For most major accounting firms, the Enron era set profitability back decades when they were forced to abandon their highly lucrative consulting arms in an effort to shed even the vague appearance of a conflict of interest.

Then, after the recession of 2008, the Big Four, like most companies, were left looking for ways to weather the storm, and sought refuge in their productive past as consultants. Today, nearly a decade after Enron, the rules are changed, but the profitability of old has not, and many of these renewed consulting divisions are growing exponentially.

KPMG's consulting revenue topped $6 billion in 2010, for instance, and the company anticipates that that figure will surpass $15 billion by 2015; and while Deloitte's audit and tax divisions dipped 4 percent and 5 percent, respectively, last year, its consulting group jumped nearly 15 percent. Ernst & Young now has more than 20,000 consulting professionals, and PwC reported $6 billion in consulting revenue last year.

 

IMPACT ON THE MIDDLE MARKET

Most middle-market accounting firms have never made a significant commitment to consulting, but the recession has eroded the client base for many of these firms, as businesses slashed expenses or failed entirely. Many accounting firms have witnessed their first-ever declines in revenues.

The recession has since eased, but good businesses are still struggling, and many mediocre businesses continue to fail. This economic shift presents an enormous opportunity for midsized accounting firms. Never before has there been a greater need for businesses to access management consulting services in an effort to get ahead.

Many businesses fall short today in several key areas, including growing their revenues, becoming more efficient, articulating and delivering a compelling value proposition, recruiting and training employees who can drive success, and planning for a successful future. Many also need to be more precise in focusing on costing to avoid depleting valuable resources on products and customers that are not providing value. These are the skills that businesses need to learn to survive and thrive.

The problem is that it is difficult for middle-market businesses to acquire these skills. Many don't know what they don't know. But there are relatively easy-to-implement improvement tools unknown to most middle-market businesses. And even if they are aware of these tools, they might not know where to find them. These businesses can't afford McKinsey, Booz Allen Hamilton, Accenture or any of the other major consultants that focus on Fortune 1000 clients. Because smaller consulting firms are not household names, most middle-market businesses feel uncomfortable hiring someone they don't know.

 

ACCOUNTING FIRMS TO THE RESCUE

This is where accounting firms come in. Arguably, accountants are the most trusted advisors for middle-market companies, and with that trust lies a unique opportunity to bridge the knowledge gap for their clients. Midsized companies need access to business-improvement skills and knowledge. No other organization is better positioned to provide that information than an accounting firm.

Admittedly, many firms are unequipped to provide these services, but this can be remedied through multiple paths, including:

Training current employees to develop the necessary skills;

Hiring experienced consultants to start a consulting division;

Acquiring or merging with an existing consulting firm;

Developing an alliance with an existing consulting firm to provide services to the accounting firm's clients for a referral fee; and,

Licensing a consulting program from an organization that provides access to appropriate intellectual property, training and support to the accounting firm.

 

SIGNIFICANT BENEFITS

Benefits abound for accounting firms and their clients. Aside from the opportunity for accounting firms to tap into a new, growing and lucrative revenue source, the following other benefits can be enjoyed:

Differentiation. Clients expect that an accounting firm is proficient in accounting, auditing and tax, and are hard to impress with these skills. They see the ability to help them improve their business performance and profitability as unique and different.

Utilization. Accounting firms don't have trouble keeping their people utilized in busy season. The summer and fall are a different story. Consulting projects can be done in the slow season, resulting in significant utilization improvements.

Recruitment and retention. Many accounting firms lose highly competent people to industry jobs. Recruits and existing employees will see the value in building additional skills in management consulting.

Access to specialized skills. Clients need help improving their organization, and it is better that they have access to these skills from a person they know and trust.

Reasonable cost. Firms will offer consulting advice at far more competitive rates than a management consulting firm.

Improved performance and profitability. Any time an accounting firm can help its clients be more competitive and improve their bottom line, it is an opportunity to strengthen their relationship for the long term.

Many accounting firms are tepid about offering management consulting services to their clients, but accountants are uniquely qualified and positioned to provide excellent advice. If accountants find a way to incorporate valuable management consulting advice into their service offering, they can become a true trusted advisor.

The economy has affected every accounting firm, large and small. The Big Four have returned to consulting for the profitability and they will likely remain there. Midsized firms today need to follow suit to remain competitive, increase revenues and maintain their clients.

 

 

Larry Goddard is chief executive officer of The Parkland Group, a Cleveland-based management consulting firm focused on improving business performance and value.

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