Brown, Edwards & Co.: A ‘large small firm’ thinks big in the Vir­ginias

Accounting Today - - Special Report: Inside The Top 100 - — Sean McCabe

Large firms might get all the at­ten­tion with their tow­er­ing of­fices in ma­jor cities, but some­times even be­ing a “large small firm” is enough to make waves, ac­cord­ing to Ja­son Hart­man, CEO of Vir­ginia-area firm Brown, Edwards & Co.

“We have the feel — to the clients, to the staff, to the part­ners — of a large lo­cal firm be­cause we are a 10-of­fice firm,” said Hart­man. “And we’d like to try to keep that cul­ture, that feel, as we con­tinue to grow.”

Founded in 1968 when two pre­de­ces­sor firms merged, Brown Edwards has now ex­panded to 10 of­fices across the Vir­ginias and Ten­nessee, with “all but one of those of­fices” a re­sult of a merger or ac­qui­si­tion, ac­cord­ing to Hart­man. This year, the firm also earned a spot on Ac­count­ing To­day’s 2019 Top 100 Firms list.

‘We hope to see or­ganic growth in ar­eas ... where we’ve added bench strength, but I also think that con­tin­ued merger and ac­qui­si­tion ac­tiv­ity is likely. We are get­ting more in­quiries and ex­pres­sions of in­ter­est now than we have ever seen.’

Over the last three years, the firm’s ac­qui­si­tion ac­tiv­ity has ticked up, though mostly in small mar­kets. (Roanoke, Vir­ginia, with a pop­u­la­tion of ap­prox­i­mately a quar­ter of a mil­lion peo­ple, was the firm’s largest mar­ket un­til only a few months ago.) Re­cent ac­qui­si­tions in­clude Dixon Hughes Good­man’s Roanoke prac­tice in Fe­bru­ary 2017, Gib­bons & Kawash in Charleston, West Vir­ginia, in Jan­uary 2018, fol­lowed by DHG’s New­port News of­fice last Novem­ber. “My hunch is that we’ll have two to three more [ac­qui­si­tions] over the next year or two,” Hart­man said.

“We [have] of­fices with roughly $14 to $15 mil­lion in rev­enue down to $2.5 mil­lion in rev­enue,” Hart­man added. “We’ve been lucky to cap­i­tal­ize on the fo­cus of the su­per-re­gional firms, who are moving to­wards ma­jor metropoli­tan ar­eas, and the types of clients and work in smaller mar­kets doesn’t fit as well [for them], but it fits well for us.”

Home­town he­roes

Brown Edwards’ bread-and-but­ter in­dus­tries in­clude con­struc­tion, com­mu­nity banks, pri­vate col­leges, state and lo­cal gov­ern­ment, and ben­e­fit plans, with those five ar­eas equal­ing roughly half of the firm’s gen­er­ated rev­enue, ac­cord­ing to Hart­man, with “a lit­tle bit of ev­ery­thing else with the other $25 mil­lion in rev­enue.”

Chief op­er­at­ing of­fi­cer Laura Sprouse es­ti­mates that 60 per­cent of the firm’s work is in A&A, with an­other 35 per­cent in taxes and 5 per­cent in con­sult­ing (though con­sult­ing is also a part of A&A and tax work, she said).

“We’ve had sub­stan­tial growth through merg­ers, and we’ve had pretty sig­nif­i­cant or­ganic growth,” said Sprouse. “I think a lot of that or­ganic growth can be at­trib­uted to just the qual­ity and rep­u­ta­tion … in our lo­cal ar­eas, as well as the prin­ci­pal­i­ties out­side our lo­cal ar­eas, clients know that we are very dili­gent in pro­vid­ing qual­ity prod­uct, that we’re very ser­vice-ori­ented. I think that word has spread as we con­tinue to build upon those niches and build our bench strength through some of these merg­ers and ac­qui­si­tions.”

There’s good rea­son as to why the good word has spread, as Brown Edwards has prided itself on try­ing to leave its ac­quired firms feelng in­de­pen­dent.

“The cul­ture of the firm is such that we try to make part­ners feel like the busi­ness own­ers that they are,” said Hart­man. “Our man­age­ment is still largely in­di­vid­ual-of­fice-fo­cused, so a lot of de­ci­sions are made at that level and the part­ners feel like part­ners, as op­posed to … [when] man­age­ment is more across ser­vice lines and in­dus­tries and most de­ci­sion-mak­ing is cen­tral­ized [so] part­ners tend to feel more like em­ploy­ees. I know in some of the ac­qui­si­tions we’ve done, firms have talked to other firms like us, and they have come away from Brown Edwards feel­ing that the cul­ture suited them bet­ter. They could merge their firm in, get a lot of the ad­van­tages of be­ing a Top 100 Firm, but not lose the cul­ture or the feel of a big lo­cal firm.”

A cy­ber­se­cu­rity niche and a K-12 ed­u­ca­tion pro­gram have also helped drum up in­ter­est in the prac­tice. “The K-12 pro­gram was just an­other av­enue of ed­u­ca­tion for us,” said Sprouse. “We’ve got two part­ners who have been in­volved with that. We’ve picked up new K-12 clients who our part­ners are out talk­ing to at events. It’s just re­ally been im­pres­sive to see how fast that re­ally has grown. Our cy­ber­se­cu­rity group … just the way that [they] can talk to our clients in a very down-to-earth man­ner and ex­plain the risk and is­sues [is] just a great add-on for us try­ing to do any cross-sell­ing to our clients.”

“Through a cou­ple of these ac­qui­si­tions, we have sig­nif­i­cantly in­creased our depth in prac­tice ar­eas we were al­ready in, like higher ed­u­ca­tion,” added Hart­man. “We had a large lo­cal gov­ern­ment prac­tice, but as a re­sult of one of the trans­ac­tions, we now have a pretty sig­nif­i­cant state gov­ern­ment prac­tice. So we hope to see or­ganic growth in ar­eas like that where we’ve added bench strength, but I also think that con­tin­ued merger and ac­qui­si­tion ac­tiv­ity is likely. We are get­ting more in­quiries and ex­pres­sions of in­ter­est now than we have ever seen.”

Stay­ing ahead

Look­ing ahead, the firm’s fu­ture is bright, but re­ten­tion is still a ma­jor con­cern, as it is at most prac­tices. “We don’t have much of an is­sue hir­ing en­try-level staff, but we have a prob­lem hold­ing them past that three-, four- and five-year level,” said Hart­man. “And I think a chal­lenge we have is very likely a nar­row­ing of the pyra­mid at the top — I think in 10 years, for the same vol­ume of rev­enue, the part­ner count is go­ing to be lower, partly be­cause of fewer peo­ple be­ing in­ter­ested in that role. Part­ners are go­ing to have to learn how to work and man­age dif­fer­ently than they do to­day to get us there.”

“If the pre­dic­tions come true, that com­pli­ance work and hours are go­ing to drop off sig­nif­i­cantly due to tech­nol­ogy, how do we re­place that rev­enue?” Hart­man con­tin­ued. “We’ve had part­ners who have re­cently re­tired and part­ners who will be re­tir­ing in the next few years, and we’ve got to buy them out. Our con­cern is that the prac­tice we’re buy­ing from them through their re­tire­ment pay­ments may not be there to fund those pay­ments. So … how do we keep it go­ing if that com­pli­ance rev­enue does sig­nif­i­cantly shrink?”

In­ter­nally, Brown Edwards will con­tinue to de­velop staff mem­bers by let­ting them find their niche — a defin­ing char­ac­ter­is­tic of the firm.

“The opportunit­y that the firm af­fords the staff, just the abil­ity to try dif­fer­ent things and be dif­fer­ent things to find your own path through the firm, is some­thing that worked well for me for years,” said Sprouse. “I started out as a staff mem­ber and am now up to the role of COO — you just never get put into a box and al­ways have the opportunit­y to try other things and be other things with the firm.” And de­spite hav­ing big am­bi­tions and a grow­ing list of ac­qui­si­tions, Hart­man is com­fort­able re­sum­ing Brown Edwards’ fo­cus on the mid-mar­ket and smaller clients: “We think [it’s] good work, we en­joy it, and we ap­pre­ci­ate and re­spect the com­mu­ni­ties we serve.”


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