Building a niche advisory practice

Is being a general accounting services firm impacting your ability to grow and improve profitability? Many accounting firms provide a range of services to a broad spectrum of clients, but they find it challenging to differentiate themselves and compete in today’s market. The answer may be to grow by shrinking.

No, this doesn’t mean reducing the number of staff, eliminating service offerings, or moving to a smaller office. It means transforming your practice to become highly specialized and revamping your firm’s model to serve clients within specific niches or industries.

Though it may seem counterintuitive, serving a smaller number of clients in a niche industry can actually position your firm for growth. Today, a growing number of firms are taking a closer look at specialization and, when done properly, are reaping the benefits.

“While in the past, many accounting firms offer the same general services to clients across all industries, today’s firms are increasingly specialized, attracting clients in specific or niche industries,” stated research by CPA.com, Bill.com, and Hinge Research Institute in their survey “Business Model Trends for Accounting Advisory Services” (the Business Model Trends survey).

As the research noted, the trend toward specialization is tied to a growing demand from clients. According to the findings, when clients were asked what they would change about their accounting firms, 27% said they wanted more familiarity with the business and its industry. Are your clients among them?

While there’s no one-size-fits-all approach, this white paper aims to help firms better understand the benefits of specialization and winning strategies to build a niche practice.

What is a niche?

Let’s begin with the basics. What exactly is a niche — and what does it mean within the accounting profession?

From a broad perspective, it is narrowing your focus to serve those who fall within a specific market, rather than targeting a broad population. As defined by HubSpot, a niche market is: “A focused set of people or businesses who are in the market to purchase a product or service you sell. This group of individuals has a specific set of needs that can be met by a targeted product or service that addresses those needs.”

So, what does it mean when it comes to the accounting profession? Niche accounting practices specialize in certain services, tax types, industries, or geographic locations.

During a discussion in the Thomson Reuters webcast, “Leveraging your niche accounting practice for growth,” Carlton Huntley, a state and local tax editor for Thomson Reuters Checkpoint, explained, “When we're talking about dealing with a niche accounting practice, we're essentially talking about a carve-out within your general specialty to either target a specific industry group, tax type, or specific issue that you or your team have specific experience or expertise in.”

There are numerous niches that firms can choose to serve. For instance, as outlined in the Business Model Trends survey, the more common industries served by accounting firms include:

• Professional, scientific, or technical services (60%)
• Real estate or rental and leasing (50.3%)
• Construction (49.7%)
• Manufacturing (47.2%)
• Retail trade (45%)
• Nonprofit (45%)

And within the various services, tax types, industries, or geographic locations that firms may specialize in, there are opportunities to drill down even further to really narrow your firm’s focus or expertise. For example, a firm that specializes in international tax could drill down to focus on transfer pricing — or drill down even further to focus on transfer pricing for international shipping companies. That’s obviously just one example, but the point is, firms can get as specialized as they want.

“It's like the Olympics. In the Olympics, that's just sports. It's a lot of different things. And within the Olympics, you have specializations like sprinters. And even within sprinters, you have somebody who runs the 100 meters,” Huntley said.

Take, for instance, the firm All About Accounting in Milton, Ga. This firm works with “teacherpreneurs” selling on the Teachers Pay Teachers online marketplace where teachers buy and sell original educational materials, as well as on their own websites. This highly specialized niche is one few people have even heard of, further highlighting how fine-tuned a specialization can be.

As noted by Rachel Clark, client director at All About Accounting, teachers are an ideal fit for the firm, as they find value in learning. “Somebody once said to us, don’t pick your niche based off what you think is going to be a really good niche for you. Focus on where you think that you’re going to be able to become an expert and be able to anticipate that group’s needs,” Clark said in a recent episode of Pulse of the Practice.

Benefits of an accounting niche

There are several benefits to developing a niche advisory practice. It helps strengthen your firm’s branding and establish domain expertise, and it serves as an entryway to additional services, among others. Let’s take a closer look at some of the other benefits.

Differentiate your firm

Firms that specialize or cater to specific niches often find that it is a great way to grow the practice and differentiate themselves from the competition.

Businesses within the community — and in specific industries — talk. Let’s say your firm focuses specifically on the timber industry. Once word spreads within the timber industry that your firm is the go-to accounting firm for businesses within that industry, you are able to stand out and better attract clients who are the ideal fit for your niche service model. In short, when you have a niche practice, your firm becomes the subject matter expert in that respective industry or area of focus.

Shannon Christensen, a Tax and Accounting Specialist with Thomson Reuters, agrees. During the Thomson Reuters webcast, she said, “In my experience, in one of the firms I was in, we wound up getting very good at orphan drug credits, which is a very specific type of work that doesn’t come along very often. We were able to create these workpapers, get lots of startups and small businesses that were qualifying for this orphan drug credit. And we could apply that knowledge to all of them.”

The expertise and internal knowledge gained also becomes a tremendous benefit in adding value to other projects or engagements across the firm, even those outside of your specific accounting group. If your niche is real estate, for instance, then your input may be sought for nearly all real estate clients that walk in the door.

Furthermore, other firms may turn to you if they know you have a particular specialty or expertise they lack and can leverage in serving their clients.

Better compete on price

When your firm is known as the subject matter expert, you are not only able to differentiate yourself from other firms, but you can also better compete on price. You can charge a premium for the unique knowledge, tailored expertise, and added value you are providing clients. Clients will be more willing to pay a premium if they have a clear understanding of the value you are delivering.

To help ensure you are being fairly compensated for the value-add your firm is delivering, consider — if you haven’t done so already — getting rid of your hourly billing model in favor of value pricing.

“To implement value pricing, accounting firms must clearly understand the business challenges potential buyers face and position their services to directly address those issues,” according to the Business Model Trends survey.

The survey went on to state: “When asked to identify the top benefits of adopting value pricing, 64% of accountant participants identified ‘transparency between the buyer and seller,’ 60% said ‘demonstrating the value of firm expertise,’ and 59% cited ‘lack of billing surprises.’ Each of these benefits informs the customer experience — contributing to accountability and reliability and showcasing the shared knowledge of accounting firm professionals.”

Create efficiencies

Another important benefit of specialization: it enables the firm to be more efficient. Unlike a generalist, when a firm zeros in on a particular niche they are then dealing with a smaller set of client issues. As a result, the work being performed becomes more easily repeatable and transferrable.

For example, consider a firm that specializes in work for construction companies. That firm may find they are usually dealing with a set of four or five issues commonly faced by companies within that industry. Not only does the firm quickly gain a deep understanding of those issues, but the research and work become more easily transferrable from client to client, which saves both time and money.

“When you deal with the same set of issues, not only when we're talking about tangible work product, but we're just talking about being able to spot certain issues and come up with certain information off the top of your head. I'll give you a personal example,” said Huntley. “The space that I really fell into was software and software-as-a-service, particularly for international clients…Being able to kind of deal with software-as-a-service, there's about half the states that tax it, about half that don't.

“What really would end up happening is that over a certain amount of time, there wasn't much research that needed to be done because I literally started to memorize…It creates just an internal knowledge that makes you more efficient and makes you able to spot issues, just on the spot in certain ways.”

Unlock growth opportunities

Developing a niche practice can also help firms unlock additional growth opportunities. In other words, it can become an entryway to a host of additional services, including higher-margin advisory services.

In today’s complex business environment, clients want proactive, strategic advice. Underscoring this point, a recent survey from the Thomson Reuters Institute found that 95% of tax professionals believe their clients want business advisory services. This client demand was further accelerated by the COVID-19 pandemic, as clients sought advice about everything from applying for Paycheck Protection Program loans to financial management strategies to keep their businesses afloat.

In addition, the Business Model Trends survey found that offering strategic advisory services presents one of the most important growth opportunities for firms. By providing such strategic advisory services, firms may be able to increase monthly client revenues by up to 50%.