Independent Firms Reinforce Their Edge in a PE-Fueled Market

Accounting firms that want to stay independent while taking on private equity investments risk their client base and ability to protect talent if growth doesn’t come fast enough. This can limit the funds available to invest in the people, processes, and technology necessary to fuel the firm’s culture and brand in client and recruiting markets.

In return for taking on those risks, independent firms maintain full autonomy to define their values, culture, goals, growth strategy, and all processes and decision rights that underpin them. This allows the firm to operate free from outside pressure for short-term results.

But it also means running the firm as a business with a partnership model that can sometimes slow things down. Decision paralysis may put independent firms behind in a market where larger PE-backed firms will often out-invest them. First-mover advantage and unique offers play an outsized role in everything from campus recruiting to client relationship growth for firms that aren’t always going to write the biggest check.

The competitive challenges of speed and (relatively) limited capital also mean that fewer bets can be placed at one time. Alignment with strategy and firm goals must be neatly threaded through growth initiatives, budgeting, staffing, target client profiles, and the many operational structures and processes that support them.

Here are five ways independent firms can shore up their focus, operations, and incentives to compete with more heavily funded peers.

Reconfigure leadership structure and operating model. Collaboration in decision-making is inherently good—multiple perspectives ensure higher-quality decisions and begin the necessary processes of alignment and implementation.

But having to reach broad consensus among too large a group can cause a stalemate. While firms are trying to make everyone happy, funded peers have already made decisions and are securing technology, people, and clients.

Having the right senior leadership roles in place is important. But what really determines how efficiently and effectively a firm is run is what each leadership group is responsible for and how those groups function together.

Ask, assess, and make changes to how senior leadership teams function based on the following questions:

• Are there important areas that lack leadership with the necessary experience and expertise?
• Is responsibility for these areas then farmed out across multiple other areas such as innovation, data strategy, transformation, and more?
• What unique work is required of each top leadership team?
• If strategy and goals are clear, where should decisions be made based on knowledge, speed, alignment with related initiatives and investments, and statutory approval needs?
• Which combinations of leadership teams actually need to meet, and when, to address key issues without defaulting to large, time-consuming meetings that involve everyone and cover everything?

Get definitive on target markets and clients. Growing in too many directions stretches operational support, escalating costs and reducing funds left for investment. Focus on the few best-fit client archetypes and make intentional progress each year in shifting the client portfolio toward them.

Archetypes describe the business and client attributes that best fit the firm’s permission in the market to win. This includes industry, size, and ownership structure, as well as the firm’s capability to serve current relationships, clients’ view on external advisers, and strength of business.

Strategically consider artificial intelligence and technology as part of the leverage model. Given the speed at which backed firms are moving, independent firms need to work toward optimizing every available resource. If growth capital is limited, improving leverage through smarter staffing and better use of technology becomes one of the most practical ways to compete.

Describe the team size and leverage model through which each major service-client type has been most effectively and profitably served. Identify where expertise and skill sets are deployed in ways that introduce rigidity into the staffing system—particularly where unique skill sets are deployed on general work.

Work to close those gaps through a set of guidelines and technology. Done well, this can unlock meaningful additional capacity across the firm.

Tighten up the partner and senior client manager role accountability. In many firms, senior client managers, whether partners or not, are primarily focused on maintaining existing client relationships.

But if the revenue credit system rewards only the person historically tied to that account, there may be little incentive for others to help grow it. Setting clear goals for new clients, expanded revenue, and broader service penetration, while updating revenue credit to reward those contributions, can better support growth.

Employ succession planning thoroughly and correctly. Independent firms can steer succession planning efforts over a somewhat longer period but may risk needing a more robust plan to more fully and effectively develop the most promising candidates for the top job. This requires a rigorous assessment of who is a viable internal candidate based on what the firm will need from a leader in two to three years and beyond.

This should be paired with an objective assessment of likely internal candidates, as familiarity can sometimes lead firms to overestimate readiness for the top role. More rigorous evaluation and capability diagnostics can provide a clearer view of each candidate’s strengths, development gaps, and readiness, allowing the firm to begin a focused one- to two-year development path early enough to avoid a rushed transition.

Leadership in independent firms should provide a clear and compelling narrative to the partners and other stakeholders on its reasoning. Living up to the narrative will depend on clarity of the strategy, speed of decision-making, strong governance, and a leadership team willing to rethink legacy assumptions about clients, talent, and the firm’s operating model.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mark Masson is managing partner at Lotis Blue Consulting in Chicago.

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