In much the same way as our homes do, CPA firms can become cluttered. Firms try to offer more service lines than they can handle. But not only is this not optimal for your clients, it can also create unnecessary risk to your practice, and you can leave money on the table by not focusing.
Becoming a jack-of-all-trades is a common pitfall. All too often in public practice, well-meaning owners try to be too many things to too many people. The two main reasons are:
- Clients ask for a service a firm does not currently provide. The owner realizes that there is likely demand for that service and adds it. The service may be something fairly straightforward: payroll, for example. And, if it were just payroll, it wouldn't be a problem. But owners have a tendency to keep adding services until they—and indeed, their practices—go off-message.
- Vendors encourage owners to diversify to capture new profit centers, persuading them with the allure of a new profit center and the misguided belief that a CPA practice should be a "one-stop shop."
The problem with offering too many service lines is that it's difficult to excel at all of them. Public accounting is a vast profession with many specialties. Many of these involve highly complex rules and practices that can take years to truly master. A couple of prime examples are wealth management and business valuation. How many business valuations would you need to perform each year to be really good at them? How many wealth management clients would you need to serve to be at the top of that game?
What usually happens when a firm adds a new service line it's not ready to handle is that the CPAs find it very difficult—if not impossible—to stay up-to-date with two distinct service lines. Continuing education is a must for both—taking online and classroom courses, attending conferences, and doing extensive reading to keep on top of trends, changes in the law, and so forth. Each field has its own particular tricks of the trade to learn.
If you are diversifying without increasing the specialization of your people, then you are likely hurting your core business with add-ons. In my experience, in many cases, secondary lines of work end up representing a small portion of fees with an incommensurate drain on firm resources.
This is not to say that a practice can't be built on several different specialties. It can, but in those cases, it's critical to have the right team in place—to have an expert in each area. In larger firms, this happens almost instinctively as partners develop specific expertise.
The benefits of creating a highly focused CPA practice
As in our homes, removing the clutter from our practices can have an incredibly positive impact.
The key to decluttering is to focus. People vastly underestimate the power of focus. The division of labor is a cornerstone of business theory. When you focus on your chosen specialty, depth of experience will make you increasingly better at it. It will also make you more efficient. This is a powerful combination for greater value creation for your clients and greater profitability. It can also be far less risky, as getting into unfamiliar areas can be a recipe for mistakes. And by choosing a specialty area that you enjoy, your own sense of satisfaction will be increased.
How to create a focused CPA practice
First, analyze your current offerings. It's extremely helpful to start by thinking about what practice areas you most enjoy and are good at doing. Once you've identified your favorites, study those first. Dive into the data. Look at total revenue and consider how much total time and energy you spend in that area—including client work, staff support, and ongoing continuing education. Once you've analyzed these factors, do the same analysis for other segments of your practice.
Consider questions like these when deciding which services to keep and which to jettison:
- If we didn't already provide this service, would we go into this segment?
- What would be the financial impact of moving the time and energy currently spent on our lowest profit segment into our highest profit segment?
- If we were to start a new firm in a new area, what areas would we focus on first?
- What segment are we the best service provider for?
- Who in the marketplace is better at (a given service) than we are?
Second, assess your current talent. Maybe you have identified a practice area that could be profitable and enjoyable for someone else on your team. The key is to help those people develop in that specialty by freeing them from other work so that they can focus.
The final step is to stop doing! Drop any services that you are providing that aren't profitable, enjoyable, or promising as quickly as you can without causing disruption to your clients. One great way to do so is to find another CPA firm that currently specializes in that area. You could then approach them about on ongoing collaboration for referrals to and from each other's practices.
Brannon Poe, CPA, is the founder of Poe Group Advisors, an accounting practice brokerage firm. He is the author of Accountant's Flight Plan: Best Practices for Today's Firms and On Your Own: How to Start Your Own CPA Firm. To comment on this article, email senior editor Courtney Vien.