April 2000

Jay Nisberg

As the profession embraces the new millennium, what do you think are the greatest challenges and opportunities for CPA firms?

The window of opportunity for the CPA profession could not be wider than it is at this moment. The new millennium brings an endorsement of unprecedented trust to the CPA profession, recognition long in development, the fruits of which are now ripening. CPAs face numerous challenges; however, none are as great as the depreciating human resources. New, middle, and even old guard CPAs have reevaluated their roles in public practice against the opportunities of Wall Street, the dot-coms, and the private sector. The attrition of experienced personnel compounded by the reluctance of entry-level people to enter the profession will continue to be the No. 1 dilemma facing the profession. Having said that, the CPA community has always managed to solve its problems over the years, and there are resolutions here as well.

As for the opportunities in the profession, there are many. The No. 1 opportunity in my perception is the transition to business advisory as opposed to traditional CPA services. The consumer has finally realized the CPA is more than a historian but is also a futurist and a sound strategic thinker. The consumer is also willing to admit to having received immeasurable services at very depreciated prices and is willing to compensate the CPA for value. CPAs have the opportunity to earn the fees they have long deserved. I see my clients earning more compensation than ever before, having the best years ever, and finally getting the recognition they deserve for the guidance, counsel, and creativity they have offered their clients.

The entire realm of nontraditional services, led by such areas as financial services, outsourcing, technology, litigation support, business management, mezzanine management, elder care, and other human resource areas, such as executive search and executive coaching, present numerous options and alternatives to the CPA.

What about the trend of "consolidators"--i.e., public companies such as American Express and H&R Block purchasing CPA firms? From your perspective, what is the impact on the profession and the public perception of CPAs?

The consolidation trend has been met with mixed reviews. My perception has been that it has been a positive experience for the profession. It has provided practitioners with choices; it has provided practitioners with justified recognition that their practices have significant value. My concern with the consolidation movement rests primarily on my observation that practitioners have jumped too fast into a world untested. Too many practitioners have seen the consolidation effort as an exit strategy and selected their partners far too fast without the proper counsel and due diligence. I do not see the consolidation effort solely as an exit strategy. It is a growth strategy as well as an opportunity for CPA practitioners to receive a return on their investments that many never expected to realize. On that note, however, I believe CPA firms are still undervalued. These consolidators are valuing these firms as traditional CPA practices, and the ones they truly want to acquire are no longer merely traditional practices but provide all types of value-added services that may well be worth far more than their traditional value. I am observing the prices paid for high-quality diversified practices inching up but not nearly as fast or as high as they should be. I believe we will see the day CPA firms sell well above the two times gross multiple.

As for public perception, I believe the public is receptive to the consolidation effort. I have concluded numerous successful negotiations with consolidators on behalf of CPA firms, and when we query the clients on their concerns three questions usually emerge:

(1) Will you continue to do my work?
(2) Will my fees go up dramatically? and
(3) Is this good for you?

If the answers are no, no and yes, they truly voice little or no opposition.

Another CPA firm consolidator, Century Business Services, recently reported financial losses. Is this a signal that the other public companies may rethink their strategies in acquiring CPA firms?

The Century Business Services final chapter is a long way from being written. I do not think their experience will deter other consolidators from taking this approach or deter existing consolidators from increasing their acquisition efforts.

CBIZ is a consolidation of some of the nation's finest accounting firms, finest CPA practitioners, and high-quality, highly ethical people. The CBIZ problem is leadership, a problem many companies experience and solve. I expect CBIZ to solve its problems, probably spin off its CPA group to another consolidator and make a remarkable comeback for the CPAs that chose that route.

Are the recent announcements of spin-offs or sales of the consulting divisions of Big Five firms a sign that the profession is moving back to its core practices of auditing and tax services?

The spin-off of the Big Five consulting divisions is far from a sign of retrenchment to the core services. If anything, it signals an opportunity to expand nontraditional services. While the core services will remain the life's blood of the profession, the foundation of the profession, the nontraditional services are what clients want, need, and are willing to pay for. The Big Five have realized these divisions are far more valuable outside the traditional practice structure and are spinning them off to allow for their expansion and the infusion of capital from outside investors. A brilliant move--and one from which other smaller CPA firms can learn. *