Jim Smart answers questions and provides practical advice for clients — part of his clever consulting approach. Timing couldn’t be better for Smart and Associates LLP, a business advisory and accounting firm that has been named one of the fastest-growing businesses in Philadelphia.
“The business is evolving and changing — the dust really has not settled, in my opinion, even though three years have passed since Enron went down,” says Smart, founding partner. “The CPA industry is in the midst of tumultuous change. We are simply the beneficiary of these changes.”
While people wash out the sour aftertaste from ethical upsets such as Enron, progressive firms such as Smart’s prosper. His company focuses on nurturing client relationships, serving up consulting services and recruiting talent to drive new business.
Arthur Andersen’s expiration sweetened the talent pool. Smart “drafted the best players when the draft was open,” recruiting Andersen professionals, executives and partners to bolster his technology consulting practice. Fall-outs, mergers and legislation continue to open up market share that feeds the firm’s growth.
And Smart is picking up plenty of business from compliance consulting. Tagging the Sarbanes-Oxley Act of 2002 “the most important piece of legislature since the FCC Act of 1934,” he attributes the firm’s growth in business advisory services to its provisions. Under the act, clients that hire “The Big Four” for auditing services no longer can enlist the consulting services of these firms.
“All of a sudden, these executives have to look for other service providers,” Smart says.
With its headquarters in Devon, and offices in Atlanta, Chicago, Baltimore/Washington, D.C., and New York City, the firm reaches global clients. Meanwhile, Smart and his partners knit relationships with executives and earn business — part of an aggressive yet calculated and careful growth strategy.
“Change is good,” Smart says.
Smart Business spoke with Smart to discuss the challenges of these strategies and how he plans to keep the growth going.
How did you tap into growth opportunities?
We follow industry changes very closely and we chase opportunities that are presented to us. The biggest part of our growth in 2004 was primarily providing assistance to companies that were implementing the Sarbanes-Oxley Act.
There were provisions that all auditors had to comply with, and the deadline was the end of 2004.
How does your strategy work?
Our strategy from earlier days was to fill what we’ve always believed has been a huge gap between international and local firms. When we first started the firm, it was The Big Eight, and that gap, by way of market share, seemed huge. The Big Eight consolidated into The Big Four, or Final Four as it is today.
The merger activity in itself has created opportunity.
Layer in the changes that occurred as a result of the Sarbanes-Oxley Act, and you have a recipe and invitation for other firms to step up and compete. That is why I view the Sarbanes-Oxley Act as our invitation to compete with international firms, and compete in a credible way.
Clients are forced to look for other service providers. In the old days, the notion was always that you select an auditor, and once you do that, that firm is your adviser for taxes and consulting. The way of the world was that everyone went back to the auditor for consulting services.
After the Sarbanes-Oxley Act, auditors are truly watchdogs, and that is the only service they can offer clients.
How much of your growth came from the passing of this act?
We were growing rapidly before the act – the act just forced companies to change. We were making inroads to developing relationships with large corporate clients anyway, and we were having some success without the rule change.
The rule change certainly fed our growth — we’ve done $8 (million) to $9 million revenue in Sarbanes-Oxley compliance work. It’s hard to put a finger on the percentage or what growth would have been if Sarbanes-Oxley did not occur.
I’d like to think we would have continued to grow at the pace we are on, but I have to admit that the marketplace might not have permitted it.
Which areas of your business show promise — which services are most lucrative?
Our business advisory services department is the area that includes the Sarbanes-Oxley consulting work, which has been the No.1 driver of growth in our firm. But a close second is the technology practice. We started this in July 2002 with 13 people — a fledgling group.
In July 2004, we had 64 people in that group, and they went from doing $1.5 million to more than $15 million in 2004. The budget for 2005 is $18 (million) or $19 million. More than 70 percent of our revenue comes from consulting services, and I estimate that the business consulting part of the practices did about $22 million in 2004.
Was your revenue always so strong in advisory services?
I’ve always enjoyed advising our clients beyond handling year-end filings that were required for Uncle Sam and bank audits. Inconsistent with other firms, helping clients with mergers and acquisitions has always been a big part of our practice.
Even in the early days — 1990 and 1991 — almost half of our revenues were from consulting. That has grown, and that is where the growth will continue to be.
As you continue to thrive in the consulting sphere, how do you manage this rapid growth?
Pepto Bismol. (laughs)
Does the pink stuff always work?
Here’s how you know you are a partner: I really don’t have a client load any more. From time to time, I work with a few clients, but I delegated my client relationships to my partners several years ago.
Somewhere along the line, someone offered me the best advice I ever received: Are you working in the business or on the business?
If you are going to grow in a service business like ours, you have to manage it and step back from the day-to-day fray. So I delegated the vast majority of my client relationships to other people five years ago to build a management structure that is more corporate than the traditional partnership model. I have a COO and CFO now, and we spend the time to manage the business.
It’s the only way to do it. I can’t possibly grow this business if I am also working day-to-day.
It’s a big leap, and a leap that a lot of firms don’t make. It’s against your nature to pass on your clients because you spend time building relationships with them, and then to transition and hand off these relationship to your partners because you don’t have time to manage them can make you pause and think.
Accountants hold on to relationships — that is our security blanket. If all else fails, you always have your clients.
What is rewarding about working on the business rather than in it?
The growth, the challenge of growth and enjoying the success. We are building an environment that allows people to grow and progress through the firm to partner.
It is exciting to see people who have been with us for seven or eight years grow into partners. And it is satisfying to mentor other people — and that is a big part of my job.
How do you target the right people for hiring?
The key is to hire the best players in the draft when the draft is open. I hire good people, and work follows good people. We don’t hire because we have a backlog — we hire talent.
Our business is a service business — the only asset that matters is our people. We provide vibrant career paths with opportunities for growth and development.
Where do you expect your company to be next year at this time?
We always have this discussion, and I said to our executive board at our retreat: We can’t expect to grow at the pace we have in the past. All of a sudden, the green eyes come out and we all get conservative and say we’ll grow by 20 percent.
Then, I say: We haven’t grown only by 20 percent in eight years. I challenge the conservative nature of my partners and push them to suggest that we will grow more than that.
Realistically, I will be disappointed if we don’t bill at least $80 million in revenues in 2005. We didn’t do many mergers in 2004, and I have some optimism that that could change in 2005, and we could bring on some new players that will feed the growth engine beyond what you can budget.
How do you maintain perspective when considering the avenues your business could tap into in the coming year?
The key for us is that we have focus. For reasons beyond our control, we find ourselves in an industry with extraordinary opportunity. When opportunity knocks, you have to take advantage and open the door. We are doing that with gusto.
But, it takes time to grow, and you need to take the time to manage your growth. You cannot work in the business and grow at a pace that resembles ours. It is physically impossible.
If you hire great people, you will not be afraid to delegate responsibilities. That is the key.
How to reach: Smart and Associates, (610) 254-0700. www.smartassociates.com
