While some CPA firms may be looking to expand by simply merging with or being acquired by another practice, there are many firms that are recognizing the value of developing a niche as a growth vehicle. The question is, what due diligence should firms do before jumping into a niche with both feet, and what new niches or service lines are hitting the radar screen?

"[The niche practice] has created more synergies and allowed us to stay cohesive and has provided accretive growth," said David Kessler, co-managing principal of Reznick Group's Bethesda, Md., office and chair of the firm's national commercial real estate practice. The firm specializes in real estate accounting and, since its inception in 1977, has largely grown the wide-ranging practice organically. Today, the real estate practice accounts for about 70 percent of the firm's revenue.

"Firms are moving to niches to be more competitive in a market that rewards thought leadership," added Jeff Pawlow, chief executive officer of The Growth Partnership, a consulting firm serving the accounting profession whose services include helping firms develop new niche clients.

It's hard to deny the value of a niche practice, but when it comes to developing a niche there doesn't seem to be a cookie-cutter approach. Some firms may decide to acquire another firm that has a specialty they don't, while others may opt to hire partners who have an expertise in a given area, or they may choose to start from scratch and train their current associates. The approaches to getting into a specialization may differ, but the extensive research and due diligence that should first be done by a firm are a constant.

When exploring a new niche, firms often take the route of looking at the market from the inside out. They may, for example, gather around a conference room table to brainstorm ideas and, from there, decide what market they want to tackle.

According to consultant Gale Crosley, president of Crosley+Co., this approach can prove unsuccessful. "The only thing that matters is what the market wants," explained Crosley, whose consulting services include helping firms develop their niches. She recommended that firms determine what the market needs and wants and then rise to the occasion.



Crosley suggested that firms first define what niche they might want to pursue and evaluate that market from the outside in. Define what the service line might look like and then begin interacting with as many people as possible within that market to find out whether it's viable. This interaction is what Crosley refers to as the "research call."

During this process, firms should be looking for three strategic elements, according to Crosley:

What should the service look like?

Which buyer group will this appeal to most?

What are the channels of distribution? In other words, how will you and the buyers find each other?

Concurrent with this, begin searching for that first early adaptor to practice on and work with to further define the service, Crosley suggested. An early adaptor is critical, as they can not only provide one-at-a-time referrals but, perhaps more important, can offer key strategic market insights to find great quantities of buyers, like where their peers gather to network, what materials they read, etc.

During this research call phase, firms may also discover that an acquisition or a strategic alliance makes the most sense. A firm could form a strategic alliance with a competitor either in or outside its geographical space, or it may even form an alliance with a non-CPA firm that specializes in the market of interest.

Forming an alliance can be a great way to gain knowledge of a market without having to make a hefty investment in training. "A lot of firms make the mistake of finding a resource and bringing them in and then find out that the market isn't there," Crosley said.

Pawlow believes that client focus groups are a great way to begin researching a niche. This can help firms learn what a client expects of them beyond tax compliance and auditing services, and what services or guidance they desire. Pawlow said that firms can then develop a proactive plan and thought leadership.

"It is about going deeper and being all things to a narrow population," he said.

When exploring a new niche, Pawlow suggests that firms look for three things:

• Do they already have an expertise?

• Can they win among competitors?

• How deep is the well of opportunity?

If a firm doesn't already have clients within a niche it is considering, then it must take a closer look at the competitive landscape and the potential opportunities - or lack thereof. And firms that don't have a story to tell may be wise to acquire a firm that has a specialty in that field or hire several specialists to build out the niche.



Bill Owens, partner at Phoenix-based Owens & Bondell PLLC, agreed that if a firm doesn't have any clients in a niche they are looking to pursue, they might be better served acquiring a company that has the specialty they lack.

Owens & Bondell has been serving dental clients since its inception in 1981. Over the years, the business has grown largely through word of mouth and, today, dentists account for as much as 90 percent of its client base.

"Starting from the beginning would be a long haul if there are already established folks [in that niche]," said Owens. "An ad doesn't carry the same weight as the relationships. It is all about relationships."

Firm partner Matthew Bondell agreed, and added that a firm must have an initial group of clients in order to build out a niche. "You need to have that seed to grow," he said.

Rob Carmines, partner of Carmines, Robbins & Co. in Newport News, Va., noted, "What you need to be successful in your niche is your 'poster child.' Once you have that, the rest will come."

With its sights narrowing on the dental industry, Carmines is looking to remotely process, through the use of hosted accounting software, a dentist office's accounting and bookkeeping, and reconcile their bank accounts and pay bills in a secure manner. The firm can also handle the payroll and set up a portal for each employee.

Hanner & Associates began defining a new niche - serving veterinary clinics - about four or five years ago by looking within its client base and then immersing itself in that market.

"We looked at our client base and decided that we would go with the veterinary market. We had a small concentration in that, maybe about 5 percent of what we did was veterinary clients," said Glenn Hanner, partner of the Bedford, Texas-based firm. "We took our client base, as a whole, and [determined] who do we like working with and [what] is an industry we can leverage staff with? So we purposely chose the veterinary market, as opposed to the construction market, which was kind of a default for us just because of the background and referral sources that we had."



Hanner & Associates has served the construction market since its inception about 25 years ago. However, the market proved increasingly knowledge-intensive for the 16-person firm, and the downfall of the real estate market in recent years only complicated matters. Those factors prompted the firm to turn its attention to veterinary clinics.

Hanner & Associates then immersed itself in that market by, for example, joining a group comprised of about 250 consultants who cater to the veterinary industry, joining a group of about 25 firms that do valuations for veterinary clients, and attending and speaking at veterinary conferences.

"In my opinion, it boils down to immersion in the industry. You cannot half-way do a niche, and it takes a lot of time. If I did not have the support of my partner and staff to be able to go to the conventions and spend the time on the phone talking to prospects, it could not be done," Hanner said.

The firm currently serves about 39 vet clients, up from 12 in 2009, and the additional growth potential is significant, as there are roughly 22,000 veterinary hospitals in the U.S.

"We [now] know what staff percentages should be [for vet clinics], what cost-of-goods-sold percentages should be, what their facility percentages should be. So, now our chart of accounts is designed to capture all of those things, so we can compare those to national averages and national key performance indicators," Hanner said.

The firm didn't hire new associates who had expertise in that market, but instead identified about five team members who would focus on that market and then invested in additional training. Its lead team member attends practice management seminars that address all aspects of running a vet clinic to better understand the intricacies of the business.



Dylan Zsebe, partner of Cape Coral, Fla.-based professional services firm Bill A. Mattingly PA, stressed the importance of first talking with other CPAs who are seasoned in a respective niche to gain their insights.

"We have found that to be invaluable. Use your fellow accountants," Zsebe said.

Prior to the economic downturn, Bill A. Mattingly PA was enjoying the success of its construction practice, which accounted for as much as 90 percent of the firm's business. However, when the economy turned sour, the firm quickly realized it needed to re-invent itself.

Retaining a consultant catering to small to midsized tax and accounting firms, and networking at a software vendor conference, led the firm to its new service line - setting up cloud-based solutions for clients.

Since the start of 2012, the firm began leveraging Right Networks to host QuickBooks for its clients, giving the firm the ability to manage all of a client's bookkeeping duties. To date, it is hosting QuickBooks for about a dozen clients.

The firm is also looking to specialize in home health care facilities, given its Southern Florida location. To better understand the nuances of the market, the firm has turned to the Home Care Association of Florida, the trade association for the home-care sector in Florida, and is reading up on industry publications. It has also purchased software to help it prepare the required Medicare cost reports for its future home health care clients.

Zsebe said that the firm would soon begin marketing to home health care facilities, both online and via mailings to local facilities, and estimates that it could serve about 60 clients in a three-county radius in Southern Florida.



When getting into a new niche, Myron Gellman, managing director of The Mercadien Group, said that it greatly depends on the culture of the firm, the capital and the proposed timeline when trying to determine whether to build a niche internally, buy it externally or hire a specialist from another firm. The Princeton, N.J.-based firm currently has about 14 niches in its portfolio, including a financial institutions practice.

When looking to establish its financial institutions practice several years ago, the firm thought it made the most sense to hire a specialist, and brought on board Salvatore Zerilli as a managing director of The Mercadien Group and industry leader of the financial institutions practice.

Zerilli, who has more than a decade of banking industry experience, specializes in performing risk management services for banks, credit unions, and U.S. branches of foreign banking institutions. These services are inclusive of outsourced internal audit services, regulatory compliance reviews, enterprise risk management and consulting services. Once on board, Zerilli helped establish a financial institutions practice team, and today the group serves about 25 clients.

When asked about the importance of establishing the financial institutions practice, Zerilli was quick to point to the Dodd-Frank Act, which was signed into law in 2010. Dodd-Frank, described as the most comprehensive financial legislation since the 1930s, requires U.S. regulators to write hundreds of new rules to overhaul how the financial sector does business.

The banking world will see many changes ahead because of Dodd-Frank and anxiety levels are high, especially among smaller shops, said Zerilli. "The mission is to offer services to ensure they can survive," he said. That involves ensuring that banking staffs are well trained and abreast of the upcoming regulatory changes.

As mentioned earlier, Reznick Group has a significant focus on the real estate industry and, over the past 35 years, it has grown the practice, not through acquisitions, but largely by relocating or hiring talent to build out a niche.

"We started a little fire and kept throwing logs on it. Then we'd build a small fire nearby and put in a trench to connect it," said Kessler, illustrating how its real estate accounting services have evolved over the years. He said that the firm could bring in as many as 15 partners a year from the outside who may have a specific expertise.

Today, its client base is varied and includes affordable housing and commercial real estate developers, REIT managers, investors, syndicators, and construction managers. It provides clients with industry-specific services, such as real estate auditing and lease audit services, and business insights.



There's no doubt that firms are increasingly exploring niches as a vehicle for growth, and even those firms already established in a niche are discovering new paths for growth.

The Willeford Group has been focused on serving the dental market for more than 30 years and is a founding member of the Academy of Dental CPAs. Over the years, dentists increasingly turned to the firm for advice beyond accounting and tax. In response, The Willeford Group began expanding its practice and, about three years ago, started a practice management division. Today, the firm, which is located in Roswell, Ga., provides practice management, and shapes retirement plans, practice transitions and personal financial plans. The key advantage, said Rick Willeford, chairman and president of The Willeford Group, is that the firm can now cross-sell the services.

Looking ahead, Willeford is considering starting a company that would run a dental practice for dentists so they could focus more on dentistry, rather than on the minutiae of running the business. Not only would the company run the dental practice, said Willeford, but it also would have greater power in purchasing medical supplies, dealing with insurance companies, etc.

"Why don't we unionize the individual dentists with one voice that can demand more bargaining power?" Willeford said.

Crowe Horwath in Chicago serves such industries as health care, government, manufacturing, private equity and financial institutions. Looking ahead, the firm will continue to invest and find opportunities for "triple-threat solutions" - knowledge, process and technology - in those specialty areas, said Chuck Allen, chief executive officer of Crowe Horwath.



Crosley said that among hot-button niches, forensics is perhaps the most talked about. She also noted that wealth management is making a comeback. However, one niche that is not on the radar screen of many, but should be as it has the most potential, is international, said Crosley. Too often, firms place artificial geographic borders around themselves, but being open to geographic expansion can unlock a wealth of opportunities.

In fact, Crosley noted that there are about 138,000 entities that have an international component. These are entities that are either based in the United States and have subsidiaries abroad or are based abroad but have U.S. subsidiaries.

Meanwhile, Pawlow is so "bullish on niches" that he is looking to roll out, on an annual basis, a new service line to help accounting firms grow their niche businesses. The first such service line, which will launch on May 1, is a turnkey solution to help accounting firms grow their manufacturing niche. Pawlow said that he is initially targeting manufacturing because so many firms say they have a manufacturing niche but they are not successfully differentiating themselves in that market.

The idea of the turnkey solution is to create a system where the foundation is in place and the administration of the niche is handled by Pawlow's team. This will enable accounting firms to focus on meeting with clients, etc. It is building a niche based on social media, CPE, training, newsletters, micro sites and networking with non-competing firms that also serve that niche, Pawlow explained.

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