Private equity investment is changing the accounting industry in a big way. In the past three years, five of the top 26 accounting firms in the U.S. have received financial support from private equity firms. This marks a notable change in how these businesses operate. As more money comes into the industry, smaller to mid-sized accounting firms are feeling the pressure to either grow larger or focus on specific areas of expertise to stay competitive.
How can we ensure our practices thrive in the face of ongoing challenges? Dave Bunce, Director of Partnerships at interVal, has extensive experience in accounting and mergers and suggests that companies willing to change and adapt their operations can achieve remarkable growth and value. This applies whether they are looking for investment from private equity firms or choosing to operate independently.
On a recent webinar, Dave shared three critical transformations that can help position your firm for success:
1. Moving beyond compliance work
2. Building sustainable recurring revenue
3. Creating scalable operations
Beyond Compliance: Redefining Value
When looking to buy a business, buyers pay close attention to two main things: the people you serve (your clients) and the skills of your staff (your talent). It’s important to remember that it’s not just about how many clients or employees you have; what really matters is the quality of your relationships, and the unique value you bring that goes beyond just meeting basic requirements.
“What they’re going to assess on that client list is how long they’ve been with you, how well you’ve grown or retained them, how well you’ve sold your other services to them, and how you’ve moved beyond the commodity of compliance,” Dave explains.
Offering high-profit advisory services can significantly increase the overall value of a firm. While accounting firms usually sell for a price that is about half to two times their revenue, where you fall on that scale largely depends on how well you provide valuable additional services. Top firms often group their clients into three categories—A, B, and C—based on how much growth potential they have and how open they are to receiving advisory services. This approach allows these firms to concentrate their efforts on the clients who are most likely to benefit from these expanded services.
Great opportunities for offering advice can often be found in the information we have about our current clients. For instance, analyzing $15 billion worth of client businesses, Dave’s team discovered that there was $4 billion sitting in working capital that businesses weren’t using efficiently. This finding opened up immediate chances to have important discussions with clients about smart ways to handle their money, plan for the future of their business, and improve how they manage their financial resources.
Finding new opportunities is only the beginning. Companies need clear methods to effectively offer these services on a larger scale and truly make the most of them. This is why creating strong Client Advisory Services (CAS) is so important.
Building Recurring Revenue with Strategic CAS Development
Many firms looking to increase their recurring revenue often begin by considering CAS. However, they must make an important choice: What kind of CAS do they want to provide?
“Are you looking at being a fractional CFO and bookkeeper? Or are you aiming for a high-margin, value-add CAS practice where you guide business owners through strategic planning exercises?” Dave asks. These are completely different ways of running a business, and each one needs unique strategies for hiring people, using technology, and providing services.
To build a successful CAS practice, Dave recommends a four-step approach:
- Define Your Scope: Determine whether you’re pursuing a high-volume bookkeeping model (starting around $500 monthly per client) or a high-margin advisory practice focused on strategic guidance.
- Validate the Market: Test your proposed offering with existing clients, understand what competitors charge, and ensure your pricing aligns with market expectations and cost structure.
- Build the Processes: Develop standardized workflows and procedures to ensure consistent delivery and scalability.
- Assemble the Team: Hire and train professionals suited to your chosen model—process-driven staff for bookkeeping or experienced advisors for strategic guidance.
Creating Scalable Operations
The foundation of a valuable, scalable firm lies in well-documented processes. Yet many firms make the costly mistake of implementing technology solutions before mapping out their core business processes.
“Map those things out—current state. Identify the gaps. Build the process the way you want it. Then identify where technology can fit,” Dave advises.
Start by documenting your key business cycles:
- New Business to Cash Collection: From acquiring a client to receiving payment.
- Resource Allocation and Delivery: Managing how work is assigned and completed.
- Talent Lifecycle Management: Recruiting, training, and retaining staff.
This documentation is important for several reasons: it helps maintain stability when employees leave, ensures that services are provided in a consistent way, and shows potential buyers that the company operates at a high level of professionalism and readiness.
Think about the issue of employee turnover. Firms often invest a lot of time helping new employees learn their roles without having clear instructions or guidelines to follow. By creating standardized processes and having everything documented, the onboarding experience for new team members becomes smoother and quicker. This not only helps maintain a high level of service but also boosts the firm’s overall efficiency and profitability. Additionally, a well-organized business is more appealing to potential buyers.
Only after mapping these processes should you evaluate technology solutions. By mapping out how things work and noticing where there are gaps or inefficiencies, you can make better choices about which digital tools and automation will truly help your business succeed.
Positioning Your Firm for Success
Changing a traditional compliance-focused accounting practice into a more scalable business takes careful planning and a step-by-step approach. By moving beyond compliance tasks, firms can develop regular income sources and create clear, documented processes, which can lead to both immediate profits and lasting success.
Whether you choose to seek investment from private equity firms or decide to stay independent, making these changes can help your firm thrive in a competitive marketplace. Successful firms will focus on building efficient operations and offering valuable services.
Anyone looking to build an accounting firm that’s ready for the future should consider watching the full webinar recording. You’ll get practical strategies, pricing ideas, and tips based on Dave Bunce’s wide-ranging experience in both public accounting and private equity.