A couple of weeks ago I had an email exchange that exemplified why solo practitioners like myself should not “partner” with larger firms on projects. There is no “partnering” about it. The bottom line is their bottom line, and their bottom line is enhanced by two key moves:
- Profiting from your work
- Stealing your intellectual property so they don’t have to “partner” with you next time
Here’s the first email I got from the consulting firm:
We have a client in the Milwaukee area who is in need of Fraud Risk Assessment services. They have been spooked a bit by the Koss situation. Is this a service you provide?
Are you willing to work as a partner/subconsultant or only as a prime? Is Sequence Inc. basically a one person operation or do you have a local staff?
What does this email say? First and foremost, it says that the consulting firm doesn’t have the know-how necessary to provide their client with the services they need. But they’re not about to let something silly like competence stand in the way of collecting fees! They will find a way to do it.
But I know how the game works, so I replied that I’d only do a project like this as “prime” and that I do have access to staff and subcontractors when necessary. Of course, the reply I got is that they’re only going to do this project as the prime, but that me subcontracting for them would be a “win-win”.
I agree. THEY would win twice. Win-win.
Here’s how the larger firms work deals like this: They ask you to discount your normal billing rate. The simple reason for this is that they’re going to mark up your rate and turn a profit on you. The lower they can get you to go with your rate, the more profit there is for them.
The larger firm will likely make overtures about future projects, implying that if you’re willing to offer a lower rate, there might be a higher volume of work with them in the future. That’s just dumb. If you’re billing hourly, and all you have to sell is your time, there is no reason to discount the rate. Unless, of course, you’re just as happy working 40 hours @ $100 per hour, or 20 hours @ $200 per hour. I’d take the 20 hours, but that’s just me!
The second part of the plot involves you training the larger firm’s staff to do this kind of engagement. More importantly, you’ll be providing the larger firm with copies of all of your work programs and methodology. You’ve just given away the keys to the castle. The larger firm will never need you again on an engagement like this because now they have your intellectual property and their staff is trained.
I realize the firm contacting me has no qualms about trying to provide fraud-related services to their clients even though they’re not qualified to do it. I don’t know of any of my small/solo firm competitors in my area who would be willing to help them on this project. I’d like to think they’re all too smart to get taken for a ride like this.
It’s easy to see why a small or solo firm should almost never partner with a larger firm on projects. It’s not a partnership, no matter what promises they make. Don’t lose money by discounting rates, training someone else’s staff for those discounted rates, and creating a competitor for yourself who uses your proprietary methodology.
Right on the money Tracy.
I’d like to think that your experience is not true for everyone. I manage both the governance and fraud practices for a regional CPA firm. We have a culture that believes in relationships, and in a real relationship everyone has to win.
We try to maintain relationships with credible and ethical sole practitioners,…because no one can handle all opportunities…some are too big, some too small, some just at the wrong time, some require special experience. I was a sole practitioner. I am sensitive to the issues….and I have been addressing bad management behavior (fraud and governance) long enough to know what proper ethical behavior requires.
So your warning to beware of “large firms in sheep’s clothing” is fair….there are many who only take and don’t give…..but when you assume it fits everyone, it may lose you relationships and referrals that could actually have long term value. It is really nice to have friends and colleagues you trust. Always begin with an open mind…..a fraud practitioner should have no trouble identifying the rats.
On the one hand, you’re right on the money, I’ve seen plenty of sad situations where small firms gave away their expertise and they were shafted by bigger partners.
On the other hand, there may be clients who will not work with a smaller firm. That’s not because they don’t like or respect them, but because it’s such a nightmare to get new vendors approved, that they will do anything to go through an existing partner.
It’s better not to partner if you can avoid it.
While the risk is the same for solos dealing with smaller cpa firms, most firms simply do not have trained fraud and forensic personnel on staff to handle specific client situations as they arise. Despite the AICPA’s initiative to put forensic accounting into every firm in the country, perhaps as easy as attending their webinar series, it simply won’t happen. Much akin to the medical field, there are general practitioners and there are specialists. The idea of adding cardiology to every medical practice is a stretch, but apparently not in accounting. Forming trusted relationships with smaller, local firms who want to be responsive to their clients’ needs while not having the resources to have or want specialists on staff is another way to go. For our firm that has proven to be a win win. We provide services to smaller firm clients when needed, and we don’t pose a poaching threat of interfering with the firm’s existing client relationships, as we don’t perform anything at the firm except fraud and forensic accounting. Forming these alliances versus trying to add forensic accounting to every firm is in my opinion a better way to expand into this field.
I think there is a greater chance of success for the solo if she or he partners with a smaller firm. The smaller firm is less likely to want to hire their own staff to do what the solo does, so they are less likely to steal the intellectual property. They are probably happy to bring the solo in whenever the expertise is required. It makes the small firm look SMART… they do what they do best, and bring in an expert when necessary. Everyone wins.