The Denial Trap for Small and Medium Size Firms
The CPA profession is changing rapidly ̶ ongoing consolidation, a shortage of quality CPAs, baby boomer founding and rainmaker partners retiring, keeping pace with technology, intensified competition for new clients and staff, etc. Many firms below the top 100 are having difficulty adapting to this change and are in denial regarding succession planning and the related new market reality which dictates that CPA firms need to run like businesses.
Denial is also more endemic among firms with older baby boomer partners who are more averse to change. It is hard to overcome denial because it is a comfortable state of mind and it normally means avoiding change. It is seeing, but not implementing, the obvious course of action. David Maister said, “The primary reason we do not work at behaviors which we know we need to improve is that rewards are in the future: the disruption, discomfort and discipline needed to get there are immediate,” thus denial sets in.
The following are “denial traps” (the wrong strategies) that we commonly observe at many CPA firms:
The firm can be successful in the future without strong leadership at the managing partner level.
Merging in or acquiring top-heavy and generalist firms with low partner-to-staff ratios is a good long-term growth strategy.
A firm can retain, train, and develop quality staff without making an investment in contemporary performance management initiatives.
Running the practice day-to-day is a preferential strategy versus developing a strategic plan with partner accountability for implementing action plans.
Promoting too many managers to permanent non-equity partner status as a retention and succession strategy will benefit the firm in the long-term.
Utilizing a compensation system primarily based on collections, rather than on comprehensive partner performance, will motivate younger “quality” partners and managers to remain with the firm and build the firm of the future.
It is acceptable to fail at implementing annual retreat action items and plans because the partners are too busy, and the tasks at-hand will eventually be accomplished without a sense of urgency.
Partners and staff will be successful at business development without professional in-house or outsourced marketing support.
A good business strategy will change an undesirable partner and firm culture.
Limiting the amount of technology investment in all areas of operations and client service.
Attempting to increase profitability through increasing the volume of low value work and burning out partners and staff.
Established firms that have had success in the past are more likely to be “in denial” because the old way of doing things worked well for them. However, they are now having difficulty making tough decisions to adapt to the dynamic public accounting marketplace.
Remember, “It is not the strongest of the species that survive, not the most intelligent, but the ones most responsive to change.” —Charles Darwin