A Tale of Two CPA Firms: The Choices that Make All the Difference

A reader wrote to me recently: “Matt, I feel stuck in my practice. My partners are all hardworking team players, but we’re too busy with client work to find good staff, let alone upgrade our tech stack or think outside the box. Our clients love us, but many are long-term clients who take a lot of time for fairly low fees. We’re too afraid of losing revenue to make big changes because profitability is already lower than we’d like. Help!”

This is a situation many firms can relate to. To answer the reader’s question, I’ll tell an allegorical tale of two CPA firms.

There once were two CPA firms. The first was named Wurkin Hard CPAs. The partners at Wurkin Hard (much like my reader) were earnest and diligent. They genuinely cared for their clients. They were loved and respected in their market, but at a recent partner meeting they discovered the following about themselves when managing partner Bill Wurkin wrote it on the whiteboard:

The way Wurkin Hard CPAs have always done things:

• We are afraid of losing staff.
• We fear losing clients (many of whom pay below market rates).
• We try to bring in any dollar of incremental revenue (no matter who the client is or what work they need).
• We don’t fire or confront clients who pay very slowly.
• We keep clients who are disrespectful or messy to work with (out of fear of not having enough work).
• We rush from job to job without leaving enough time for things like staff training, process improvements or a firm approach.
• We care about quality, but we are time constrained, so quality is at risk.
• We price work low as our strategy to win it.
• We aren’t sure what our strategy is on new trends like AI or private equity, so we’ll wait and see what happens.

As Bill and the partners completed writing this list, he scratched his head and reflected. “I think there are serious consequences to how we’ve been operating, folks.” He began making a new list with his partners’ input:

The impacts of the Wurkin Hard CPA way:

• Our pricing, realization and profitability are below industry average, and below what we’re worth.
• Our slow collections put pressure on cash flow and hurt collectability.
• We don’t generate enough money to pay employees well, leading to higher turnover and disengaged staff.
• Partners working “below” their level due to lack of staffing leads to mainly working in the business, not on the business. As a result, strategic issues go unaddressed.
• Messy clients take up lots of time and emotional bandwidth. Sometimes, staff leave because of this. We don’t have room for ideal clients because the roster is full.
• Our self-created reputation for being a lower-priced generalist shop causes us to compete on price and get pulled in many directions at once.
• We hope to not be negatively impacted by technology and PE-backed firms as other firms adapt to the trends faster than we do, but we aren’t taking control of that situation.

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Now, let’s look at another CPA firm – Focus CPA Advisors. Samantha Summers, their newly appointed managing partner, presented the following in a classy PowerPoint presentation to her partners:

The Focus CPA Advisors’ Manifesto:

• We will charge at or above market rates – we get paid what we’re worth!
• We insist on quality, and we invest in ongoing training and development of all team members.
• We focus on working with the best clients and niches for us: where we have deep expertise, we work together well, and we can get great economics for the high value we add.
• We expect our equity partners to be strong business owners (who happen to be in the business of accounting). They are always accountable, always growing, and in return for their high performance, they can expect to be rewarded with above industry-average income.
• We leverage work to our capable team. We mentor and invest in our team so they can be high performers.
• We create a great culture that allows our team to feel impact and purpose daily.
• We seek to be informed on trends like AI and private equity and will make strategic choices that align with our vision of where we want to go as a firm.

The partners nodded in approval. Then each partner spoke up, reflecting on the many positive impacts of the manifesto:

The impacts of the Focus CPA Advisors’ Manifesto:

• We get top staff and keep them (because we pay well, mentor staff and have a strong culture).
• We create higher-performing equity partners (from higher expectations, accountability and profits).
• We attract clients who are more appropriate for us, which reinforces our confidence to say no to those who aren’t a good fit.
• We can focus on more profitable niches and become experts/advisors in them; we can add more value than our competitors with that depth of knowledge and build a strong competitive advantage.
• Our work hours are reasonable since we command leverage with our clients to determine how we work together.
• Our quality and processes improve because we allocate time and resources to focus on them.
• We are well positioned to benefit from accounting industry trends like advisory services and technology.

To be fair, many CPA firms we’ve worked with over the years have some of the characteristics and mindsets of each of these two firms.

Key takeaways:

1. You don’t have to be good at everything on the Focus CPA Advisors list, but moving towards some or most of those items is critical. Pick the low-hanging fruit and get started. Once the momentum builds, the other items become easier to achieve.
2. The difference between these two allegorical firms is based much more on mindset than external circumstances. A mental shift made at the leadership level can dramatically alter the future of a CPA firm. Said differently: no external circumstances can stop a firm over the long term if it has committed to the path of success.

What do you think? Please email me or comment below with your reactions, challenges or agreement.