Several of the top CPA firms, particularly the larger ones that derive a majority of their revenues from providing recurring attest services that add integrity to financial statements and reduce the cost of capital, emphasize they are trusted business advisors providing forward-thinking solutions to their clients.

Here are some examples from the websites of four CPA firms: “We are more than accountants, we are trusted business advisors”; “Our role is to be trusted advisors….”; “Our mission…serving as a trusted business advisor to our clients”; and “We believe a true business advisor always protects a client’s vital interests.”

Interesting concept but, sad to say, it’s fiction, not a fact, as many of the larger CPA firms have not delivered on the trusted business advisor promise. Nor will they in the foreseeable future because they have morphed into professional services firms with attest and tax compliance shops (low margins and profitability) for their recurring clients, with significant consulting capabilities (healthy margins and profitability) for their non-attest clients. In the larger firms, this professional services firm model has evolved over the years and is now very pronounced as a result of the enactment of the Sarbanes-Oxley Act of 2002. Today, many professionals from the larger firms are trained to become risk adverse compliance professionals who are incapable of providing trusted business advice. On-the-job training and professional continuing education at these firms are principally, if not solely, technical in nature. Not advisory, business or operational.

While a compliance CPA firm relationship is acceptable to larger companies, it is not acceptable to owners/operators of middle-market businesses who are not big and consistent buyers of expensive consulting services. That’s why it is very important for the middle market to become “educated consumers” for their independent accounting firm needs. A mismatch can be disheartening and expensive in both out-of-pocket and opportunity costs.

The myth that larger CPA firms are trusted business advisors presents a great opportunity for small and midsize CPA firms. It has the potential of becoming their owner/operator differentiator in the middle-market space.

So, what does a firm need to do to truly develop professionals into trusted business advisors for owners/operators in the middle market? It takes leadership determination, guts, investment dollars, time and patience. Paradigms must shift.

The foundation for a trusted business advisor delivery model is a set of strong tax consulting capabilities, particularly those that help clients create, enhance and preserve personal wealth. In addition, it requires industry specialization skills. You will need to identify the industries or sectors that present the greatest business opportunities for your firm. Your people need to become immersed in the industry or industries of their choice. In addition to the unique accounting and tax rules, your professionals have to develop an understanding of the business challenges facing middle-market companies in these sectors. What are the best industry practices in areas such as revenue generation, cost of delivery, optimization of intellectual capital, selling, and general and administrative expenses? They need to transform that knowledge and intellectual capital into spot-on suggestions and solutions that address client business hurdles and challenges.

Here’s how you can start to execute on the strategy of becoming trusted business advisors. Again, it’s only a start. Considerably more needs to be developed before a firm can claim success.

As a unique byproduct of your attest services in a selected number of your chosen industries, provide your preliminary EBITDA and working capital improvement thoughts and observations to the owners and senior management of your significant, marquee clients. These deliverables are particularly useful if the clients are owned by a private equity group or some other investment vehicle that is looking to maximize market capitalizations and valuations during the investment holding period. If several of your clients want you to implement your suggestions and observations (and that is usually the case), you could provide those services, understanding there are certain professional limitations, particularly for public companies.

On top of cutting-edge tax consulting capabilities and industry specialization skills, your firm also needs to expand its formal professional development and continuing education curriculum to include industry, business and operational insights. This is another significant investment, but experience shows that a top-notch curriculum pays dividends with your professionals as well as with your clients. It has the potential of providing you with a terrific ROI.

Many small and midsize CPA firms have not seized the opportunity to become trusted business advisors to the middle market. As with the top firms, they say they are trusted business advisors, but, again, it’s lip service. Nothing more than a marketing slogan sprinkled throughout sales pitches and proposal reports. Unfortunately, at the end of the day, these firms are merely compliance shops just like their larger brethren. I’m not sure of the underlying reason. It might be because they don’t have the leadership, determination, guts, investment dollars, time and/or patience. And then we wonder why attest services are commoditized and we compete on price alone. That’s very sad, as it should be all about the client experience, and it’s not in many cases. Come on, there is a great opportunity staring small and midsize CPA firms in the face. Go for it. Start that paradigm shift!

Dom Esposito

Dom Esposito

Dom Esposito, CPA, is the CEO of Esposito CEO2CEO, LLC, a boutique advisory firm consulting with small and midsized CPA firms on strategy, practice management, mergers and acquisitions.