Editor’s note: This is the first in a projected three-part series about how CPA firms are adapting to changes brought on by the pandemic, new technology and the needs of their client base.

The global economy this past year has undergone a seismic shift, and as the CPA profession is closely linked with the economy’s ups and downs, its practices are changing, too. In the wake of the pandemic, firms are entering 2021 with significant alterations to their client balances and with revenue streams that have shifted their overall strategic orientation going forward.

Clients gained and lost
Just as last year saw some industries wither and others thrive, CPA firms saw a shift in their client balance reflecting both good and bad fortune in the economy.

At the same time, they’re reporting more work from economic segments that have prospered over the past year, such as health care, technology and financial services. Patricia A. Cummings, Citrin Cooperman’s managing partner of industries, noted that her firm has seen such a shift in service demand.

“While no industry has been untouched, certain industries that Citrin Cooperman focuses on have been [hit] harder by the pandemic, like the restaurant industry, hospitality. Other industries have continued to really hold their own or, in fact, accelerate. When I think of life sciences, technology, even financial services, [those are] a few industries doing quite well,” she said, adding that one of the firm’s clients is a less-lethal defense technology company, and that the demand for this client’s products—which are used by the military, correctional services, police agencies, private security and consumers—has “grown exponentially in 2020.”

Nicholas Tsafos, partner-in-charge of EisnerAmper LLP’s New York office, reported a similar shift, saying that the industries one would expect to do poorly are doing just that, but that he has seen a lot of growth from technology and health care clients, in the meantime. Like Cummings, Tsafos said that the financial services industry has also seen major growth, with increasing service demand from these clients. He pointed to thriving financial markets as a reason. This growth is not despite, but because of, the economic chaos that the pandemic has wrought.

“Because of the displacement caused by the pandemic, a lot of investment advisers are seeing opportunities out there in various industries to buy assets at low valuations, and with management being displaced, you’re seeing people coming up with creative ideas on how to revive some of these [distressed] industries,” he said.

Grassi was one exception to this shift. Ronald J. Eagar, who serves as the firm’s chief operating officer, said that the balance of its clients has remained largely the same, though he noted that the firm is a lot less exposed to the industries that were damaged by the pandemic than other firms. While franchise clients, in some cases, aren’t doing well—for example, one client with a chain of spas—the rest of its clients have managed to hold the line.

“They had their challenges to change the way they do things and be more safety conscious, but our overall client base remains pretty much the same,” he said.

Revenue streams redirected
It was a very similar story when it came to revenue streams: Some were doing well, others not so much.

Cummings noted that in the second and third quarter of 2020, Citrin Cooperman saw significant drops in revenue from a number of advisory service lines, “as would be expected with the shutdowns,” but the firm saw some recovery in the fourth quarter, which is expected to continue into next year.

Much of this growth, she said, has been in valuation services and transaction advisory services. Reflecting the growing move toward remote work at many businesses, Cummings said that CFO outsourcing services have also seen major growth, “as some of our clients, and even our [prospective ones,] are pivoting to a more flexible internal model.” Similarly, the firm has also seen “high demand” in cybersecurity consulting, “since everyone’s working remotely.”

Firms are also seeing higher demand for consulting on how to best navigate the pandemic and post-pandemic world. Cummings said that her firm has seen increased demand for help on “strategic transformation projects,” which, she said, can sometimes involve changes to a company’s business model in order to better fit the current economic landscape.

Tsafos reported similar growth at EisnerAmper, saying that there are many “distressed type situations,” where companies need better ways to manage cash flows as well as assistance in getting loans, whether through the Paycheck Protection Program (PPP) or their banks. Also reflective of the pandemic, he has seen increased demand for bankruptcy consulting from these same distressed businesses.

Eagar said that pandemic-specific services have been on the rise for Grassi as well, observing that it has been working in this field since late March. He explained that the firm’s human resources consultants have been “tremendously busy” helping clients deal with COVID-19 issues. Clients want to know what to do when there’s a positive result in the office or how to keep work sites sanitary; there are a number of construction industry clients, he said, that the firm is currently advising on health and safety for their workers.

All three said that revenues from their compliance functions—such as tax, audit and financial reporting—have held strong, mainly because clients have to do these things on a regular basis.

Eagar said that the rapid growth of advisory services reflects changes that the CPA profession was experiencing well before the pandemic. While the CPA firm was once mainly a provider of tax returns and financial statements, for several years, it has been advisory work that has powered firms. Eagar said that his own firm specializes in advisory and consulting, and so it has seen “a surge” in revenue from these sources over the past year, which he expects will continue in this one as well.

Strategic orientation
These changes have led firms to rethink their overall growth strategies, whether it’s what industries they plan to concentrate on or what service lines they decide to emphasize.
Cummings said that Citrin Cooperman intends to lean into the changing demand dynamics by considering adding new or expanded advisory service lines such as information technology (IT) consulting and software development, as well as industry-specific lines like billing services for the health care industry practice or fund administration for the financial services industry practice.  

“Just some ideas to add different spokes to our wheel,” she said.

Tsafos said that EisnerAmper plans to continue focusing on the key industries in its client base, including financial services, real estate, and sports and entertainment, although, like Cummings, she said that she expects there to be more emphasis on technology as well, especially biotech clients. Speaking more about the sports and entertainment aspect, Tsafos acknowledged that these industries are negatively affected in the current environment, but he expects them to successfully adapt to the changing circumstances and even to grow in the future, especially when vaccines become widely available.

“We serve a number of professional athletic teams, and a lot has changed because of the pandemic, but going forward, I think sports and entertainment will continue to grow. ... We’ll continue on the strategy we had in place, meaning let’s continue to provide quality services to professional teams on the advisory and compliance perspective,” he said.

Eagar was very optimistic about Grassi’s prospects in the new landscape that 2021 brings. The shift to remote work has been eye-opening for his firm because, with so much work taking place online, the firm is not as bound by geography as it once was. On the practice management side of things, for example, he said it has become a lot easier to schedule work. For example, Eagar recently had an auditor on eastern Long Island do work for a New Jersey client, pointing out that “location doesn’t matter anymore because we can do it where they are.” This has also meant, he said, being able to reach out to new labor markets that the firm may not have previously considered, such as the recent hire of a trust-and-estate professional in Florida who works on New York projects.

Eagar added that the pandemic has had a galvanizing effect on the firm’s marketing: With a lot of traditional forms of marketing “somewhat hindered,” the firm found that webinars, especially those about the PPP, were very effective tools in gaining clients. He said that these webinars enhanced the credibility of the firm’s professionals in the eyes of the public, prompting people to contact the firm for help.

In addition, merging other firms into their own is anticipated to proceed apace. M&A activity will likely continue to be a major part of all three firms’ growth strategies, with Cummings saying that it will be maintained at current levels, given that Citrin Cooperman has historically been very active with M&A, and Tsafos and Eagar expecting it to accelerate. All three said that this was more an effect of older owners not having a succession plan in place, than it was of small practices needing a financial lifeline.

The office proper
With much of their staff working from home, firms are also weighing the value of the physical office, which has defined much of the CPA profession for years. Cummings said that while Citrin Cooperman does plan to allow employees to telecommute even after the pandemic, there is still value in having an office where people can congregate. With this in mind, she said that the firm will “continue to have a physical footprint.”

“We feel there are certain important aspects that are lost by going completely remote. Innovation has suffered a bit, [as well as] relationships and the ability to collaborate. We can do the best we can with [Microsoft] Teams and Zoom, but there’s nothing like being face to face with the person or team,” she said.

While there’s no plan to “go backwards completely,” Cummings said that the physical office will remain an important part of the firm, especially when Citrin Cooperman completes its move to its new Manhattan headquarters at 50 Rockefeller Plaza—a 110,000-square-foot space. She said the firm will need to rethink the layout of the office to account for new attitudes on health and safety, but overall, she expects the space to remain an important part of the firm.

“We’re really considering the effects and what people want and need to feel comfortable, so thank goodness we have the next nine months to build out the space that will be a very conducive environment,” she said.

Similarly, Tsafos said that EisnerAmper expects the physical office to remain important, and he pointed to the new location the firm recently leased at 733 Third Avenue, “a beautiful, beautiful office space that can hold up to 720 colleagues.” He said that, right now, “we’re seeing about 70 come into the office,” noting that this was largely an artifact of the pandemic. Once the vaccinations pick up, he said that, while there will still be a lot more people working from home, “you will see people coming into the office because of the camaraderie and collegiality, and working in teams and sharing ideas, and building something.”

“I truly believe people need to be around people, or otherwise it’s pretty much solitary confinement,” he said. “Office space is going to be used differently in the future, meaning you might not need as much; however, you [will need some,] because post-pandemic, you’re going to have networking events, you’re going to have meetings, you’re going to have people coming together and sharing ideas. I just don’t think what you’ll have is that standardized work schedule.”

As on some other points, however, Grassi was the exception. With so many working from home, Eagar said, “you end up with space—more so in certain offices than others—not getting utilized to its full extent.” While his firm has not made any definite plans to reduce its real estate footprint, he said there are ongoing conversations about alternatives to certain office locations, because “people don’t want to take mass transit, the restaurants are closed [and] it’s just not what it used to be.” Even in the firm’s main offices in Jericho, he said, moving to staggered schedules has meant utilizing office space in a different fashion.

“Everyone has found that working from home works,” he said, observing, “We, as professionals, probably won’t need as much space, so everyone will need to reassess how much space they really need.”