Firms share the secrets of their success in serving specific segments of the NFP market
Accounting Today asked the leaders of four firms with prominent nonprofit practices to share how they successfully developed their niches and expertise within the sector. Below, some growth strategies from Washington, D.C.-area accounting, consulting and technology firm Raffa, New York-based accounting, tax and financial services consulting firm SaxBST, Chicago-based accounting and consulting firm BDO, and Baltimore accounting firm Ellin & Tucker.
Todd Polyniak, partner of SaxBST's not-for-profit industry service group explained that the firm currently serves the education, social service and religious sectors, as well as foundations, private clubs, cultural and arts organizations.
Kim Fusco, a member of Ellin & Tucker's not-for-profit services group and chairwoman of the not-for-profit area of the firm's accounting and auditing technical standards committee, said that the firm currently serves a variety of nonprofit types, including health and human services, private foundations, education, religious organizations, arts and culture, university foundations, and nonprofits with OMB Circular A-133 requirements. The firm's most prominent niche is health and human services.
Adam Cole, managing partner of BDO's Greater New York health care and nonprofit services group and a member of the national nonprofit and higher education practice, said that his firm focuses on audits of charitable organizations, nongovernmental organizations, and higher education and social service organizations. They have seen the most growth in the social service sector, especially among organizations that provide services to children and adults with developmental disabilities, behavioral, health and medical and substance abuse issues.
Tom Raffa, partner and CEO at Raffa, explained that, while the firm is not significantly involved in health care or hospitals, its nonprofit clients span every other niche within the nonprofit/tax-exempt world, covering 501(c)(3) public charities and private foundations to 501(c)(6) trade and professional associations predominantly, but also organizations with all other forms of tax-exemption, spanning all industries or causes: education, the environment, advocacy, human services, etc.
How did you initially identify these niches and/or the need to serve them?
Cole: In New York State, the social service sector has been the fastest growing sub-segment in the past 20 years due to the proliferation of more services being covered under federal Medicaid programs. Our growth emerged from our response to the needs of these organizations for CPAs with experience in auditing and management consulting for similar organizations navigating a complex legal and regulatory environment.
Polyniak: Initially, SaxBST served education, social service and religious organizations, and our business in each of these segments evolved organically. Folks in a particular niche found us through referrals and our business networks, and word-of-mouth created new connections with organizations in other niches. We also have built significant relationships through our "Fist to Five" event series, which we host several times a year in New Jersey, New York City and Albany. "Fist to Five" is a metaphor for bringing consensus among a group of people, and we adopted the name to describe our mission to help not-for-profit organizations achieve peak performance and accomplish their goals. The events bring together leaders in the not-for-profit community to address specific topics and issues that are critical to their success.
Raffa: We help build capacity within each of the nonprofits we serve so that they can improve and better sustain their services to others and to the community. We provide millions of dollars of pro bono services support each year to those nonprofits with programs that effectuate positive change but cannot afford our services.
Over the past decade, social enterprises have become more prominent, and as their missions are similar to ours, we have found ourselves very much embedded in this new vision for companies and the way in which they do business. Like us, they work each day to be solid community partners, rather than to produce profits at the expense of community. They have found what we discovered over 30 years ago: that by advancing community, so too do their businesses thrive.
Fusco: Ellin & Tucker has a long history of supporting the missions of nonprofit organizations through philanthropic activities. Over the years our nonprofit work has defined our firm as a leader in the industry, as we have been able to establish a strong reputation and expertise in several nonprofit niche areas.
How do you develop and support these niches?
Cole: We have developed a risk-based audit approach that aims to identify and mitigate both audit and enterprise risks. We understand the greatest challenges these organizations face and feel it is our responsibility to present best practices to our clients' management teams and boards of directors. For example, we have provided services and insights pertaining to controls over revenue cycles, IT infrastructure and board governance.
Fusco: First and foremost, we develop and maintain our niche expertise by staying on top of the trends in that particular nonprofit sector. Once we have been identified as the "expert," we reach out to our connections in the business community who have the ability to support our efforts to make an impact with the key decision-makers on each opportunity.
Raffa: While the mission or purpose of a nonprofit are often very unlike a corporation driving profits to its shareholders, like any business, nonprofits and social enterprises need solid infrastructure to support their continued existence and to allow them the ability to thrive. Our firm has honed its skills to provide a holistic approach to our services. Where we have been unable to identify competent partners with whom to work, we have expanded our own lines of business. Our firm is now four companies covering the usual services of a CPA firm: audit, tax and consulting. And we also provide managed accounting, HR and technology services, HR consulting, compensation studies, transition and succession planning, search and placement, expanded technology offerings such as the cloud, accounting and enterprise software solutions, organizational assessments, family planning, insurance, and investments and wealth management.
Polyniak: We support clients and the not-for-profit community through unique programs like "Fist to Five." These programs are designed to provide organizations with information in areas that accountants typically do not address, such as leadership, change management and how to better position themselves among other not-for-profits. They also offer valuable opportunities to network with other organizations and connect with service providers.
What are the biggest issues/challenges you face with your most prominent niche?
Polyniak: The greatest challenge we face runs across all niches, and that is maintaining excellent client service and being cost-effective at the same time. Not-for-profit organizations often have limited budgets and require a high level of expertise and frequent interaction. So we are continually evaluating ways to provide the services clients need and remain profitable as a firm.
Fusco: Our challenge is successfully communicating the difference between Ellin & Tucker and those firms that lack the nonprofit experience. Since so many nonprofits in this tough economy are operating on limited resources, board members are increasingly making decisions based on price due to financial pressures and budgetary cuts.
Cole: For the past 17 years, many social service organizations struggled to handle explosive growth and build up their infrastructure to keep pace with burgeoning demand; a failure to maintain their essential capabilities and internal controls could lead to a stagnation of growth. Today, however, the challenge is determining how to adjust to new revenue models, such as managed care and the compression of revenues, while not allowing necessary cost-cutting measures to weaken their infrastructure and expose their controls to error, fraud or mismanagement.
What are the challenges with the other niches in which you work?
Cole: We also work with nonprofit health care organizations, which have been going through seismic changes as a result of the Affordable Care Act, increasing consolidation and the shift to a pay-for-outcomes reimbursement model. These organizations could falter if they are not properly networked or have not aligned the revenues they are paid with the cost of providing services.
Raffa: Unlike most firms that work within any particular sector, we don't simply work to service the clients in the social sector, we work to advance the sector as a whole; to be a voice for it; to advocate for it; to find ways to ensure its successes. While our pro bono efforts in direct service to our clients might be enough for most, our efforts are more far-reaching in areas that include, but are not limited to, our Raffa Learning Community, our work with the Catalogue for Philanthropy, our Raffa Nonprofit Fraud Prevention Institute, Companies for Causes, Raffa Wealth Management's Annual Study on Nonprofit Investing, etc. In this way, we face head-on the challenges of the social movement for the social and nonprofit sector.
Fusco: One major challenge we face is when the organization's board of directors requires rotation of the audit firm. We absolutely concur that it is board governance "best practices" to periodically perform proper due diligence on all major vendors.
However, it's important to distinguish the difference between mandatory audit firm rotation, which can be overly burdensome on both management of the organization and the audit firms, and the board electing to change auditors when they feel it would enhance audit quality.
Today, how important is it for firms with a nonprofit practice to serve multiple niches? And what are the challenges specific to working in/balancing multiple niches?
Polyniak: To be successful today, a firm's not-for-profit practice must offer a wide range of solutions to various niches, especially in major metropolitan areas like those SaxBST serves. Because of the complexity of life, we are seeing a great deal of crossover between niches, and the distinctions between them are not as clear-cut as they were in the past. For example, many religious organizations are now providing social services to the community.
In order for a firm to offer the best possible service to their marketplace, they need to have the flexibility to cross niches as well. One significant challenge to working in multiple niches is making sure your team is trained to meet each sector's specific needs.
Not-for-profit work requires specialized training and continuing education, and at SaxBST we are committed to ensuring that our team has a keen understanding of each niche's particular language, as well as any special credentials required and applicable government and professional regulations.
Keeping up to date is essential to providing the credible advice and solutions that not-for-profits need. It is also important that we stay current with changes in the not-for-profit landscape so that we can educate our clients. Many of them are experiencing high turnover at both the board and management levels, and they rely on us to keep them informed about issues that are critical to their organization.
Cole: Facing constraints in funding the last few years, nonprofits have been expanding their missions to serve more individuals beyond their core competencies.
We are seeing the convergence of various nonprofit sub-segments as our clients increasingly collaborate with their colleagues to expand services to the people they serve while maintaining relevancy and finding cost efficiencies. Firms have to adjust, as well, to work with a more diverse clientele.
Fusco: Economies of scale are important components to successfully serving any industry sector. While each nonprofit niche has its own distinctive characteristics, and staying on top of them may be challenging, there are many areas of the audit and tax services that are not unique. These non-unique areas can easily be leveraged to your team members.
Raffa: For us, it is not so much what we do, or even how we do it, but more our purpose for doing it. For us, why we do what we do drives us. With this focus to mission and purpose, we may see the uniqueness in each of the niches in what they do and how they do it, but their purpose for doing it always aligns clearly with ours. If it does not, they are not a client.
Do you have any other advice for firms looking to expand into other nonprofit niches?
Polyniak: A firm must have a dedicated team of individuals who are passionate about serving the not-for-profit community, and commit to giving the team its full support. It also is important to focus on the area or areas where they will enjoy practicing, be happy investing their time, and be able to fully support the missions of the organizations they serve.
Fusco: Success at serving nonprofits begins with building and then maintaining your expertise and understanding of the industry. A strong reputation can be easily jeopardized if you try to dabble in a new area without the proper knowledge and experience in that area.
Are you looking to expand into other niches in the near future, and does the strategic plan remain the same as in your previous developments?
Polyniak: We are always looking to expand into niches where we feel we have the bandwidth, the talent and the passion to serve.
To accomplish this, our strategic plan remains unchanged from what has been successful for us in the past: to provide value-added services to our client base, make connections through events like "Fist to Five," and continue to build on our referral network.
Cole: Through BDO's acquisition of Argy, Wiltse & Robinson in 2012, we have expanded into government contracting services. The knowledge and experience of our government contracting and nonprofit practices combined has provided our federal grant and contract-receiving nonprofit clients valuable resources to facilitate proper compliance. We have also leveraged this knowledge to expand our audit protocols in these areas and to help us address the unique audit risk associated with receiving federal dollars.
Raffa: I don't see my companies as vendors to this sector; I believe us to be an integral part of it. I think others who look to drive revenue to their firm by entering the nonprofit sector or the social movement are missing the point. And while they may experience some success, it will be based on that one single metric I left over 30 years ago in my work with the Big Four: "financial." And I don't believe this to be sustainable in any business.
Now please understand that our firm is extremely successful financially, but it is a result of our work; it is not our purpose. If you want to truly serve the community by serving this sector, you will look to your outcomes in advancing your nonprofit and social companies, and thus the effectiveness of your work in advancing civil society as a whole.AT