START PROCESS IMPROVEMENT EFFORTS NOW!

The first step in your process improvement efforts is to survey your employees to better understand their perceptions about their job responsibilities and daily tasks. Where is time being spent and what tasks add value to your clients and which tasks don’t add value? It is my firm belief that you will be surprised by the amount of non-value added time that is being spent by high cost professionals in the months May through December.

Some of the tasks that come to mind are making copies, watching the printer, e-mail management, the internet and data entry just to name a few. As you can see these tasks do not add value to the client and a CPA license is not required to get them accomplished. Clerical tasks need to be performed by clerical staff. Professionals need to be leveraged. Triage the tasks in your firm and I assure you that profitability will improve significantly. By the way be sure to charge for clerical tasks.

Be prepared for the arguments and barriers put up by your staff by preparing your responses in advance of your process improvement efforts. Here’s a few that come to mind:

• It’s easier to do it myself.
• I can’t find anyone to do it.
• They don’t understand what I want.
• I like doing the work.
• The client wants me to do the work.
• I need the billable hours.

Notice that most of these excuses are put forward to avoid management and leadership responsibilities which are a huge issue in the profession at this time. As you go down the path of process improvement your will find that not only profitability improvement but also improvement in the management and leadership skills of your experienced accountants.

Please share your thoughts and questions concerning profit improvement and process improvement in your firm.

STOP EXTENDING UNLIMITED CREDIT!

During these times every firm needs to be more prudent when extending credit to their clients because once the services have been rendered and the tax return or audit is complete your firm does not become a priority for payment for another year. Don't fall into this trap.

A life long friend and mentor who practiced law told me very early in my career to "Get your fee when they need services or risk not getting paid". Over the years this became some very sage advice as it played out several times during my career. In almost every case where I was not getting paid I could look back and see where I was not assertive in collecting my fee.

Many practioners tell me that the collection of fees is stressful as they don't want to upset their clients and risk losing their business. Go figure! This argument reminds me of the housing crisis mess and the number of mortgages that were given to people that couldn't afford the payments. Who is ultimately responsible? The one extending the credit of course.

I recommend that every firm adopt a firm wide credit policy to make sure every client is treated consistently. In this policy require payments in advance of the services being performed and if payments are not made the firm will stop work until the money is received. In addition make sure you have a "stop work" clause in your engagement letters to support this policy. Once adopted, publish it and furnish a copy to each of your clients. Do this now. Life will be less stressful and your firm will be much more profitable.

IS 50% PROFITABILITY REALLY POSSIBLE?

Yes it is if you change the way that you do business. And this is what this blog is all about, finding ways to improve accounting firm profitability through process improvement, process efficiency, revenue enhancement and expense management. These improvements are necessary due to what I like to call the “perfect storm” that is now taking place in the profession: age and gender demographics, technology, labor costs and the commoditization of core services. CPAs will have to change the way they practice by better utilizing technology and redesigning processes. My premise is that as long as this transition is taking place why not seize this opportunity by redesigning the client service delivery model to increase profitability. Let’s start with some low hanging fruit.

Inefficiency

From current surveys of accounting firms the total utilization of all personnel in most public accounting firms range between 50% and 55%. This means that 45%+ of the total labor efforts in most firms is not being charged to clients and the value of these efforts are not being captured. Increasing the utilization by 5 percentage points (i.e. 50% to 55%) in a ten million dollar firm would drop an additional one million dollars to the bottom line.

The Question: What could you do to improve overall utilization in your firm?

My first thought is to schedule weekly to make sure everyone’s plate is full. After tax season you will start getting those “need work” emails usually from some of your less experienced staff. Keep them busy by requiring that more experienced people push down work that they shouldn’t be doing anyway. Hold a very brief scheduling meeting every Wednesday or Thursday afternoon for the following week. You want have everyone fully scheduled so they can hit the ground running on Monday morning. When firms implement this system 10% improvement in utilization is fairly common.

AUDIT FEES NEED TO BE ESCROWED

Given the significant number of audit failures in recent years and now the meltdown of the financial industry in the United States the issue of auditor independence, audit fees and audit quality needs to be addressed. The relationship between auditors and their clients is a fee-based relationship that creates an inherent conflict of interest that can have significant influence over an auditor’s judgment and decisions, whether consciously or subconsciously, as a debtor-creditor relationship is created. In many of the recent audit failures I find they very often have happened due to flawed estimates and judgments. It is my belief that this inherent conflict of interest could be substantially mitigated or avoided altogether by escrowing the audit fees at the start of the audit engagement. This would remove the risk of not getting paid and lessen a clients ability to hold the fee hostage subject to the ultimate audit results.

Audit fees need to be escrowed with a third party in advance of the performance of work. This would minimize any negotiation of audit and accounting standards resulting in more independent and objective audits. There could even be oversight by a third party to make sure the audit has been completed in accordance with Generally Accepted Auditing Standards (GAAS) prior to the disbursement of the final fee to weed out those auditing firms that are not performing their audits in accordance with GAAS. This step alone would have been a real deterrent in some of the recently discovered Ponzi schemes and maybe could have saved investors millions if not billions of dollars.

What the public needs from the public accounting profession is increased accountability. Separate the decisions about money from the audit results and watch the quality of audits improve dramatically. The accounting profession needs to pass a standard that requires that audit fees be placed in escrow before the start of fieldwork. This would also have a positive impact on firm profitability.