Transition Advisors LLC

Growing Your Firm Growing Your Firm

Through

New Practice Niches

August 4, 2016

Bill Carlino

NASBA CPE Earned Credit Guidelines

Transition Advisors, LLC is a sponsor on the NationalRegistry of CPA Sponsors per the National Association of State Boards

of Accountancy (NASBA).

In order to receive your one CPE credit – You must complete two requirements:

1) Participate in all three polling questions during the presentation.

2) Complete an online evaluation.2) Complete an online evaluation.

Once these requirements are met, you will receive your CPE certificate of completion within 10 working days.

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Upcoming Webinars

Transition Advisors, LLC offers FREE monthly CPE courses

Upcoming Webinars:

August 11 – How to Structure Your Partnership Agreement (rescheduled)

August 18 - Preparing Your Firm for an Upstream Merger

September 7 – Succession Planning: Alternative Deal StructuresSeptember 7 – Succession Planning: Alternative Deal Structures

September 29- Preparing Your Firm to Grow through M&A

Visit transitionadvisors.com/upcoming-courses.php for more information.

Transition Advisors LLC

About Us

• Merger and transition advisors exclusively serving the accounting industry• Customized solutions• Over 22 years of experience• Represent the buyer or seller• Services include:

• Buyer-seller introductions• Buyer-seller introductions• Merger and acquisition transaction structure• Document preparation/review, valuation and due diligence• Post-transaction business planning• Partnership agreements, retreats• General consulting and coaching

www.transitionadvisors.com ◊ 866.279.8550 ◊ wcarlino@transitionadvisors.com

Transition Advisors LLC

On behalf of Transition Advisors ….

THANK YOU THANK YOU

ENJOY THE WEBINAR!

Today’s Agenda

• What are today’s fastest growing client niches?

• How the economy has slowed down traditional (organic) growth.

• How to begin a new practice area from scratch• How to begin a new practice area from scratch

• Some major hurdles firms face.

Accounting Profession At-A-Glance

• Revenue … $99B

• No. Firms … 94,600 (est.)

• Employment …532,985 (public accounting • Employment …532,985 (public accounting only)

• Growth in 2015 …9.32% (Top100)• Growth in 2011-2016 …4-7 % (all)

• …

Three Ways to Grow

1. Organic – one client at a time –

2. M&A

3. Adding new practice niches3. Adding new practice niches

A Function of Client Demand

• Clients are asking their CPAs to do more…and firms need to respond. Much more sophisticated clientele.

• Firms looking to leverage core strengths • Firms looking to leverage core strengths to offer specialized niche services

• Help both the firm and the client grow!• According to AICPA: The more services a

firm offers a client, the less likely they are to leave!

Evolution of Client Services

• CPAs moving away from “services-driven to “strategy-driven” approach – more analytical.

• Driving their business where they want in lieu of businesses taking them where they lieu of businesses taking them where they don’t want to be – decision-making is becoming faster.

• The role of CPA firm managing partner has become more of a chief executive role. More websites identifying MPs as CEOs.

Top Niche Services

• Attest• Business Valuations• State and Local Taxes• Estate & Trust Planning• Estate & Trust Planning• International Tax• M&A• Industry Specializations• Litigation Support

Source: Accounting Today Top 100 Firms

Other Niches that Stand Out AmongU.S. Firms

• Distribution• IT Consulting• Telecommunications/Media• Entertainment/Hospitality• Entertainment/Hospitality• Manufacturing• BPO (outsourced CFO functions)

Top Client Categories

• Manufacturing• Midsized Businesses• Real Estate• Technology• Technology• Wholesale Distributors• Professional Services• Large Businesses

Source: Accounting Today Top 100 Firms

Mergers – One Way to Grow

• Merger-Mania continues!!!

• 500+ deals over past three years.

• Three years ago, 55 of Top 100 Reported at least

1 merger!!1 merger!!

In 2015 – Big Four did 8 mergers

while G400 did 56.

More Mergers

• Seeing more multi-disciplinary transactions

Crowe Horwath -acquired BaxterBruce, a London-based insurance risk consulting company. Wipfli – merged in Brittenford Systems, an IT consultant and software reseller in Reston, Va.Mazars - acquired Corality Financial Group, a financial modeling consultancy and Mazars - acquired Corality Financial Group, a financial modeling consultancy and training course provider. They plan to provide project financial advisory and transaction services, project valuation, financial modeling and training services, and audits of financial models

E&Y – acquired consulting company – Parthenon GroupFriedman LLP – Acquired Sounding Board – a turnaround firm.Citrin Cooperman- acquired Real Time Computer Services Inc. an IT consulting company.

Reasons Behind the Surge in M&A

• Geography / New Markets

• New Niches

• Competition• Competition

• Lack of Formal Succession Plan

Polling Question #1

How many equity partners do you have in your

firm?

1) 1

2) 2 to 4

3) 5 to 93) 5 to 9

4) 10 to 19

5) 20+

What’s Keeping Practitioners Up At Night?

• Finding/Retaining Qualified Staff

• Succession Planning

• New Business Development

• Need to expand beyond traditional services to stay competitive

(boutique offerings and other “distinguishing” services)

• Clients demanding more interaction and personal • Clients demanding more interaction and personal

service from their CPA – more sophisticated

• Clients feel that their CPA does not

provide enough personal attention – an un-

Intended consequence of technology.

That was Then, This is Now

• Before economy crashed in 2008 – plenty of business to go around

• CPAs were basically order takers. Now traditional work is more competitively bid

• “Low-balling, where lowest price and not • “Low-balling, where lowest price and not best client service wins out. Prompted a race to the bottom.

• Firms with strong niche capabilities have more negotiating power.

This is not your father’s CPA firm

�You can’t run a CPA firm in 2016 like you did in 1980!

�Gradual move toward value pricing and value billing – about

10-15 percent now use some form of VP and VB system.

�Firms moving to “one-partner/one-firm” concept rather than

individual books of business. Especially among “partner-loyal”

firms vs. “brand-loyal” practices.firms vs. “brand-loyal” practices.

�More remote workers – 1995 there were 9.5 million

remote workers – 13.5 million in 2012 and by the end of

2016 – some 60 million people will work at least one day

per week remotely..

�Greater use of mobile devices: more than 90 percent of

CPAs use smartphones or tablets. Given rise to the birth of

virtual firms. Today, about 10-15 percent of all start-up

firms are virtual.

Practitioners’ Top Concern?How to Bring In New Clients

AICPA polled nearly 600 firms in 5 size classes …

• Sole Practitioners

• 2–5 professionals

• 6–10 professionals

• 11-20 professionals• 11-20 professionals

• 21+ professionals

Bringing in new clients ranked as the #1 concern in

3 of the 5 firm size classes and no lower than 3rd

among any of the groups.

Recent Trends

• CPA Firms moving away from being client’s

“Most Trusted Costco”- cannot be all things to

all clients. Do four or five things well instead of

10 things mediocre.10 things mediocre.

• Firms’ websites often highlight as many as 15-20

different client services

• Less than half have an actual Partner-in-Charge.

• Worst-case scenario: Over-Promise and Under-

Deliver.

Due Diligence

• Define the niche you want to be in

• Identify key drivers in the service lines and then begin interacting in that market to make a determination whether it’s viable

• Outline how the firm and potential clients of that service will find each other

• Determine the channels of distribution

Due Diligence

3 Critical Question You Need To Answer

1. How well is your firm aligned with the niche you’re targeting?

2. What if any are the current trends in that industry niche?

2. What if any are the current trends in that industry niche?

3. How well is that niche doing? Currently? Over the past 3 years?

4. The Research Call

Questions to Ask

• Is the niche underserved in your practice area?

• Is it a good niche for the firm with growth

potential? Do you have clients in that niche?

• Who will be the champion in the firm?Who will be the champion in the firm?

• Do you have partner buy-in?

• How do we market these new services to

existing and new clients?

Advantages of Offering New and Unique Client Niches

• Forges competitive point of difference!

• Positions firm as “experts” in a crowded

marketplace

• Increases client focus and needs – can you • Increases client focus and needs – can you

help them with a problem

• Specialty firms can get more specific than

“generalist” practices

Caution Flags

• Creating a niche without necessary ancillary support

referral sources, billings)

• “I want to make more money!”

• Lack of intellectual capital and growth strategy

• Top down assessment of in-house talent

• Ignoring your core strengths.• Ignoring your core strengths.

Polling Question #2

What issues do you see affecting your practice

most next year?

1) Succession for retiring partners

2) Admitting new partners

3) Client retention for retiring partners3) Client retention for retiring partners

4) Need for growth

5) All of the above

How To Begin a Niche Practice

• Determine client need – would there be cross-

selling opportunities for example if you choose

wealth management and your tax clients

• Develop a market-based approach – not an idea-

based approach. Determine if there is an based approach. Determine if there is an

opportunity in your client base.

• Developing the expertise – do you build it in

house or though acquisition? – weigh pros and

cons of each.

How to Begin (Cont’d)

* Develop Pricing and profitability models.

understand key financial indicators will help

steer sales and marketing strategies.

• Determine your “go to market strategy.”• a. Identification of primary and secondary sales teams• a. Identification of primary and secondary sales teams

b. Development of marketing and sales materials

c. Internal service education

d. Expected pipeline and sales process

e. Identification of primary influencers and potential

referral sources

f. PR and launch communications

Examples of Firms with Successful Niche Services

Armanino McKenna –Corporate Finance practice to clients with

intellectual property and patent sales through a structured process

called Auction90, in which it completes a competitive auction within

90 days. Other services will include sell-side representation to help

business owners and investors get the most value during an exit

transaction.

CohnReznick – Innovation Lab – a service where the firm collaborate CohnReznick – Innovation Lab – a service where the firm collaborate

with clients on problem-solving and brainstorming using new

technology that provides state of the art LCD screen visuals.

MBAF – Miami – Since 1972 has had an auto dealership unit.

Authored the Auto Dealership Engagement Manual published by the

AICPA.

Joseph Eve – Montana-based CPA specializes in Indian Reservations.

Factors that will Determine Niche Success

• Niche success a combination of market conditions and

committed leader!

• Don’t relegate your established offerings such as tax

and audit to the back burner – fire on all cylinders!!

• Strategy development consists of three dynamics –

services, channels of distribution, and targets. This services, channels of distribution, and targets. This

involves the selection, innovation, and packaging

Don’t Forget to Network … And Network …And then Network Some More!

• Business valuations or litigation support – interact with

legal associations – perhaps divorce attorneys.

• Restaurants – state restaurant or foodservice member

associations.associations.

• Cost segregation – builders groups or related associations.

Channels in Lieu of Referrals

• New growth is often a case of strategic

matchmaking

• Identify specific buyer groups – One firm that • Identify specific buyer groups – One firm that

wanted to boost their wealth management

discovered they had a large segment of widows in

need of financial planning – so they partnered

with local church groups. .

Hit the Ground Running!

• Find that niche leader within your firm - or go out and get one.

• Niche champions should be equal parts analytical, strategical,

and above all ... are leaders

• Assign practical revenue and growth metrics to the new

undertaking – don’t play catch as catch canundertaking – don’t play catch as catch can

• Remember, the smart money is on specialization, not

generalization.

Polling Question #3

Do you have adequate talent on the bench to

replace retiring partners?

1) No, we don’t have the talent we need

2) I think so, but we don’t know how to admit

themthem

3) Yes, and we’re confident our approach works

4) We don’t plan to pursue internal succession

Remember …

• Niche specialties – are a VALUE proposition!

• Most firms offer traditional tax and accounting

services. Don’t be like most firms.

• Client and market will perceive you as an expert

• Firms that complement those client niches with • Firms that complement those client niches with

specialization will ultimately win the

engagements

Today’s Takeaways

Determine your need

1. Use a market-based strategy not an

idea-based strategy.

2. Look both inside and outside for

niche specialistsniche specialists

3. Find the champion in your firm.

Remember the 7Ps!

1. Proper

2. Prior

3. Planning

4. Prevents 4. Prevents

5. Piss

6. Poor

7. Performance

For More InformationVisit the AICPA Succession Planning Resource Center

http://www.aicpa.org/InterestAreas/PrivateCompaniesPracticeSection/StrategyPlanning/center/Pages/default.aspx

For More Information

Please visit our website for resources including

FREE reports, whitepapers and case studies

Bill CarlinoBill Carlino

wcarlino@transitionadvisors.com

1-866-279-8550

www.TransitionAdvisors.com