Accounting
Beyond rainmakers: The new face of business development in accounting
The rainmaker days are over.
Rainmakers, the select charismatic few — usually partners — who brought in the vast majority of an accounting firm’s clients, are becoming obsolete as firms professionalize business development and shift their reliance off the individual and onto the collective team. Looking ahead, experts say the most successful firms will be those that entrench themselves in a niche and poach clients with their hyperspecialized services.
In the past, firms’ growth strategies were rudimentary and unsophisticated, according to Gale Crosley, CEO of Crosley and Co. Firms relied on the individual contributions of rainmakers to generate the bulk of their revenue while growth strategies remained largely unchanged year to year. Now, especially since the Paycheck Protection Program stimulated growth during the COVID-19 pandemic, “driving demand is on cruise control,” Crosley said.
“The fish are jumping in the boat. They’ve been jumping in the boat for five years, and it’s not a business problem they have to solve right now,” she explained.
It’s a straightforward scenario where there is too much work to do and not enough talent or time to do it, meaning strategic growth is on the backburner for many firms as they manage day-to-day business operations.
“Fulfilling the demand side is sucking all the energy out of the firm,” Crosley said. “They’re totally focused on getting the laundry out the door, offshoring and technology.”
“The firms who are on it — the A+ firms who have always been on it — they’re not hitting the pause button,” she continued. “Only firms who always knew that they had to carve out that time and say, ‘We’ve got to look at growth strategies for the future,’ those are the ones who are doing it right.”
Modernizing business development
Firms are now formalizing and structuring the process of finding and bringing in new clients. The first key to modernizing business development is moving the responsibility of client acquisition beyond individual rainmakers.
“It’s taking more of a matrix, relationship-focused approach, instead of a singular source of that rainmaker being out with the client,” said Rebekah Gardner, chief growth officer at Top 25 Firm Wipfli. “You start to identify these segments, these clients and prospects, and then you look at the team that you have on your bench, and you start to match up relationships and skills, and you build that matrix.”
The second key is specialization. Competition for clients is increasing as more firms look to own entire market segments and tailor their services to those select niches. Firms that choose to stay generalists put themselves at risk of losing business.
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“You have got to have industry experts sitting on your team so that you build that ability to have a conversation at their level,” Gardner said. “If you can’t show up like that, I don’t think you belong in the game sometimes.”
“Specialization and niches allow firms to perform a much higher value service to their clients,” said Tim Petrey, CEO of HD Growth Partners, a member firm of private-equity-backed accounting firm platform Ascend. “They can get much deeper with a client than the surface-level tax and compliance work. As a result, you form a higher degree of trust between the accountant that owns the relationship and the client much faster. It can be difficult for a ‘generalist’ style firm to compete with industry experts.”
But it’s easier said than done. Becoming a specialist requires the difficult task of dropping low-profit, time-consuming clients, and focusing resources on high-growth, high-return clients.
“Firms need to improve by looking closely at the clients they best serve and build a marketing strategy around that,” Petrey added. “Treat your firm like a real business and it’s amazing what comes naturally from that. Treating a firm like a partnership often leaves marketing efforts stale because partners can’t agree on the strategy, the ideal client profile, the budget, or even just as simply the contribution of their staff’s time to the efforts.”
The decline of rainmakers
The accounting profession’s ongoing labor shortage impacts everything within a firm, especially business development.
“Finding great accountants is hard enough. Finding great accountants who can sell is like hunting for a unicorn,” Petrey said.
“With one person coming into an industry for every five who are leaving, staff are getting asked to do things earlier on in their careers than their predecessors. Partners and shareholders are getting younger and younger because firms need to find a way to get those great people locked in for years,” Petrey continued. “As a result, most firms never focused on building any real brand loyalty. There is loyalty to an individual but not loyalty to a brand. The rainmakers of the prior generation are still out winning business the old school way, but there aren’t enough of those rainmakers in the next generation.”
“That’s the crux of the problem,” said Bob Lewis, president of The Visionary Group. “Why we have so much M&A going on right now is because of the lack of business development and a lack of networking skills. “
Besides, the traditional rainmaker model isn’t necessarily the best fit for modern firm culture. “When a firm has a great rainmaker that is a poor manager, leader or colleague, they’ll often look past their issues as a leader because they generate so much revenue, which causes firms to further struggle to maintain or improve culture,” Petrey said.
Instead of relying on rainmakers, some firms have turned to the internet and search-engine optimization to supplement client acquisition.
“What they missed is that the activity you generate through SEO is typically the type of clients you don’t want. It’s clients that are searching the internet looking for a new provider,” Lewis said. “The good clients go through the professional network. They go through the bankers, they go through their lawyers, they go through the insurance agencies, and they get referrals into another accounting firm.”
“I can replace the accounting part, the tax part, overnight. I can’t replace the trust part, and that’s what people have learned and figured out how to sell,” Lewis said.
The rise of the CGO
With the sunset of the rainmaker era comes the dawn of the chief growth officer.
CGOs are the newest additions to small and midsized firms’ staff. While mergers and acquisitions certainly fall within a CGO’s remit, they are also focused on trimming clients that don’t fit the firm’s portfolio, upskilling the next generation of partners, adding more advisory services, and expanding relationships with existing clients, Lewis said.
CGOs also need to be “making sure that people inside of the firm are being deployed in their highest and best use,” Wipfli’s Gardner said. “Traditionally we’ve used our own partners, rank and file, to think about these things, but sometimes it takes an outsider perspective to come in and say, ‘Hey, let’s think about this a little bit differently.”
Unlike the average accountant, CGOs specialize in general management. The addition of them into accounting firms is a new trend that has only been accelerated by the wave of private equity investment in the profession.
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“Most accounting firms have historically run like a partnership rather than a real business,” Petrey said. “PE will continue to professionalize firms of all sizes to be better and smarter at business development. As a result, non-PE backed firms will need to find ways to make that investment into their firms to remain competitive.”
“The preexisting resource constraints and the seasonal nature of the business makes it really hard for anyone to make meaningful progress on a strategic initiative,” said David Wurtzbacher, CEO of Ascend, which is backed by PE firm Alpine Investors. Each of Ascend’s platform firms is required to have a CGO.
“For a long time, the public accounting industry couldn’t and didn’t attract general management type talent — think MBAs — because of the partnership model. It was, ‘We can’t really pay you that much, and we definitely can’t give you equity in these companies, and we’re not really growing that much,’ and so you didn’t have access to the talent markets the way other industries have access to it.”
“But the fact remains, there are people outside the industry who might be better suited for driving growth and transformation and strategic initiatives,” Wurtzbacher said.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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