Do you envision success in your firm's future?
The future is not what it used to be
I don’t claim to be a futurist but feel my predictions, presented below, have a better than 50-50 chance of occurring in the next three to seven years:
1. Firms will create separate entities for their audit/review practices to limit risk exposure and improve efficiency, quality and profitability.
2. Auditing will become more profitable because fees will increase, and auditing will no longer be a loss leader, or “low ball” service used to generate consulting fees.
3. Risk-based auditing will disappear as firms return to more traditional audit practices and procedures.
4. Government regulation of firms practicing in the public sector will increase.
5. Unless tort reform limits auditor liability, public accounting firms may exit the public sector, leaving audits of public companies to be done by a “federal auditor.”
6. Public clients may be required to purchase individual auditor bonding policies to pay all defense and indemnity costs of their auditors as part of the audit fee and for any embezzlements by their employees.
7. Smaller firms will increasingly abandon audit/review work due to risk.
8. There will be Big GAAP and Little GAAP, with the federal government promulgating Big GAAP.
9. There will be Big GAAS and Little GAAS, with the federal government promulgating Big GAAS.
10. It is possible that one or more national or second-tier firms will be taken down by large liability verdicts – not by government.
11. More work will be available for non-national CPA firms as:
- National and second-tier firms let go of non-attest services that may impede their independence.
- Fewer non-national firms and practicing CPAs are in the market.
- The mature (born prior to 1945) and the baby boomer (1945-1965) generations retire, sell or transfer their businesses and seek succession planning and implementation services to transfer and protect their wealth.
12. The current estimated 25 percent of non-national firms that offer financial services will increase to 50 percent in the next five to seven years.
13. The CPA firm owner/partner demographics will change with:
- An increase in women
- An increase in non-CPAs
- The admission of partners at younger ages
- The retention of partners at older ages
14. The more successful and profitable CPA firms of the future, in addition to historical-based financial and production output measures such as charge hours, fee per charge hour, and utilization and realization indices, will use client-centered key performance indicators such as:
- Engagement turnaround time
- Number of recommendations for improvement of client’s position and value of these recommendations, e.g., increased sales, savings, etc.
- Number of client contacts
- Client loyalty and longevity
- Amount of “innovation sales,” or increased fees from existing clients, resulting from new services and products
- Gross profit per client
15. Finding and keeping good people will be the biggest single future issue for CPA firms.
16. Consolidations of non-national CPA firms will increase.
17. New second-tier “mega regional” firms (i.e., firms with $40 million plus in fees) will evolve.
18. Through “co-opetition,” current competing firms in the same markets will form strategic, corresponding relationships creating a new way of competing. (Co-opetition combines the advantages of competition and cooperation and differentiates between “competitor” and “complementor.”)
19. Firms will move to deeper niches.
20. Firms will invest more in people, technology and marketing/selling.
21. New partner compensation and deferred compensation formulas will reward both individual achievement and team play, placing the focus more on the firm’s success. This will reduce “silo practices” and promote a single firm.
22. Succession, including development of new leaders, will be a critical challenge for all CPA firms.
Members’ comments on my predictions plus additional suggestions are encouraged. One thing is certain: As Yogi Berra observed, “The future is not what it used to be.”
Success traits of tomorrow’s CPA firm: My ‘Baker’s Dozen’
What are the critical characteristics your firm must have to be a successful CPA firm in the future? If you haven’t asked yourself this question and taken time to list these characteristics, I encourage you to do so.
I offer my “Baker’s Dozen” of what I believe are the critical success traits of tomorrow’s CPA firm:
1. They will have a value-driven culture from top to bottom based on integrity, independence, objectivity and adherence to the highest practice standards and on “doing unto others as you would want them to do unto you.”
2. They will have an outstanding service culture and “the right people on the bus” to deliver that service.
3. They will have a clear vision of, and will focus on, what they want to be.
4. They will have strategic and marketing plans to achieve that vision.
5. They will aim high. (A company seldom outperforms its expectations.)
6. All partners and key staff will be goal driven and rewarded. Partner accountability for both charge and non-charge time will be part of the firm’s culture.
7. They will be willing to take risks and be creative. (If you’re not living on the edge, you’re taking up too much space.)
8. They will operate from a sense of urgency.
9. They will be committed to profitable growth.
10. They will invest as much in the growth of their people as they do in the growth of their firm.
11. They will be technology leaders compared to their competitors.
12. They will love what they do.
13. They will work hard.
Members’ comments on my suggested traits are encouraged and will be most welcome. Also, please offer any additional traits you feel I may have omitted.
I’m reminded of a statement by Peter Drucker: “The best way to predict your future is to create it.”
Douglas H. Thompson, Jr., CPA
President, CPA Mutual
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