Business strategists who follow the accounting profession are sending a consistent message: “The work of accountants is going to be heavily automated by further advances in technology. Firms need to move into value added advisory services to maintain growth and profitability.” When we talk to managing partners, we hear this same prediction. Surprisingly, though, the expansion into broader advisory services has been slow and limited at most firms.

Begin by Acquiring a Firm with Advisory Leadership

The first step in building any business is having the right leadership. This is particularly true when the business is in an area that is new to the firm. Accounting firms are experienced at building and managing the traditional practice areas: financial reporting, auditing and tax. And most firms above a certain size have learned how to lead successfully in areas such as litigation support, valuation and M&A due diligence—advisory service areas that attach easily to the business of accounting. When it comes to the broader advisory offerings, however, most firms lack institutional knowledge of what makes these areas “tick.” Examples are business strategy, process improvement, human resources, corporate finance, technology implementation, strategic sourcing and cyber security.

Our advice on how to begin the broader journey is to start by finding the right advisory leader, recognizing that it is unlikely that this person is presently working at the firm. Building and managing an advisory business is very different from leading traditional accounting and related services areas such as litigation support. Our strong recommendation is to recruit a leader who has experience at successfully leading a broader advisory business. The best way to do this is to acquire an advisory firm where you are able to get both the business and the leader in the same transaction. It’s just too painful and impractical to build first-class advisory services organically, and hiring talent in advance of a work pipeline can be very costly.

Advisory and consulting revenue for accountants

It’s important to acquire a large enough firm to establish both your market position and the role of the new leader. If you acquire too small a firm, the acquisition won’t put your firm in the broader advisory business in a serious way, and the new advisory leader will find it hard to acquire other firms without having his leadership role challenged by new entrants—a governance problem that you will want to avoid.

Getting the Right Help

Accounting firms that are large enough to make this investment are well networked with M&A business advisors who have helped them make more traditional acquisitions. This is not the place to turn to find the right advisory firm acquisition. The advisory network and the subject matter knowledge are very different from what it takes to find acquisition candidates in the accounting disciplines. You need to engage an advisor who has personal industry experience in the broader advisory business. The firm you decide to engage should:

1. Be well networked with leaders of advisory firms;

2. Understand the levers of growth and profitably for different advisory specialties;

3. Know the culture and chemistry of your firm;

4. Understand how to vet advisory talent for cultural compatibility with your firm; and

5. Have their hands on the pulse of the market for advisory professionals and how they will need to be compensated within your firm.

Finding the Right Match

It’s very important for the newly acquired advisory firm to be able to sell into and serve your existing clients. There are many examples where firms have acquired advisory firms with client bases well up-market from the acquiring firm’s client base. At first blush, this can seem attractive as an opportunity to move the firm up market and cross-sell audit and tax services to these larger companies. It rarely plays out that way. The larger companies are not interested in moving their audit and tax advisors to a new provider, and the advisory professionals do not have experience selling and delivering to middle-market companies.

The result is likely to be a CPA firm that owns an advisory firm whose business is completely separate from the mothership. We recently spoke to a managing partner of a Top 100 firm that had acquired a cyber security firm whose clients were upmarket from those of the CPA firm. He told us that “we just can’t figure out how to sell these services to our middle-market clients.” And they probably won’t be able to fix this. There are cyber security firms that are focused on the middle market. These firms generally install monitoring devices at the client for a reasonable annual subscription fee. Then, when they detect issues, they are the provider of choice to address them. Little by little, they sell increasing amounts of work to the middle-market clients, building a nice annuity stream of work in the process. This managing partner had never heard of this approach or type of firm.

Ensuring the Right Fit

It’s equally important to make sure an advisory firm is a good cultural fit with your organization. Most CPA firms pride themselves on a highly professional culture and a high standard of integrity. The “Rambo style of consulting” rarely plays well at CPA firms. Beyond this, there are other factors at play;

1. Finding a firm whose professionals can fit into an acceptable structure of titles and promotions;

2. Finding a leader who is a team player who will do the right things for the firm;

3. Ensuring that the professionals of the advisory firm have a motivation level at, or a little above, the motivation level prevailing at your firm;

4. Confirming that involuntary professional staff turnover will be at an acceptable level; and

5. Ensuring that the advisory firm will adopt the infrastructure (systems and processes) of your firm without major objections, and addressing inevitable concerns in advance.

As managing partners know all too well, the firm’s partners can be reluctant to cross-sell advisory services they don’t fully understand. Getting them over this hump is heavily dependent on the kind of chemistry they have with the new advisory services professionals. It’s also dependent on “training” the advisory team to sell the new services to the firm’s partners and “training” the firm’s partners to sell these services to clients. Similarly, advisory services professionals should be taught to cross-sell audit and tax services to their clients. Chemistry should be vetted in the acquisition discussions. Cross-sales training should be delivered quickly after the deal is final, and early wins should be celebrated enthusiastically.

Be Prepared to Transform and Grow

Be clear upfront what changes will be necessary to make the advisory firm fit quickly into your firm and move quickly to implement these changes. These changes should include:

1. Establishing new individual goals and objectives for professionals of the combined firm to take into account the new service opportunities, thus encouraging cross-selling in both directions;

2. Using your firm’s processes, protocols and templates for priorities such as engagement letters, quality reviews, documentation and risk management;

3. Sorting out policies for such things as working from home;

4. Implementing changes to staff titles and compensation programs; and

5. Consolidating offices and migration of workstations and technology to meet your firm’s standards.

Often, the acquired firm will be selling its work on a project basis and charging clients for hours billed. Developing a plan for moving to project-based billing linked to value rather than hours billed should be a priority to maximize profitability. Similarly, as much work as possible should be moved from a single-project sale to an annual subscription approach. This change can make a major difference in helping manage the risk of recession where clients will cut project budgets but are likely to continue subscription-based work.

It’s time for major firms to take the challenge of building a broad advisory business seriously by taking the bold step of making significant advisory acquisitions that will provide the leadership and resources for significant future growth. At the same time, it needs to be a well considered step that focuses on the important issues and success factors to ensure the outcome will be successful.

Carolyn K. Carlson

Carolyn K. Carlson

Carolyn K. Carlson is the president of StangerCarlson LLC. She can be reached at or (646) 797-4000.