+ Use your assets
+ Surviving in tough times
+ How CAs can add value
+ Entering foreign markets
+ Valuing small firms
+ Expanding the biz
IFRS AND ISA
+ IFRS and Canadian GAAP
+ New auditing standards
+ Gauging ISA adoption
+ IFRS and audit firms
+ Diversity in the profession
+ CSR is worth it
+ Health and productivity
+ Preventing fraud
+ Chronological resumes
+ Expense fraud on rise
+ Gen X, Gen Y
+ Meeting time-savers
+ Bonuses still top reward
By Stephen Rosenhek
The wide spectrum of CA firms in Canada ensures that there is one to fit the needs of all types of businesses
Besides having very distinctive characteristics in terms of size, geographic reach and organizational culture, CA firms also differ across tiers with respect to their market positioning, branding and recruitment strategies. Moreover, competitive strategies are largely based on four tiers, as larger CA firms seek to attract the fast-growing clients of their smaller competitors, who in turn look to forge strategic alliances and global partnerships.
The challenges facing CA firms of various tiers are therefore quite different and how firms in each tier address the challenges related to fostering and managing growth also differ. For all firms, growth remains vital of course, but most practices feel it should not come at any cost, while others believe that small is beautiful.
Four tiers of CA firms
Tier one: The Big Four firms dominate the accounting landscape in Canada and make up its first tier of firms;they are, of course, Deloitte & Touche, KPMG, Pricewater-houseCoopers and Ernst & Young. These global giants offer a broad spectrum of services to a similarly broad market segment and enjoy all the advantages associated with a global network and extensive resources. For example, Big Four firms achieve significant value by sharing intellectual capital and proprietary research across all their regional offices, while their global branding supports their credibility and provides access to larger mandates that smaller regional firms have difficulty obtaining.
Growth potential may be the most uncertain and most difficult to achieve for these four firms, as it may be limited to their share of the overall market’s growth, unless any of them can gain market share from the others, or attract midmarket clients away from their second-tier competitors.
Tier two: rounding out the top 10 CA firms, the second tier is comprised of regional full-service firms such as Grant Thornton, BDO Dunwoody, Meyers Norris Penny, Collins Barrow, RSM Richter and Schwartz Levitsky Feldman. The growth strategies of these firms will typically include one or more of the following: offering new services to existing clients or existing services to new markets, acquiring other firms or forming international alliances.
Tier three: small to medium-sized accounting firms employing 20 to 100 professionals constitute the third tier. All possible growth strategies can be contemplated by these firms, as they typically offer a limited array of services to small and medium-sized companies. Alternatively, many of these firms may choose to manage their growth very conservatively or to not grow at all.
Tier four: The final tier includes all other accounting firms that employ less than 20 professionals and are managed by a handful of partners. These are often referred to as “boutique firms,” as they usually specialize in one or two service offerings to niche markets. Many of these firms are fairly young, and the sky may be the limit with respect to their growth opportunities. For others, small may always be beautiful.
As a CA, you may have opportunities to be with firms occupying different tiers. For those contemplating starting their own firm, W. Robert Laurier, a merger and acquisition consultant with Fulcrum International, believes there are many opportunities: “Young entrepreneurs should be aware of the wealth of talent and experience they can access by partnering with older, semi-retired professionals. They have extensive networks and can be ideal mentors, as they will not attempt to micro-manage the business, but will focus on developing its opportunities.” A 32-year veteran of Arthur Andersen, Laurier knows firsthand that this can be an interesting option, as he recently went into business with his son, Frédéric, offering strategic advice to companies undertaking mergers and acquisitions. “Young professionals are seeking a balance between their careers and their family lives,” he says. “Self-employment can offer them the freedom to achieve this.”
But extensive growth is not the mantra for all. Take Brigitte Alepin, founder and president of AGORA Services de Fiscalité Inc. with seven employees specializing in taxation. “In three years, I hope that our team will have doubled, so that we will have two or three tax professionals in each of our areas of specialization,” says Alepin, who is one of CAmagazine’s technical editors, of the young boutique firm. “But beyond that, I’m really not sure. We may choose to grow further, but not at any cost. Remaining a boutique firm may be just fine, because we are able to distinguish ourselves by our additional level of services, much like a boutique hotel.” Alepin believes that AGORA distinguishes itself through its attentive and customized service, its frequent communications with clients and its proactive anticipation of their needs. She also views her firm’s smaller size as a competitive advantage, as it can react more quickly to take advantage of niche opportunities, such as developing fiscal lobbying mandates. Finally, the absence of a rigid structure, Alepin says, allows more room for creativity and innovation in developing solutions for clients.
A full-service accounting and advisory firm with offices in three Canadian cities, RSM Richter identifies its entrepreneurial spirit as its competitive advantage. Professionals at this firm are entrepreneurs, growing their clientele and managing their teams as if it was their own business. They strategically choose to develop new niches for which they have specific expertise and perceive a strong demand in the marketplace.
“It is the owner-managed, entrepreneurial medium-sized businesses that are naturally attracted to our firm, and vice versa,” Robert Zittrer, RSM Richter’s co-managing partner, says. “Our professionals help our clients through the significant stages of their life cycle, from growth and expansion, through mergers and acquisitions to maturity, a life cycle mirrored by our very own firm.” And he says RSM Richter’s services are another important competitive advantage. “We have dynamic and experienced tax practitioners and a large comprehensive financial advisory group that provide high value-added advice. Because of our high standards, our services are similar in quality and depth to those of the Big Four, though packaged in an environment that keeps us very close to our clients.”
According to Robert Brouwer, managing partner of KPMG greater Toronto area, the breadth of his firm’s resources represents a distinct advantage. By leveraging KPMG’s extensive global network and depth of expertise they are able to address any of their client’s needs: “In response to a client’s 10 a.m. telephone call requesting advice on a particular post-merger integration issue, we were able to arrange a 1 p.m. conference call with an industry specialist in Chicago and a functional expert in London. KPMG has the ability to make significant investments to offer new services for particular industry niches or to develop a tax solution in response to new legislation.”
Critical to managing a professional services firm’s growth is establishing and maintaining its appeal to its target clients. Smaller firms have a significant challenge in developing a distinctive brand, because they are starting from scratch. There are many directions possible. Alepin admits that the task of establishing a brand is somewhat daunting: “I’m proceeding step by step, starting with the creation of our firm's website and corporate brochure. I’m also devoting lots of time and energy to the development of effective communication tools, such as newspaper and magazine articles, commentaries on TV shows and specialized reports and surveys.”
Larger firms are also investing heavily in their branding, and in many cases these are leveraged to target market segments that they have yet to penetrate. Zittrer considers that RSM Richter has many promising growth opportunities: “We are bringing our existing services and know-how to parts of the mid-market that do not know us that well, such as francophone entrepreneurs. We are also competing with specialty CA firms to increase our market share of certain niche services. And for our clients who are expanding abroad, our affiliation with RSM International provides access to professional services in every major city around the globe. Establishing and managing an identity that addresses the juxtaposition of local market versus international market players has forced us to stretch and adapt our brand.”
KPMG’s Brouwer views his firm’s long established international brand as a very positive distinction in the marketplace, while conceding that it is sometimes a challenge to respect all its constraints: “Our brand is highly recognized around the world and it denotes the consistent quality of our work, which is achieved through our high standards and the extensive training of our employees. All our decisions must reflect our branding.”
Referral sources and relationships
Few public accounting firms rely on dedicated sales teams; most leverage their professional and client relationships to bring in new business, either directly or through a referral source.
Smaller firms face the greatest obstacles in obtaining referrals for new business, as they are not as widely known in the marketplace and may be perceived as lacking depth in their resources by bigger players. Alepin’s choice has been to target smaller law and accounting firms for referrals for new business, as they share similar dynamics and collaborate well together. She has also been successful in obtaining new clients through the wealth management units of financial institutions.
Zittrer’s firm obtains referrals from various sources; most come from existing clients who recommend his firm to friends and business relationships. While external referrals are another source, there are challenges in reaching full potential with them: “Banks, for example, can make a clear distinction between our firm and smaller practices, and many also recognize that the quality of our services is on an equal footing with those of the Big Four, but we must still overcome their natural inclination to refer their larger clients to our first-tier competitors.”
Who’s gaining on whom?
There is anecdotal evidence that suggests that clients do not often switch between Big Four firms for auditing services, so if any of these first-tier firms are making competitive inroads, it would be at the expense of smaller rivals. KPMG focuses extensively on the private company midmarket, which has long been the bastion of the second-tier accounting firms. “KPMG has made significant investments in technology and thought leadership in this market segment, while doubling our contingent of professionals during the last year in what we call our KPMG Enterprise practice,” Brouwer says. “This has been one of our fastest growing groups.”
But for some like Zittrer, the biggest threat of losing clients to the Big Four firms arises when a client looks at taking their company public. “Underwriters and other financial advisers, especially in the US, basically impose that listed companies retain a Big Four firm to audit their financial statements.” He and Brouwer have seen a trend of smaller companies leaving their smaller accounting service providers for second-tier accounting firms offering a broader spectrum of services to support their growth strategies.
In conclusion, the Canadian marketplace is served by a broad spectrum of CA firms, such that clients should be able to find the one that’s right for them. The four-tiered CA firm structure ensures that there is a firm that will fit their needs.
Stephen Rosenhek is the co-managing partner of RSM Richter and RSM Richter's corporate finance practice. He is also the technical editor for Practice management