Editor’s note: This is the first article in a six-part series. The second part, which covers firm strategy, is also in this issue.

“Change always comes to us from the outside in, forcing us to react, manage crises, put out fires. In contrast, transformation comes from the inside out, created by you and your team.” — Daniel Burrus, futurist and New York Times bestselling author

Beginning with the COVID-19 pandemic and resulting shutdown, continuing into a period of changing regulations, talent challenges, and rapid advancements in technology, CPA firms realized and continue to demonstrate that they can be much more of an adviser for their clients instead of focusing on compliance work. The changing dynamic of how CPAs are adding value to a client relationship lays the groundwork for a road map to modernize firms’ business-as-usual model.

During the COVID-19 shutdown, practitioners jumped in to help their clients by advising them on solutions to the economic challenges they, as businesses, were facing and walking them through the often-confusing process of qualifying for relief programs like the Paycheck Protection Program, employee retention credits, and state and local grants.

“Clients were coming to their CPAs in crisis mode,” said Lisa Simpson, CPA, AICPA vice president—Firm Services. “Many in the profession were challenged by the demand for their insights as clients truly feared they would lose everything during a period of chaos.”

Clients’ urgent need for business consulting and advice led CPAs and their clients to recognize how much firms had to offer beyond the traditional compliance work. But while CPAs stepped up, firms were struggling with capacity needs.

The profession’s staffing issues were exacerbated by the Great Resignation — when workers left their jobs during and after the pandemic in search of options that seemed to provide opportunities to explore other interests — as well as a new generation’s changing expectations about work.

Advertisement

It became clear that the long-standing firm business model, predominantly built on providing compliance services to clients, often once a year, with junior staff performing repetitive tasks, was no longer the optimal choice. Firms began to ask questions about what kinds of clients they wanted, what services they would offer them, how they would price services, who would do the work, and where they would do it, Simpson said.

Recognizing the need for a new public accounting road map, the AICPA Private Companies Practice Section (PCPS) launched a multifaceted project to provide firms with a wealth of tools built to enable business model transformation. The intent of the PCPS project was “to help firms make changes that create a culture focused on the success of our people,” Simpson said. “It became a resource initiative to help transform the way we think about how a firm operates.” By enabling transformation with a focus on their people, firms will ultimately be more successful, and the profession will be more attractive to talent as well, according to Simpson.

“We wanted to provide turnkey resources to help firms break away from the traditional model and be more profitable,” said Orumé Hays, CPA, CGMA, CEO of the nine-person Hays CPA LLC in Staten Island, N.Y., and immediate past chair of the PCPS Executive Committee. Hays was chair when the PCPS started the Transform Your Business Model project in 2023.

THE 5 PILLARS OF BUSINESS MODEL TRANSFORMATION

The business model transformation project is built on five pillars, with each one being covered in a JofA article each month through November:

Strategy: A cohesive strategic vision enables all firm members to work together toward clear goals and objectives. See the article, “How to Envision the Ideal Firm.”

A cohesive strategic vision enables all firm members to work together toward clear goals and objectives. See the article, “How to Envision the Ideal Firm.” Governance: Firms with clearly defined decision-making structures can operate with an agile, strategic approach to running the firm, similar to other businesses — but often a change from a traditional partnership approach to decisions. Leaders in these firms can focus on long-term success by developing new success measures, growth strategies, and investment decisions. Coming in the August JofA .

Firms with clearly defined decision-making structures can operate with an agile, strategic approach to running the firm, similar to other businesses — but often a change from a traditional partnership approach to decisions. Leaders in these firms can focus on long-term success by developing new success measures, growth strategies, and investment decisions. Coming in the August . Service offerings: Taking a new approach to service offerings allows firms to work with clients that value the relationship, update billing practices, improve cash flow, and even out their workflows. Coming in the September JofA .

Taking a new approach to service offerings allows firms to work with clients that value the relationship, update billing practices, improve cash flow, and even out their workflows. Coming in the September . Technology: Tools that are accessible to firms of all sizes can drive greater efficiency and profitability. Coming in the October JofA .

Tools that are accessible to firms of all sizes can drive greater efficiency and profitability. Coming in the October . Culture and talent: A greater focus on culture and becoming an employer of choice gives firms an advantage in attracting, retaining, and developing top talent. Transforming the business model for many CPA firms can change the negative perceptions of the profession and create positive momentum that can help reinvigorate the talent pipeline. Coming in the November JofA .

A MORE RELEVANT MODEL

The AICPA and the PCPS approached this initiative with transformation in mind.

“Firms have operated under a traditional business model that might not withstand the future,” said Erin Hartman, CPA, AICPA senior manager—Firm Services. That model, Hartman explained, is built on firms doing large volumes of compliance work (e.g., tax and audit) with rigid deadlines that make it nearly impossible to spread work more evenly throughout the year so that accountants aren’t working extreme hours during busy season. “This is what has to change,” she said.

Embracing necessary changes can help make firms more attractive to both clients and employees, Hartman said. Firms that have a business consulting relationship with their clients are well positioned to serve client needs and to anticipate emerging trends that will affect their clients.

Advertisement

“If you’re not challenging the status quo, you might find that you’ve got fewer options for having a successful business,” Simpson said.

Firms that neglect to invest in technology, people, or other assets put themselves at a competitive disadvantage, Simpson said. A failure to right-size the client base or reassess service offerings could also restrict a firm’s options if owners plan to sell, she said.

Strategic right-sizing can make a big difference to current revenues, according to Hays, who said she has heard from CPAs who have streamlined their client lists and, as a result, increased revenue, because practitioners could then devote their time and energy to more profitable work. Through the PCPS project, practitioners have also highlighted stories of how a strategic evaluation of client fit has led to reduced overtime and increased personal well-being, according to Simpson.

Another reason for business model transformation: The challenge of finding talent from a diminished pipeline of new accountants is due in large part to negative views of the profession, according to Simpson, who cites the reputation for long hours, low entry salaries, repetitive work, and an opaque career path (see the September 2024 JofA article “Rewriting Accounting’s Employment Narrative“). Transformation can address those issues. Hays pointed out that firms with updated business models have a recruiting advantage because their technology can perform mundane tasks and streamline processes, enhancing efficiency and enabling CPAs at all levels to take on higher-level work.

Working smarter with an updated business model is also better for the CPA, Hartman said. “You risk your health when you work too much for not enough reward.”

TOOLS TO SUPPORT IMPLEMENTATION

Because having a clear strategy for the future is key, the PCPS developed a strategic planning toolkit to advance the modernization of firms’ business models.

As an introduction, the toolkit walks practitioners through the questions they need to consider in determining their next steps. The process and the related tools were designed to be manageable for firms of any size without the need to hire outside professionals to guide the process, said Hays, who has transformed her small firm.

Advertisement

Hays began her firm’s transformation journey in early 2023 after recognizing how inefficient some of its workflows had become. Using PCPS resources to right-size the client base and shift to value-based pricing, she streamlined operations, better aligned the service mix with client needs, and implemented more scalable, tech-enabled processes, including automation.

“Lessons from my own journey show that transformation isn’t just theoretical,” she said. “It’s entirely achievable for any firm ready to take that first step.”

Small firms have an advantage when approaching transformation, because they have fewer layers of governance structure, which can simplify decision-making, Simpson said. Because the project is broken down into separate pillars, firms can work at their own pace. They can choose to tackle a relatively easy change or tackle their greatest challenge and, in each case, make incremental changes that will lead to greater transformation, she said.

CHANGING CAPITAL STRUCTURES

In recent years, many firms have moved away from the long-standing, partner-funded capital approach to consider alternative capital options, such as private equity and employee stock ownership plans, or ESOPs (see the April JofA article “Employee Ownership and Taxes: Why Firms Are Choosing ESOPs“). For firms that prefer more traditional approaches, new business models and enhanced ways of working can provide greater control over their funding choices.

As a starting point, firms shouldn’t overlook long-standing funding sources, such as bank loans. “Most firms are seen as a pretty good credit risk and are able to access capital through a lending relationship,” Simpson said. Firms might also choose to keep more money in reserve to fund investments, which may mean less earnings distributed to owners. As part of the business transformation process, firms might also identify segments of the client base or service lines that can be sold off, she said.

In assessing capital needs, practitioners should consider what they want their firms to be, Hartman said. “Many firms get in trouble by trying to be everything to every client,” she said. Instead, she recommended identifying the best markets for the firm and sticking to them. “This is the perfect time to level-set and think, ‘OK, what do I want to do?’” she said.

Hays noted that business model transformation itself can enhance a firm’s capital situation. The related efficiencies and improvements — focusing on the best clients, using technology to free up capacity, adopting new pricing models such as value pricing or subscription billing, and taking on more lucrative work — can result in more revenue for the firm, she said.

Advertisement

DON’T GO IT ALONE

In developing the resources for its business model transformation initiative, the PCPS turned to expert consultants and practitioners who have undertaken their own transformations to provide customized tools and insights for success.

When Simpson asks CPAs who have transformed their business models what they would have done differently, “almost all say they wish they had started down the path to transformation sooner,” she said.

In addition to existing tools, the PCPS also launched a Business Model Transformation Webcast Series that offers implementation steps for developing a new business model. “New resources will be developed on an ongoing basis to support practitioners as the profession continues to evolve,” Simpson said.

About the author

Anita Dennis is a New Jersey-based freelance writer. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

LEARNING RESOURCES

Business Model Transformation Webcast Series

This series brings together industry experts to provide actionable insights on how firms can adapt and thrive. Through these sessions, participants will gain the knowledge and tools needed to build sustainable growth strategies, implement strong governance structures, refine service offerings, leverage technology for efficiency, and develop a compelling workplace culture to attract and retain top talent.

Upcoming schedule

Smart Service Strategies: Refining Your Offerings for a Happier Team, Delighted Clients and Better Profits, July 22, 2-3 p.m. ET

Navigating Digital Transformation: Leveraging Technology for a Competitive Edge, Aug. 27, 2-3 p.m. ET

Competing for Talent: Closing Gaps and Building Firm Culture, Sept. 24, 2-3 p.m. ET

WEBCAST

PCPS membership

The Private Companies Practice Section (PCPS) is an add-on firm membership section within the AICPA that supports CPA firms of all sizes in the everyday intricacies of running a practice by providing practical and customizable practice management resources. For more information, click on the PCPS membership headline above.

SECTION

For more information or to make a purchase, go to aicpa-cima.com/cpe-learning or call 888-777-7077.

AICPA & CIMA MEMBER RESOURCES

Tools

The PCPS business model transformation project features a variety of tools that are categorized online based on which pillar they fall under. Among the tools to check out as an introduction include:

Article

Podcast episode