Non-Big Four Firms: Inside Your Auditor's Head
Although accounting is often thought of as a recession-proof industry, Big4.com’s 2009 Big Four Firms Performance Analysis released in January 2010 paints a somewhat different picture in revenues, personnel and service delivery.
In the face of very difficult external conditions, all Big Four firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) experienced annual declines in revenues from 2008 to 2009. However, the study expects that 2010 performance will be better, though it’s debatable whether a repeat of multiple years of double-digit growth will be possible in the future.
What does this mean for any firm smaller than a Big Four? In this challenging environment for the accounting industry, large regional firms, and small- and medium-sized firms have to come up with innovative strategies to grow their top line. Focusing on client needs, expanding beyond traditional audit and tax services, outsourcing activities from the Big Four, and employee engagement are four tactics smaller firms are using to increase revenues this year.
“Smaller firms should proactively target and solicit clients from larger firms that may be open to a cost saving — a result of the economy that may not have been there two years ago,” says Arlis Esnough, president of the U.S.-based Association for Accounting Administration (AAA) and firm administrator for Hansen, Jergenson, Nergaard & Co., LLP. “Smaller firms also need to increase their exposure, especially where they can showcase technical knowledge, as well as get the firm and its principals known and in front of their target market and community.”
Esnough says many businesses must understand what they need, as well the kind of firm that can provide the best solutions. There are choices: deciding between the personal touch and the kind of direct-partner contact a small CPA firm offers, or choosing a large CPA firm with more expensive fees to buy the higher-level knowledge and experience.
“Smaller firms can be more competitive in pricing services,” says Esnough. “Making firm principals available to prospects and clients is a good way to demonstrate an improved service model. Be proactive, responsive and committed to deadlines. This demonstrates a services model that many larger firms, with higher leverage, can sometimes struggle to provide.”
Big Four firms have been proactively growing their advisory service lines. In 2004, Advisory Services constituted 22 percent of combined firm revenues. In 2009, in a span of just five years, this grew to 28 percent, making advisory services the fastest growing source of revenues outside audit and tax.
Certainly, regional and local firms continually rely on advisory services to build revenues, often cross-selling these services from a firm’s tax and assurance client base.
“Just being a compliance provider is a losing proposition; without advisory services such as litigation support, bankruptcy consulting, business valuations and other management consulting services, clients will ultimately move on,” warns Michael I. Daszkal, CPA, managing partner of Daszkal Bolton, LLP, a full-service firm in Florida.
“The key to communicating this information is to consistently provide clients and referral partners with a steady and focused stream of information about the value the firm can offer. For example, we recently rolled out an aggressive program to push our advisory business to existing clients in an effort to expand fees, but more importantly, to keep them happy.”
Similar to most other accounting practices in markets where the Big Four also have offices, firms of all sizes with specialty practices or niche interests exchange or take on outsourced business from large firms — an unusual, but quite profitable additional source of revenues for smaller firms. Dawn Hanna Bell, immediate past president of the AAA and firm administrator for Wright, Griffin, Davis and Company in Michigan, says smaller firm partners should create personal relationships with partners in larger firms in order to capture some of this outsourced business.
“This would facilitate larger firms feeling more confident and comfortable with the concept of outsourcing to smaller firms,” she says. “Having a specific area or specialty to offer for outsourcing and communicating this to larger firms would help. In addition, keep staff aware and communicate the connection with alumni from their schools.”
Big Four firms have outsourced benefit plan audits, tax compliance, internal control outsourcing, Sarbanes-Oxley 404 and international tax to Daszkal Bolton.
“In my experience. there is an art form to selling to the Big Four,” says Daszkal. “In our case, we use our Big Four-type talent, quick response times and reasonable fee structure to keep prominent in the minds of Big Four referral sources. Since our firm has a large number of former Big Four professionals, we are able to work through multiple channels to stay connected and identify outsourced opportunities as they arise.”
Finding talented professionals — and retaining them for the partner level in Big Four firms — remains an ever-present issue. According to the Big4.com report’s findings, there are about 34,000 partners in all the Big Four firms overseeing a steep pyramid of about 470,000 professionals.
In contrast, smaller firms offer a faster track to partnership, with these partners managing fewer associates. This provides a conducive professional environment and, eventually, a higher level of client service.
“The road to partnership in the Big Four is a tough and long process,” says Daszkal. “Our firm culture has facilitated an environment that allows us to attract Big Four alumni looking to fast track their career. Like other firms, we do this through work-life balance and competitive pay, but we also tout the fact that smaller firms can find quicker, often more viable opportunities in middle-market companies the Big Four can’t serve. There are a greater number of companies to pursue.”
As the economy improves and business escalates, all accounting firms, no matter their size, will no doubt be closely monitoring the marketplace for additional sources of revenue. The leaders will be the firms who remain innovative in their approaches to retain clients, while continuing to market their services to prospects and referral sources.
About the Author
Scott H. Cytron is a frequent contributor to industry publications covering professional services industries, including accounting, healthcare, financial planning, collections and debt, and high-tech. He is a staff writer for Big4.com, a global community website for alumni of the world’s largest accounting firms.