Recent years have seen a flurry of mergers and acquisitions in the accounting industry. It’s a trend that shows no signs of slowing, particularly as Private Equity (PE) firms continue to make their investments in a growing number and variety of firms.
Regardless of the size of the firm, the motivation for investment remains constant:: to grow, and grow quickly..
In every industry, not just accounting, one of the key strategic drivers of a merger or an acquisition is that, under the right circumstances and with the right match up, the new entity will be greater than the sum of its parts (often due to all kinds of synergies and cost-saving opportunities with which they will be able to drive outsized future returns). This is, indeed, sometimes the case and most often happens when firms are talking about brand, operations, industry specialization, overhead, and more.
However, when it comes to production (a.k.a billable capacity) 1+1, unfortunately, never equals 3. It’s always just 2. And, lately, that doubling comes with a big caveat.
The Accounting Capacity Crisis
The accounting industry is in the midst of a worsening talent shortage. Fewer young graduates are entering the industry each year, older professionals are retiring, and employees are more likely to leave public practice for the private sector..
The result? Every CPA firm employee in pretty much every firm in the country is overworked and leveraged beyond their optimal capacity.
Mergers, acquisitions, or PE funding don’t solve that problem. If anything, they only exacerbate it.
Together, a group of ten CPAs might bill 600 hours (or more per week). Merge that team with another group of ten CPAs also billing 600 hours a week, and what do you get? Additional capacity? Certainly, not.
There is no leverage to them working together, no additional efficiency gains to be unlocked. Worse still: Instead of having ten people who were overworked, you now have twenty. You’ve created a bigger problem and are no closer to solving it than you were before the merger. So, how do you accelerate organic growth without additional capacity?
Want to learn more about how failing to proactively tackle the capacity crisis can hurt your firm? Read this article next: The Cost of an Empty Chair
Outsourcing: A Proactive Growth Solution
What can you do when you’re on the hook for accelerated growth but you already have the pedal to the floor and your team at the redline? Well, to answer, let’s talk about outsourcing.
The CPA firm marketplace has been using outsourced talent for decades but has almost always done so reactively, at relatively short notice, often a piece work, and with a mindset that’s guided by finding a solution to “today’s” problem. And, that’s a fine solution. But, the most forward-looking firms (and those striving for aggressive growth goals) should also view outsourcing as a growth engine: an opportunity to unlock additional capacity and leverage to drive the accelerated returns the shareholders and/or investors desire.
Outsourcing not only solves existing resource constraint issues, but it also presents firms with an opportunity to significantly increase their capacity and plan for long-term success. All firms tasked with growing aggressively should assign a percentage of their targeted growth to outsourced talent.
Outsourcing: Sophisticated & Attractive
An effective outsourcing strategy doesn’t just increase efficiency in your firm: it also makes it a more attractive target for investors. Firms with a sophisticated approach to working with outsourced talent can be appealing acquisition targets for other firms, even larger ones, looking to learn about and to enter this field.
Outsourcing: A Retention Tool
Additionally, outsourcing appropriate work makes firms stronger. Employees will be happier and less overworked, leading to lower attrition rates. It also allows your highly-paid, in-house talent to work at the highest and best use, at their level. That helps your firm do better work, which bolsters your reputation and attracts more attention from potential partners and investors.
In sum: a proactive approach to outsourcing acts as an engine for growth, both for your firm’s reputation and as well as the top and bottom line.
Attention: Private Equity
For PE firms invested in accounting firms, outsourcing should be a key growth strategy from day one. Literally, as a term of the investment. It benefits all involved. Firms that get ahead of the curve and establish outsourcing as a core competency not only benefit from improved business results, they become more attractive investment targets.
Getting Started with Outsourcing
The process of outsourcing may seem intimidating. However, the reality is that the process isn’t that complicated, although there is a right way and a wrong way to go about it.
Outsourcing works best when a firm already has well-established processes in place to handle workflows. Firms must understand their service lines and be knowledgeable about the tasks that must happen for client delivery and the level of people required to accomplish those tasks in order for an outsourced resource to be effective for them. That’s how you maximize your investment. That’s how your outgrow the competition.
Apply a high bar when evaluating which outsourcing partner is the best fit for your business. Firms shouldn’t feel the need to drop their standards when assessing outsourced talent: the world is a big place, and there’s high-level accounting talent and leadership everywhere: not just in the US. And, above all things, remember that outsourced talent are people, just like you and me. They are (or at least should be) experienced professionals who have career goals, families, and other ambitions. Working with a North American firm is seen as a huge opportunity for our accountants and they hold themselves to a very high standard because of that. In return, all they want is to do good work for you and make you money. As you look for an outsourcing partner, seek those people out. As we always say at Trigger, “Happy people do good work.”
Interested in learning more about what outsourcing might look like for your firm? Get in touch with the team at Trigger today: we’d love to help.