How to Escape the CPA Firm Rat Race

Summary

• Meet Michael Frost
• How did Heritage Begin?
• Trained Trust
• Complimentary Partnership
• The Mess-up and the Journey

Resources

• Michael’s website: www.heritagefo.com 
• A book Michael recommends: Good to Great: Why Some Companies Make the Leap and Others Don’t
• What Does a Recession Proff Accounting Firm Look Like
• Working 5 Hours/Week at His CPA Firm and Writing a Best Selling Book
• Bookkeeping Workflow Tips 

In this Growing Your Firm Podcast, founder and CEO of Jetpack Workflow, David Cristello, brings in special guest Michael Frost to speak about the ups and downs of the CPA firm owner rat race. 

Although Michael found success in his firm, there was also struggle. Nonetheless, Michael is here to share his story.

Meet Michael Frost

Michael Frost is the co-founder and president of Heritage Family Offices. His partner, Ralph Nelson, is a CPA and also licensed as an attorney. Heritage Family Offices is a multi-disciplinary firm comprising a law firm, CPA firm, wealth management firm, and insurance company. 

The firm began 11 years ago. It’s a 100 percent vertical firm, so there’s no outsourcing. Among all disciplines, Heritage Family Offices has a little over 45 employees. They service fluent, ultra fluent, and high incomers. In 2018, they produced a package that sold a big portion of their tax practice. Michael and Ralph focus on clients who see greater value in family office services. 

How Did Heritage Begin?

Prior to co-founding Heritage, Michael was an advisor. He grew up in the wealth management industry and had the typical referral relationship that most other financial advisors have with their CPAs. He would send referrals over to Ralph Nelson, a CPA. Instantly, Ralph’s clients and prospects trusted him. In turn, Ralph would send client referrals to Michael.. These referrals would be a company with occasionally two other businesses. This made up Michael’s and Ralph’s usual CPA-advisor relationship.

In 2011, an insurance salesman solicited Ralph via a cold call. The salesman told Ralph that he would like to come to his office and pitch something. Ralph allowed the insurance salesman to come by. 

At the time, Ralph was working at a small boutique tax practice. When the salesman came to his office, he arrived in a Ferrari that took the first two whole parking spots. This salesman and his Ferrari stunned Ralph. As Michael describes it, Ralph thought to himself, “This guy has a Ferrari. I have all of these credentials behind my name–what am I doing wrong?”

As Michael investigated, he noticed that the insurance salesman’s life insurance policy had a six-figure commission. Although they didn’t do any business with the salesman, Michael credits the man for sparking the relationship between him and Ralph. 

Wealth management and insurance were commoditized services, making them more scalable and profitable. Michael and Ralph spent six months doing business planning. They asked themselves, “How can we put these four disciplines together and bring them to the market?” 

Michael and Ralph left their independent practices and put their four licenses together. They began to deliver a family office service. They both realized that, in the marketplace, the family office industry needed more attention. Instead of looking at their competition to see how Michael and Ralph could do a better job than other existing firms, they chose something missing from the marketplace.

Because of this method, their first years together were successful. Michael and Ralph provided their practice to an underserved industry. This realization and exploration kickstarted their relationship together and their firm. 

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Michael and Ralph quickly recognized that clients train themselves to trust their CPAs. Clients want to trust their CPAs and advisors. In short, clients want a deeper relationship. Your clients depend on your advice when making decisions. Since they trust you, they believe you’ll aid them with making the best decisions.

In their experience, Michael and Ralph began to add more services to their relationships with their clients. As their practice evolved, Michael and Ralph increased their prices. Once, Ralph had a client paying him $5,000. As Ralph offered more services, his relationship with his client became more involved. That $5,000 then became a recurring $50,000. 

Ralph could successfully raise the prices on this client because their relationship was already strong. The existing client had already trusted Ralph, so they didn’t mind the price change.

Complimentary Partnership

Michael said Ralph would prepare the tax return on the computer and print out his work. He’d then look it over in paper form. In this sense, Ralph was both the tax preparer and reviewer. Ralph was the only person controlling tax services.

What Michael and Ralph had in common in their relationship–which made them successful–was that they didn’t point fingers. They kept everything 50/50. Michael brought his elements to the table while Ralph brought in his practice. They maintained an equal balance between their different services and practice. Both of them had a complimentary partnership. 

Without Ralph, there was no firm. Clients trusted his practice, and Ralph put his effort into the firm. Ralph wouldn’t have been able to start a firm without Michael. Heritage Family Offices wouldn’t be what it is today if Michael and Ralph didn’t work together.

The Mess-Up and the Journey

Michael and Ralph were scaling up to almost seven figures. Ralph had a $700,000 practice at that time with a $4,000,000 revenue. If all the new business was from the CPA firm, then why not go bigger? Micahel and Ralph decided to start purchasing CPA firms. They made their first purchase at $800,000. 

Michael and Ralph figured that if they could buy the CPA firm, they could also purchase the client list. The two used up all their cash and took on debt as they purchased two firms back-to-back. They went through tax season and bought another firm. On paper, the revenue would justify the acquisition, and it made economic sense.

Yet, Michael and Ralph learned quickly that they were a ten-person firm acquiring a firm with 30 people. These 30 people have been in business for 35 years working with the same practice that Michael and Ralph were familiar with. According to Michael, from a culture and people standpoint, it was the biggest professional mistake Michael and Ralph ever made. However, Michael wouldn’t have changed a thing. 

Michael and Ralph ended up a hostage for their own CPA firm. They had 3,000 clients. They were trying to keep their heads above water to service those clients. They lost two other clients whenever they tried to get a family-service client. They could not properly run a multi-family office anymore. 

Michael and Ralph both had young families. Trying to take care of a family was challenging, and this new dilemma in their work lives made it even rougher. The two also would regularly go to conventions and answer questions from other CPAs. When they realized that their practice wasn’t going well, their answers to these CPAs gradually became less positive. So, in 2018, they packaged everything they had acquired and sold it all. 

Although Michael and Ralph had this mess-up, they have no regrets. Michael stated that these mistakes led them to how successful they are to this day. Having these bumps in the road not only made them stronger but also showcased the hard work they accomplished with their firm. The journey toward success is a tricky one, but Michael and Ralph ultimately found their grooves and thrived. 

To hear more of Michael’s story, listen to the full Growing Your Firm Podcast above. If you enjoyed this information, leave a five-star review and share this with a fellow firm owner who needs to hear Michael’s story!