The Current Economic Reality for Accounting Firms

A message you must share with your staff!

During my speaking and consulting travels this year, partners and managing partners say they are frustrated with their staff’s expectations in spite of the effects the “Great Recession” has had on their accounting firms. Prior to the past two years, staff members became accustomed to receiving automatic annual salary increases while the economy was booming and are now having some difficulty adjusting as the economy has deteriorated. Unfortunately the market values for goods and services have declined and all of us must now deal with this new reality.

These challenging times require diligence, increased efforts and sacrifice by everyone in order to retain your current clients and remain competitive. Failure to do so could result in losses far greater than those experienced to date in this recession. None of us have ever experienced anything like this so now is the time to communicate clearly to your staff and then ask for their help and understanding.

Team Members: How you can help us build for the future and for your long-term success.

Since 2008 the accounting profession has experienced events that have had a profound impact on how firms must operate. The “Great Recession” has reduced the spending of countless millions which has a negative impact on the clients we serve. As a result, our revenues have been relatively flat or decreasing while our costs have continued to rise. This trend will have to be reversed if we are to remain viable and able to serve our clients successfully. Here are some of these major trends:

• Pricing has moved substantially from a cost-plus model, where a multiple of a person’s hourly salary was charged for services, to a fixed fee for many of the services we provide at a time when regulatory agencies are imposing ever increasing requirements and standards. As a result, our realization has decreased on many engagements due to budget overruns that cannot be billed to our clients. Since our clients are also experiencing the downturn in the economy many have requested fee decreases from us.

• Competition for off-peak seasonal work has become extremely intense as firms vie for those few engagements where work can be done over the summer and fall months to keep their staff busy which has resulted in net realized fees that are extremely low during this time of the year. Staff utilization rates continue to be a concern within the entire profession due to the seasonality of our work and our inability to keep everyone fully utilized during the June to December time period.

• Employee costs and benefits have increased over the years and now in many firms exceed 50% of net revenues which is an historic high. As a result of the down economy and client fee pressures we have been very limited in our ability to give pay increases to our employees for several years and in some cases we have had to adjust our staffing levels and salaries. Dealing with the effects of the recession has not been pleasant or easy. Our objective has been to keep as many people working as possible.

• Our need for technology has continued to increase requiring substantial investment by the partners of the firm not only for equipment but also software, training and the loss of efficiency while employees are learning how to apply the new technology. Software vendors continue to look for ways to increase their revenues from their software which has put further pressure on our cost structures.

• The aging demographics of our profession and our society. Baby Boomers represent approximately 25% of our population and they are just now starting to retire. This is having a direct impact on the services required by clients and our ability to provide those services as many CPAs, 50% of which are baby boomers, begin to retire. The resulting “brain drain” is concerning as we want to give our clients the very best advice and service possible while creating opportunities for everyone to grow professionally.

The good news from all of this is that there will be an ever increasing need for certified public accountants in the future. As the economy picks up there should be many opportunities for growth. There are many ways you can assist us during this time of change and uncertainty. Following are a few ways for you to help and at the same time enhance your career in public accounting:

• Have a great attitude and be a person that others want to be around. Negativity is not helpful or productive and we need to be in a positive state of mind to be creative and provide solutions to our clients. Take responsibility for your own career satisfaction by consulting with mentors and getting the information you need to be successful in your career. As you experience greater feelings of success you will be more positive and our clients will receive better service which will benefit all of us.

• Take responsibility for your assigned engagements and tasks and be accountable for successful outcomes. The key idea here is to communicate timely and effectively so that everyone involved in an engagement knows exactly where the job stands. This will allow for collaboration and timely problem solving by your engagement team which will be helpful in limiting cost overruns and client write downs.

• Manage your time. Email, voice mail, social networking all take time and can be disruptive when trying to do work requiring critical thinking skills. Block out time to devote to your client work exclusively. While at the office work with intensity and then go home on time to be with your family. In the long run this approach will make you happier in your career and also at home.

• Talk positively about our clients. They need our services and we have an obligation to provide those services in the most professional manner possible. Clients are not a burden. They are the life blood of our firm and allow each of us to provide for our families. We have the responsibility to communicate our needs and manage their expectations for a great outcome every time.

• Leverage your knowledge. In this way you become much more valuable to the firm and will assist in the “institutionalization” of our clients. Holding on and hoarding work that is beneath your level of expertise will limit your ability to grow at some point in the future. If you really want job satisfaction make sure you are doing work that is commensurate with your experience and value.

• Help us get the word out in the community about our firm. Everyone has an opportunity to participate at this level and should choose to do so in order to get new clients and achieve our mutual goals. If you belong to an organization participate actively. It will not only be more personally satisfying, it will also show everyone else that you approach your work with purpose and dedication which clients see as great qualities for an accountant.

Working together we will get through these times, serve our clients more effectively and make our firm a satisfying and rewarding place to work. We must be prudent in our business practices while at the same time be innovative and creative in serving our clients. Help us make our firm and our profession even better. We need you! Hopefully with these efforts we will all benefit economically and personally in the future. Thanks for all of your hard work and understanding.