The top priorities of forensic and valuation services (FVS) accountants have changed drastically over the past few years, with business development concerns outpacing technical issues, according to a new AICPA study.
The 2013 FVS Membership Top Issues Survey found that “bringing in new clients,” the classic business development imperative, ranked as the top issue facing respondents. A resounding 87% of survey respondents thought that bringing in new clients was somewhat or extremely important, with 63% choosing extremely important.
Another business development-related concern, “client retention,” placed third. “Fee pressure/pricing of services” and “firm differentiation through services,” both of which influence a firm’s ability to attract and retain clients, placed fourth and fifth, respectively. The human resources mainstay of “retaining qualified staff” ranked second.
The survey findings are based on responses from CPAs in firms ranging from sole practitioner to large, full-service public accounting firms and from forensic and/or valuation specialty practices.
The results were a striking shift from 2010, when the last such study was released. Back then, technical concerns were top of mind; “keeping up with professional standards” was No. 1, while “keeping up with the evolving valuation body of knowledge” placed second. “Bringing in new clients and client retention,” then categorized as a single response option, placed third in 2010. In the latest survey, keeping up with professional standards ranked 20th, while keeping up with the evolving body of knowledge was 16th.
"NEW" STANDARDS NOW OLD HAT
At first the results from the 2013 survey seem counterintuitive. While the U.S. economy is sputtering along, it has improved noticeably over the past three years. So if business development concerns weren’t the most important issue back in 2010, why did they rise to the top now?
The answer centers on timing, though not that of the economic recovery. New valuation standards were issued in 2008, and practitioners still faced a learning curve when the previous survey was issued, said Eva Simpson, project manager for the FVS Section at the AICPA. Five years later, most firms have completed implementation of those standards.
With technical concerns on the decline, FVS accountants refocused their attention on attracting new clients—a constant business challenge that abates from time to time but never entirely disappears for FVS practitioners.
“This is the hardest issue for professional services,” Greg Regan, CPA/CFF, a partner with Hemming Morse LLP and a member of the AICPA Forensic and Litigation Services (FLS) Committee, said in the report. “You have to make a continuous investment.”
Many accountants work for the same customers, over and over, year after year. That’s typically not the case with FVS professionals. Some types of FVS work, such as employee stock ownership plan (ESOP) valuations, need to be done regularly. But the more profitable work, which often involves legal disputes, doesn’t just pop up every tax season like clockwork.
“FVS services don’t involve repeat business as much,” said Bob Gray, CPA/ABV/CFF, CGMA, a ParenteBeard LLC partner and chair of the AICPA FLS Committee. “Every year the odometer goes back to zero.”
Gray dubs a forensic valuation shop the “emergency room of the accounting hospital.” FVS practitioners have to be on call and ready for financial triage in the event of shareholder or matrimonial disputes that are likely to end up in court.
But there are best practices for developing new business. Gray said it is vital to forge relationships with litigators and general counsels. Speaking at bar associations or in board meetings can display an accountant’s expertise and poise. Both traits are highly sought after by clients who need an authority to help present their cases at trial.
While it may take more work to attract clients, FVS professionals stand to reap substantial rewards from their marketing activities. Regan said accountants usually seek a minimum 20% profit margin for forensic work and sometimes shoot for much higher than that. Billings are substantial. If a case goes to trial, a forensic accountant in certain markets can expect to bill tens of thousands of dollars in fees.
That’s because cases can take six months to a year or longer to complete and the amount of money at stake is often in the millions of dollars. “The ROI is definitely there,” Regan said.
If so, why is fee pressure/pricing of services one of the top issues FVS professionals say they are facing? Regan posited that recent developments in legal profession pricing offer a clue.
FEELING A PRICE PINCH FROM LAWYERS
When the Great Recession hit, many companies started to push back on attorneys’ hourly rates. Some law firms responded by getting more creative in their fee arrangements—offering to perform work for a flat fee or even for payment that was contingent on a case’s outcome. Now some lawyers want the FVS accountants they work with to use similar fee arrangements in place of the billable hour, Regan said.
The survey determined that competition and fee pressure vary based on location and specialty and whether compliance work is involved. Fees are higher in highly populated areas and lower in rural areas. It’s also possible to command greater fees due to specialized training, experience, and specialization.
Fee pressure is driving practitioners’ interest in firm differentiation through services, such as offering internal control assistance and business risk services. Adding new services is not without risk, because it creates diversification challenges. Existing staff members need to acquire new skills. Marketing materials and technology must be updated. New hires may even be in order.
All of those changes raise costs and threaten to distract an FVS firm from its core mission. But there are benefits as well, especially if large clients are clamoring for smaller bills.
Those big customers need a lot of different accounting work done. A partner in a diversified firm that proves itself in one area can often send customers down the hall to another partner with a different specialty.
“Clients decide that if our business valuation was good, they should try other types of services because they know what they’re getting,” said Randie Dial, CPA/ABV/CFF, a partner with CliftonLarsonAllen LLP.
That’s a two-pronged bonus for firms, which then have added a new revenue stream and protected an existing one by differentiating themselves from niche competitors in the marketplace.
ATTRITION ANOTHER CAUSE FOR CONCERN
The survey also found that holding on to talented staff is a top priority for FVS firms, especially as many older professionals from the Baby Boomer generation head into retirement. Those Baby Boomers are looking for experienced leaders who can take over their firms one day. Such a transition typically provides a liquidity event that owners need to help finance their golden years. But the sudden departure of high performers for other opportunities can throw a kink into even the best laid succession plan.
Losing staff also can be costly to the top and bottom lines in the short run. Departing employees sometimes poach clients, and newly shorthanded firms often have trouble completing the work of existing clients. It can take weeks or months to hire a replacement for a departed colleague. Training new workers takes at least that long and also siphons off resources from trainers (i.e., the existing employees). All in all, a study by Integral Talent Systems Inc. found that attrition costs led to annual productivity losses of 65% to 75% in the departing employee’s position.
Brett Good, a senior district president with staffing firm Robert Half International, said staff retention is an issue for the entire accounting profession right now. The unemployment rate for accountants currently is 2.9% to 3.6%, depending on the accountant’s functional role. That compares with an unemployment rate in the mid-4’s about two years ago.
During the Great Recession, some talented accountants who found themselves out of a job due to the economic downturn took jobs that paid less or were at lower levels than the positions they previously held. With unemployment among accountants dropping recently, some of those underemployed accountants are now departing for better jobs.
To help keep staff, Good recommended that firms perform a compensation review to determine whether they are paying the right amount to their more valued producers. Firms also need to examine the work/life balance issue for their workers. That could mean hiring new full-time employees or part-timers to help take the load off overburdened colleagues.
In all, four of the top five issues from the 2010 FVS survey didn’t make the top five in the new study. They included “developing a niche or specialization,” which was No. 4 in the previous study but placed 13th in the most recent report. “Access to specialized training” placed fifth in the previous survey, but wasn’t even listed in the top 20 issues this time. Simpson, the AICPA project manager, said that technology helped address previous training concerns. Virtual education has increased significantly, and specialized education now is widely available in virtual form, she said.
“Bringing in new clients,” ranked as the top issue facing respondents in the 2013 FVS Membership Top Issues Survey. Eighty-seven percent of survey respondents thought that bringing in new clients was somewhat or extremely important, with 63% choosing extremely important.
Another business development-related concern, “client retention,” placed third in the new survey. “Fee pressure/pricing of services” and “firm differentiation through services,” both of which influence a firm’s ability to attract and retain clients, placed fourth and fifth, respectively.
The last FVS top issues study was released in 2010. Back then, technical concerns were top of mind; “keeping up with professional standards” was No. 1, while “keeping up with the evolving valuation body of knowledge” placed second.
New valuation standards were issued back in 2008, and practitioners still faced a learning curve when the previous survey was issued in 2010. Five years later, most firms have completed implementation of those standards.
With technical concerns on the decline, FVS accountants refocused their attention on attracting new clients. That’s a constant business challenge that abates from time to time but never entirely disappears for FVS practitioners.
The new survey also found that holding on to talented staff is a top priority for FVS firms. That’s especially true since many older professionals from the Baby Boomer generation are looking for experienced leaders who can take over their firms one day.
Chris Baysden is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at firstname.lastname@example.org or 919-402-4077.
- “2012 MAP Survey: Signs of Recovery,” Dec. 2012, page 26
- “Gaining (From) Your Clients’ Trust,” May 2012, page 38
- “CPA Horizons 2025: A Road Map for the Future,” Dec. 2011, page 44
- “Breaking Into Business Valuation,” March 2010, page 43
- Essentials of Valuing a Closely Held Business (#056605PDF, on-demand)
- Understanding Business Valuation: A Practical Guide to Valuing Small to Medium Sized Businesses, Fourth Edition (#PBV1201P)
- White Collar Crime: Core Concepts for Consultants and Expert Witnesses (#PFF1202P, paperback; and #PFF1202E, ebook)
- Forensic Accounting: Fraudulent Reporting and Concealed
- Introduction to Business Valuation (#745782)
- Understanding Business Valuation (#732885)
- National Business Valuation School I, May 20–24, Atlanta
- National Business Valuation School II, June 24–28, Denver
- National Business Valuation School III, July 15–19, New York City
- Forensic & Valuation Services Conference, Nov. 10–12, Las Vegas
Forensic Accounting Educational Certificate Program, cpa2biz.com/forensic
For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.
FVS Section and CFF and ABV credentials
Membership in the Forensic and Valuation Services (FVS) Section
provides access to specialized resources in the forensic and valuation
services discipline areas, including practice guides. For more
information, visit the FVS Center at aicpa.org/FVS. Members with a
specialization in financial forensics may be interested in applying
for the Certified in Financial Forensics (CFF) credential. Information
about the CFF credential is available at aicpa.org/CFF. Members with a
specialization in business valuation may be interested in applying for
the Accredited in Business Valuation (ABV) credential. Information
about the ABV credential program is available at aicpa.org/ABV.