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Tuesday, July 17, 2012

The Importance of Industry Specialization


Specialization is essential, and frankly speaking, a real competitive advantage for both the CPA firm and its clients.

The business world, whether for profit or nonprofit, has become more complex over the last 20 years. The accounting for business transactions has had to adjust to this complexity—and it is more complex than ever. Additional complexity brings with it the accompanying business processes and controls, regulatory matters, sales and marketing functions, and other matters specific to a particular segment of business that can mean the difference between success and failure. A specialized firm can help a client, whether an organization or individual, to successfully navigate these issues.

The benefits of specialization are obvious. Clients benefit by virtue of specialized service and added value through insights and suggestions. We, like some other professional service firms, decided years ago to be an industry niche-based firm and have maintained our commitment to this decision. It’s been our strength in an otherwise uncertain economic environment because our target audience demands as much value out of their professional advisors as possible.

We believe that specialization gives this to them. After all, by virtue of serving many organizations and individuals engaged within the same industry, we see their business systems and controls, planning activities, financial and operational metrics, leadership styles, IT infrastructure, cash management, management reporting and many other business-related nuances that allow them to compete within their industry.

This brings a lot of value to our clients in the niches that we serve, which include real estate, nonprofits, international tax, law firms, entertainment, family wealth and franchising—to name a few.

The primary value of being advised by a specialist is that you reduce the risk of making errors and maximize the opportunities for getting good advice—advice that may be a differentiating factor between success and failure.

There could be (and usually are) nuances in business, accounting and taxation that are unique to that specialty area. By not working with a specialist, one runs the risk of unintentional errors while potentially harming the business—and also foregoing the opportunity to capture the insights and skills of working with someone who is devoted to that particular industry.

Take the case of a growth area like franchising. Franchisors are required to submit statutory franchise filing documents with state regulatory authorities, all of which include audited financial statements. Many of these audits are performed by CPAs who do not specialize in franchise operations. There are accounting rules very specific to franchising, like the recognition of revenue, and if not properly applied, could result in financial statements that are not in accordance with Generally Accepted Accounting Principles.

This would cause the audit opinion to be improper, which could result in a poor quality filing. Many of the financial statements we see are in such a state. If the reader were to consider the financial statement to be substandard, this could reflect badly on the franchisor and impact their ability to sell franchises.

This could also have other unintended outcomes. It may be difficult for the franchisor to obtain necessary financing for growing the operations since the financial statements are typically part of the bank loan application package. Utilizing a specialist could prevent this from happening.

Specialists can bring other assets to the table. This is especially true because specialists have a tendency to network with other professionals in their industry. This added benefit provides outreach to a wider and more comprehensive network of specialized advisors with much broader and deeper access to your specific needs.

Put it this way, you would only go to a cardiologist to take care of your heart, right? Then it stands to reason that using an accounting firm that specializes in the industry that your business lives and breathes in would make the most sense. Why entrust the well-being of your business with anyone else?

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