tax work, its marketing efforts are exclusively focused on niches. The firm is also involved in alliances, which bring in about one-sixth of its revenue.

McIntee advises focusing on client-centered services and being picky about which clients you keep. Ridding the firm of problem clients, especially in the post-Enron risk-management environment, is important.

A CPA firm needn’t have a niche-oriented structure to succeed, as Hawk of Swindoll Janzen can attest. The firm switched its marketing focus two years ago from seeking new prospects to increasing marketing to existing clients.

Hawk’s firm took several relatively simple marketing steps that have enhanced these efforts. A weekly electronic newsletter for clients and prospects contains mostly "canned" materials, but the firm has received the best reaction to its original "lead" articles that highlight clients and staff. The e-newsletter also lets the firm track which articles recipients are reading. For instance, if a client reads an article on cash-flow problems, the firm can see this and contact the client to offer assistance.

Operations strategies. One reason for Padgett Stratemann’s success with niches is the firm’s "production line" mentality, which requires standardized practices for operations. Every engagement has a plan, schedule, and initial client contact made 60 days before work commences. A post-engagement report assesses how well the engagement team carried out the plan. "We find that when the plan is followed, we get the best realization," said Berend.

The firm also believes that "it’s not income until the cash is in the bank" and thus has worked to improve collections. For instance, several years ago the firm cut WIP down from 100 to 75 days, which allowed it to fully fund a move to a new office without having to take a bank loan. Now it strives for 70 to 80 days for collections.

The firms all agree about the importance of staff retention, especially with the new opportunities being pursued. Hawk noted that his firm has enjoyed long-term retention: Of the firm’s 12 staff, six have been there for more than 10 years. The staff credit the highly family-oriented firm culture that permits staff or partners to take time when they need it to attend a child’s school play or athletic event and sick time to care for an ill child or spouse as a key reason they stay.

Padgett Stratemann has also worked to reduce turnover from 20% to the current 12%, which includes administration staff. It focuses on hiring for quality rather than when an opening must be filled, Berend said.

McIntee’s firm has just four full-timers, but has made creative use of college students for ongoing part-time work. Berend recommends hiring sophomore-level students for a 15-hour work week.

Berend admitted that his firm struggles with conflict-related issues. He pointed out that "negative performance issues won’t improve with age," so the firm must address them, however difficult that may be.