Currently, there are four big firms, and they are likely to consolidate more. The same can be said for the national (second-tier) firms.
That leaves regional, midsized and local firms to pick up the balance of work.
Doesn’t sound so bad, right?
Most of these firms are dying for talented people.
Why don’t they get talented people? One of two reasons: One, because they don’t want to open up their wallets. The second reason is that it is impossible for these firms to identify talent.
Why is that? Because they are jaded. They have been working within their own organization with the figurative green eye shades too long. Therefore, they have “organizational delusion,” a.k.a. “OD.”
Why don’t they want to open their wallets?
Because they are cheap and they think that this will go on forever. There is a reason that some call CPAs the “Cheapest People Alive.” The interesting thing is that, with these firms, the partner pay always increases within the industry but the run-of-the-mill manager and staff rates have remained the same for years! Why is this? I know that there was that collusion thing in Major League Baseball, but there they had a union.
As testimony to this spirit of immortality, many of the partners in a lot of practices don’t even have buy-sell agreements or succession plans in place!
Yes, most of the partners in small and midsized firms are Baby Boomers and they all want to retire at 65, but they can’t. Why, you ask? Simple: They don’t have the wherewithal to sell their firm because they still work on most firm clients.
As a result, it erodes any value to the firm. There is no talent within the firm because the principals don’t want to pay more money to attract talented staff or even simply take less money out of their practice. This is greed at its finest.
It is safe to say that most CPA firm owners say they want to retire at 65 or 70. The reality is the dark little secret.
What is the dark little secret? They don’t want to go home to their wives. They really want to work to the grave and leave all of their clients pounding salt. You know why? They hate their clients. They have passive aggressive hostility about their own decision to work so much on that client for so long.
So what happens? Clients are left helpless. When they are helpless they leave or, unwittingly, they continue to stay in a terrible situation.
One of two things happens: The practitioner dies and all of the clients are left to be poached, or the clients leave before the practitioner dies because of shoddy service or they realize on some level that the firm is valueless.
Now, in the worst case circumstances, in some partnerships that are terrible, Partner A may “sell” his clients on the “down low,” i.e., not tell his partner.
Where do the clients go? The clients go to bigger firms where they pay more, or they go to H&R Block, or they go to friends of Partner A.
This is why regional, midsized and small firms are in jeopardy.
What do you do?
Get an outside consultant to give you fresh perspective. Train your staff to be productive in the new millennium. Cut down on the billable hour mandate, because you are burning out staff. Not only are staff being burned out — they are off put.
I had a partner in a firm tell me, “Stephen, if you don’t reach your billable hour requirement pro-rata by July, the wheels on this truck are going to fall off.”
What that partner didn’t realize was that the wheels to the truck were his own.
This is good news for any up-and-coming practitioner. Why? All you have to do is wait.
Stephen A. Bonick, CPA, CFP, PFS, CGMA, MST, is an accountant in Monterey, Calif.
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