During this busiest time of year it is very important that CPA firms focus on client service as a large percentage of client interactions will take place over the next few months. Great client service is all about managing your client's expectations about your fees and then doing what you say you will do rather than having them form in their mind their expectation of your services and fees. Why leave this to chance? Most client disagreements involve fees. In this first of several articles on client service I discuss fees and their impact on client expectations and client service.
Fees
Most conversations with clients about fee disputes occur after the engagement has been completed which puts many accountants on the defensive. Have you had some of these discussions?
"I had no idea it was going to cost this much".
"You said the fee would be between $20,000 and $25,000 and now you're billing me $40,000".
"My fee was $7,500 last year and now you're billing me $10,000".
Clients don't like to be surprised with your fees just as you don't like to be surprised by professionals you engage. Here are five things you can do immediately to substantially eliminate the confusion and misunderstandings with clients about your fees.
1. Stop quoting fee ranges. The moment you quote a range you are setting your client's expectation for the maximum fee. Rather than say "We estimate our fee will be between $10,000 and $12,000" use the phrase "We estimate our fee could be $12,000 or more". This dialog helps to eliminate the upper limit fee expectation and allows you to have a discussion with your client if additional fees are warranted. In all of my years of practice I very seldom experienced an engagement where we were at the lower end of the fee estimate so why even include it in your quote. If a client insists on a maximum fee be sure to build in the contingencies you might experience during the engagement. Fee estimates always need to be realistic rather than overly optimistic.
2. Initiate the conversation about fees with all of your clients. Draft a general letter about fees that you can include with your engagement letters and in addition formalize and distribute a copy of your firm wide credit policy. The general letter about fees should start with a discussion that you want every client to receive the maximum value for the fees they pay and that there are certain instances where this can occur. Follow with examples of how additional fees are often incurred. These examples might include incorrect accounting records, incorrect accounting methods, failure to provide agreed upon information and starting and stopping work. If you need an example please send an email to Steve@SteveEricksonLLC.com with the subject line Fee Letter and I will send you one.
Another essential document is a Firm Credit Policy. It should cover your receivable policy, interest on unpaid balances and the fact that the firm will stop work if payments are not made as agreed to in your engagement letter (this is not a substitute to having a stop work clause or receivable terms in your engagement letters) simply it is a document that partners can use to take the edge off of fee conversations with long standing clients. "The partners of the firm have agreed to abide by our firm credit policy. I have no ability to override the policy". Of course you want to be sure that your credit policy is in compliance with the laws of your state.
3. Negotiate the scope of work not your fees. The moment you agree to unilaterally reduce your fees you then have lower fees. I'm encouraging my clients to negotiate the scope of services rather than just lowering fees without consideration. If clients continue to insist on a unilateral fee reduction consider calling the reduction a "2010 Recession Rebate" so you don't permanently reduce your fees. I know that times are tough out there but firms really have to look at their pricing decisions strategically for the long-term viability of their practice.
4. Use scheduled billing techniques. The only thing worse than doing work for a substantially reduced fee is doing the work and not getting paid. Firms need to stop extending excessive credit. Get retainers (50% of estimated fee is due before starting work, the balance is due upon delivery of the product) especially for new work. Use scheduled billing techniques for larger engagements (i.e. 30% now, 30% in one month, 30% in 2nd month and 10% due upon delivery of the product) to mitigate your risk. Before discounting your fees please consider how you have to pay just about any service provider you engage. I can't think of too many that don't get some money before they start work. After you deliver the work many clients think there is no rush to pay until they need more services.
5. Call before sending an unexpected bill. The absolutely biggest fee mistake an accountant can make is to send a client a big bill that they didn't expect. I've actually seen cases where clients refuse to pay anything until they have the invoice adjusted in their favor. If you find yourself in the situation where you have cost overruns that have not been discussed with the client rather than just sending the invoice (I call these letter bombs) and wait for the client's reaction make a call before you send the bill. The conversation might go something like this, "Mr. Jones I was just going through the time on your engagement and wanted to explain why we were over our budget estimate. (explanation here) Before I prepare the bill I wanted to make sure you understood what happened". At this point there are three possible outcomes.
a. The client tells you they understand and to send the bill. You get paid.
b. The client wants to negotiate the overrun. You agree on an amount, send the bill and get paid.
c. The client informs you that your engagement letter stated that you would inform them before incurring any fees in excess of the estimate. You did not inform them and they will not pay for the excess. Send the bill for the estimated fee and get paid. Evaluate the client relationship and decide if you want to provide further services.
For many years I have contemplated why it is so difficult for accountants to discuss fees with their clients and have come to the conclusion that most don't like conflict and don't want to risk their client relationships. In my opinion not talking about fees with your clients leads to a much greater likelihood that misunderstandings, hard feelings and the loss of clients will occur. It is very important that both the client and the accountant feel they are getting a fair deal if the desire is to perpetuate a long-term relationship.
It takes a little time to deal with client fee issues but the rewards are well worth the effort. Become not only a great biller but also a great collector of fees and watch your stock in your firm soar. Here's wishing you a prosperous 2010.
The Profitable CPA Firm . . . A creative forum for moving your CPA firm to 50% profitability.
February 10, 2010
January 25, 2010
Time, Time, Time is on Your Side. Yes it is!
Use it to your advantage and watch your profits soar!
This past weekend I was listening to an old Rolling Stones song, Time is on Your Side, and it brought to mind that time is the most precious asset we have and yet too often we waste it or give it away. Given that this is a new year I always like to reflect on the past and make plans for the future. Positive things I can do that will make my life and the lives of those around me a little better. It would be appropriate at this time to have the same type of conversations in accounting firms in addition to the discussions about charge hours, job budgets, realization and efficiency. I thought it might be timely (no pun here) to offer a few ideas and share my thoughts on how you can get more value in exchange for your time during this next year.
1. Take control of your calendar and appointments. Too often appointments are scheduled in such a manner that there is open time between appointments but not enough time to dig into a project. The result, idle unproductive time which usually leads to working later in the evening or on the weekends. To the greatest extent possible try to schedule appointments consecutively. Remember just 20 minutes per person per day billed and collected is over 5% of your annual revenues. These little things have a profound impact on profitability.
2. Block out time to work. How many times have you gotten to the end of the day and said “What happened today, I didn't get one thing done that I planned to do”? You can avoid much of this frustration by blocking out undisturbed time to work. Consider it an appointment with yourself. If you don’t value your time others will certainly not value your time. If someone interrupts you, ask them if you could schedule a time to meet with them later because you don’t have time right now. If anyone approaches you with a client question, ask for the client number and tell them you are going to charge your time. Soon you will have fewer interruptions. Believe me, this works!
3. Conduct better meetings. Here are a few tips to make your meetings more productive.
a. Have an agenda. It doesn’t have to be fancy. Include length of the meeting, the objective for the meeting and the decisions that will be made.
b. Don’t use meetings to push out information. Distribute the information before the meeting and then use the meeting to answer questions and make clarifications.
c. Don’t allow others to automatically schedule meetings on your calendar. Remember you control your calendar.
d. Participate in the meetings you attend otherwise why are you there?
e. Cancel nonproductive meetings. You know which ones are nonproductive.
4. Limit your time dealing with email. Email is one of the greatest time wasters in business today and according to a recent article 80% to 97% of email traffic is junk. Turn off the dinger so it doesn’t distract you from your work. The vast percentage of email doesn’t have to be answered immediately. Also create folders with rules for important projects to get your emails to the right place. Use email as the wonderful tool it is rather than letting it be a diversion that wastes your time.
5. Write time sensitive bilateral engagement letters. Include important matters:
a. Date or period of time the work will be performed
b. Date by which you must receive required client information
c. Mutual responsibilities to include required documentation
d. Dates for expected payments (Limit the extension of credit and get paid earlier, a retainer if possible)
e. Premium rates for work that is late, incomplete or difficult personally. If you would like to see a few ideas for sample wording send an email to steve@steveericksonllc.com with the subject line Fee Enhancement and I will send them to you.
6. Shorten the work process cycle. Over 20 years ago one major CPA firm conducted a study of their practice and found that the longer a job was in the office the less profitable it became. Time is directly related with efficiency and profitability as anyone that has practiced public accounting for any period of time knows. Many practitioners fail to review files timely and thus become a bottleneck in the process while sending the message to their employees that getting work out the door is not a top priority. Work with a sense of urgency and move projects along by saving time every day for review or if you can’t find time get someone else to do the review which is just about always better than letting the project sit on your shelf for weeks. One of the biggest complaints that I hear from managers and staff is that partners wait far too long before reviewing their projects which further contributes to their own inefficiency. Move work through your office faster, competently and efficiently and I guarantee you there will be fewer upset clients and even fewer discussions about your fees.
7. Leverage and then leverage some more. Don’t do lower value work you shouldn’t be doing. If you continue to perform these lower level services you clients will eventually value you less. For the last 15 years or more I have asked accountants about how much of their work could be delegated to a lower level and consistently get back that over 50% could be delegated. As total personnel and benefit costs are now approaching 50% in many firms significant thought needs to be given to find ways that labor costs can be reduced through using processes that allow less experienced personnel to do the work while maintaining high quality. Every person in every firm should be asking themselves continually “Could someone with less experience and less cost be doing this task”? It is only through questioning our current processes that significant improvements can be identified and implemented. If you are complacent you face the risk that some of your clients will make the decision to use another accountant.
Remember just 20 minutes per person per day billed and collected represents 5%+ of your annual revenues. If you are diligent with the use of your time I’ll bet you could easily pick up an hour a day in productivity! Use the time you have on your side for your clients and they will “keep running back” for more of your great client service. Wishing all of you a most productive and fruitful 2010!
This past weekend I was listening to an old Rolling Stones song, Time is on Your Side, and it brought to mind that time is the most precious asset we have and yet too often we waste it or give it away. Given that this is a new year I always like to reflect on the past and make plans for the future. Positive things I can do that will make my life and the lives of those around me a little better. It would be appropriate at this time to have the same type of conversations in accounting firms in addition to the discussions about charge hours, job budgets, realization and efficiency. I thought it might be timely (no pun here) to offer a few ideas and share my thoughts on how you can get more value in exchange for your time during this next year.
1. Take control of your calendar and appointments. Too often appointments are scheduled in such a manner that there is open time between appointments but not enough time to dig into a project. The result, idle unproductive time which usually leads to working later in the evening or on the weekends. To the greatest extent possible try to schedule appointments consecutively. Remember just 20 minutes per person per day billed and collected is over 5% of your annual revenues. These little things have a profound impact on profitability.
2. Block out time to work. How many times have you gotten to the end of the day and said “What happened today, I didn't get one thing done that I planned to do”? You can avoid much of this frustration by blocking out undisturbed time to work. Consider it an appointment with yourself. If you don’t value your time others will certainly not value your time. If someone interrupts you, ask them if you could schedule a time to meet with them later because you don’t have time right now. If anyone approaches you with a client question, ask for the client number and tell them you are going to charge your time. Soon you will have fewer interruptions. Believe me, this works!
3. Conduct better meetings. Here are a few tips to make your meetings more productive.
a. Have an agenda. It doesn’t have to be fancy. Include length of the meeting, the objective for the meeting and the decisions that will be made.
b. Don’t use meetings to push out information. Distribute the information before the meeting and then use the meeting to answer questions and make clarifications.
c. Don’t allow others to automatically schedule meetings on your calendar. Remember you control your calendar.
d. Participate in the meetings you attend otherwise why are you there?
e. Cancel nonproductive meetings. You know which ones are nonproductive.
4. Limit your time dealing with email. Email is one of the greatest time wasters in business today and according to a recent article 80% to 97% of email traffic is junk. Turn off the dinger so it doesn’t distract you from your work. The vast percentage of email doesn’t have to be answered immediately. Also create folders with rules for important projects to get your emails to the right place. Use email as the wonderful tool it is rather than letting it be a diversion that wastes your time.
5. Write time sensitive bilateral engagement letters. Include important matters:
a. Date or period of time the work will be performed
b. Date by which you must receive required client information
c. Mutual responsibilities to include required documentation
d. Dates for expected payments (Limit the extension of credit and get paid earlier, a retainer if possible)
e. Premium rates for work that is late, incomplete or difficult personally. If you would like to see a few ideas for sample wording send an email to steve@steveericksonllc.com with the subject line Fee Enhancement and I will send them to you.
6. Shorten the work process cycle. Over 20 years ago one major CPA firm conducted a study of their practice and found that the longer a job was in the office the less profitable it became. Time is directly related with efficiency and profitability as anyone that has practiced public accounting for any period of time knows. Many practitioners fail to review files timely and thus become a bottleneck in the process while sending the message to their employees that getting work out the door is not a top priority. Work with a sense of urgency and move projects along by saving time every day for review or if you can’t find time get someone else to do the review which is just about always better than letting the project sit on your shelf for weeks. One of the biggest complaints that I hear from managers and staff is that partners wait far too long before reviewing their projects which further contributes to their own inefficiency. Move work through your office faster, competently and efficiently and I guarantee you there will be fewer upset clients and even fewer discussions about your fees.
7. Leverage and then leverage some more. Don’t do lower value work you shouldn’t be doing. If you continue to perform these lower level services you clients will eventually value you less. For the last 15 years or more I have asked accountants about how much of their work could be delegated to a lower level and consistently get back that over 50% could be delegated. As total personnel and benefit costs are now approaching 50% in many firms significant thought needs to be given to find ways that labor costs can be reduced through using processes that allow less experienced personnel to do the work while maintaining high quality. Every person in every firm should be asking themselves continually “Could someone with less experience and less cost be doing this task”? It is only through questioning our current processes that significant improvements can be identified and implemented. If you are complacent you face the risk that some of your clients will make the decision to use another accountant.
Remember just 20 minutes per person per day billed and collected represents 5%+ of your annual revenues. If you are diligent with the use of your time I’ll bet you could easily pick up an hour a day in productivity! Use the time you have on your side for your clients and they will “keep running back” for more of your great client service. Wishing all of you a most productive and fruitful 2010!
November 29, 2009
Actively Manage Your Practice for Higher Profits in 2010
Many accounting firms are managed by continually looking at past events to analyze their practice and make business decisions. Whether it is discovering job overruns in their work-in-process that can’t be billed or reading their financial statements 3 or 4 weeks after month end only to discover that significant losses were incurred the previous month. These events are history at that point in time and cannot be changed. The conversations between partners and employees usually focus on finding fault and to blame the guilty parties. Have you had many of these conversations lately?
• “Why do we have all of this extra time in the ABC audit”?
• “We did this return in 8 hours last year. Why did it take (pick a time) this year”?
• “What happened last month? I had no idea we were going to lose so much money”.
• “Why did (pick a name) only have (pick a number) charge hours last month”?
• “Why did we have such a bad year”?
• And the list goes on
These are not productive conversations. It takes time, spends emotional energy and costs money to measure and respond after the fact or event, waiting to see what has happened and then reacting. Passive management is very costly, especially during these economic times when business decisions need to be made sooner rather than later.
It is most difficult to run any business successfully without current information, defined roles and responsibilities and communicated decision rights. Yet in many public accounting firms this is the case as typically there isn’t the availability of current information, especially concerning hours, budgets and production, roles are confused and in many instances people in the field defer significant responsibility for the job to the partner or manager back in the office. This lack of responsibility does not work in these times of rapid change and economic turmoil as significant economic events often take place quickly. To support this fact you only have to look at what has taken place in the profession since the end of tax season last April. In many firms revenues are off 5%-20% for the year as clients hold back on their discretionary plans and transactions and limit their spending for accounting, auditing and especially consulting services. Requested fee concessions have become routine. In many cases relationships between accountants and their clients have become strained as loyalties have been set aside as competing firms bid for the work at ever lower fees. Where will it stop? I don’t know but I do know that salaries and benefits are now approaching 50% and in some cases exceeding 50% of net collected fees and utilization percentages are near an all time low. The present accounting firm fee structures and costing strategies cannot be sustained in the long term. 2010 is the year to start actively managing your practice for profitability and success.
Active Practice Management
Active management techniques do not require more people or ever increasing layers of management. It does require individual accountability and self-management. Start your profit planning process now by gaining agreement on what needs to be accomplished in 2010 and how it will be done. Here’s what I consider are some the most important profit improvement steps.
Take Action Now
1. Have every partner prepare a plan for 2010 by month which includes net fees by month, hours managed by month and a budget of their time by month. The total of these partner plans will equal the revenue and production budget for 2010 by month. If you need examples of a plan email me Steve@SteveEricksonLLC.com with the subject line Partner Plan and I will send you a detailed excel worksheet.
2. Have every employee prepare an annual plan for 2010 by month that includes charge hours, marketing hours, admin hours and personal time.
3. Prepare a firm wide budget by month for 2010. As the months pass add on another month and make a rolling monthly budget your format.
4. Adopt a firm wide credit policy. Profitable firms must not over extend credit in these difficult times. Also collect your money sooner by using a payment schedule to get payment in advance of the work rather than after the fact. Make sure you are using “stop work” clauses in your engagement letters to limit losses for those clients that can’t pay.
5. Adopt and implement a change order process and use it! “Scope creep” is rampant in auditing and you must manage the process and your clients’ expectations.
6. Prepare budgets for all jobs. Make sure that everyone in your firm understands what is expected of them. Schedule weekly and make sure everyone has something to do.
7. Manage and limit time wasters. Meetings and email waste more time than just about anything else. Hold more efficient meetings and teach your staff how to manage their time and email.
Take Action Monthly in 2010
1. Drive monthly revenue and production goals by managing weekly performance by partner, employee and job.
2. Modify the budget for changes and unforeseen events that invariably happen.
3. Schedule! Schedule! Schedule! Resource management has never been more important. On average the loss of 20 minutes per day per person represents over 5% of your net revenue. The little things have a huge impact on profitability. Keep people scheduled and working.
4. Make sure everyone in the firm knows their assigned roles and responsibilities.
5. Revisit your plans regularly and adjust the rudder. People are dynamic and plans need to be dynamic to make sure they continue to be relevant.
Profitability will soar by managing in the present and making sound decisions for the future. Yes we learn from the past but we want to keep the cost of that education (school of hard knocks) to a minimum. Wishing you improved profitability in 2010!
• “Why do we have all of this extra time in the ABC audit”?
• “We did this return in 8 hours last year. Why did it take (pick a time) this year”?
• “What happened last month? I had no idea we were going to lose so much money”.
• “Why did (pick a name) only have (pick a number) charge hours last month”?
• “Why did we have such a bad year”?
• And the list goes on
These are not productive conversations. It takes time, spends emotional energy and costs money to measure and respond after the fact or event, waiting to see what has happened and then reacting. Passive management is very costly, especially during these economic times when business decisions need to be made sooner rather than later.
It is most difficult to run any business successfully without current information, defined roles and responsibilities and communicated decision rights. Yet in many public accounting firms this is the case as typically there isn’t the availability of current information, especially concerning hours, budgets and production, roles are confused and in many instances people in the field defer significant responsibility for the job to the partner or manager back in the office. This lack of responsibility does not work in these times of rapid change and economic turmoil as significant economic events often take place quickly. To support this fact you only have to look at what has taken place in the profession since the end of tax season last April. In many firms revenues are off 5%-20% for the year as clients hold back on their discretionary plans and transactions and limit their spending for accounting, auditing and especially consulting services. Requested fee concessions have become routine. In many cases relationships between accountants and their clients have become strained as loyalties have been set aside as competing firms bid for the work at ever lower fees. Where will it stop? I don’t know but I do know that salaries and benefits are now approaching 50% and in some cases exceeding 50% of net collected fees and utilization percentages are near an all time low. The present accounting firm fee structures and costing strategies cannot be sustained in the long term. 2010 is the year to start actively managing your practice for profitability and success.
Active Practice Management
Active management techniques do not require more people or ever increasing layers of management. It does require individual accountability and self-management. Start your profit planning process now by gaining agreement on what needs to be accomplished in 2010 and how it will be done. Here’s what I consider are some the most important profit improvement steps.
Take Action Now
1. Have every partner prepare a plan for 2010 by month which includes net fees by month, hours managed by month and a budget of their time by month. The total of these partner plans will equal the revenue and production budget for 2010 by month. If you need examples of a plan email me Steve@SteveEricksonLLC.com with the subject line Partner Plan and I will send you a detailed excel worksheet.
2. Have every employee prepare an annual plan for 2010 by month that includes charge hours, marketing hours, admin hours and personal time.
3. Prepare a firm wide budget by month for 2010. As the months pass add on another month and make a rolling monthly budget your format.
4. Adopt a firm wide credit policy. Profitable firms must not over extend credit in these difficult times. Also collect your money sooner by using a payment schedule to get payment in advance of the work rather than after the fact. Make sure you are using “stop work” clauses in your engagement letters to limit losses for those clients that can’t pay.
5. Adopt and implement a change order process and use it! “Scope creep” is rampant in auditing and you must manage the process and your clients’ expectations.
6. Prepare budgets for all jobs. Make sure that everyone in your firm understands what is expected of them. Schedule weekly and make sure everyone has something to do.
7. Manage and limit time wasters. Meetings and email waste more time than just about anything else. Hold more efficient meetings and teach your staff how to manage their time and email.
Take Action Monthly in 2010
1. Drive monthly revenue and production goals by managing weekly performance by partner, employee and job.
2. Modify the budget for changes and unforeseen events that invariably happen.
3. Schedule! Schedule! Schedule! Resource management has never been more important. On average the loss of 20 minutes per day per person represents over 5% of your net revenue. The little things have a huge impact on profitability. Keep people scheduled and working.
4. Make sure everyone in the firm knows their assigned roles and responsibilities.
5. Revisit your plans regularly and adjust the rudder. People are dynamic and plans need to be dynamic to make sure they continue to be relevant.
Profitability will soar by managing in the present and making sound decisions for the future. Yes we learn from the past but we want to keep the cost of that education (school of hard knocks) to a minimum. Wishing you improved profitability in 2010!
August 10, 2009
IMPROVING ACCOUNTABILITY IN YOUR FIRM
Improving partner and staff accountability is essential in these economic times. I think many partners associate accountability with increased conflict and typically shy away from addressing the issues. As a result most accountability discussions take place after the fact when there is no possible chance of changing the results. These conversations usually focus on fault and blame and in most cases are not productive and in some instances have had a very negative impact on partner and staff relationships. There is a better way to improve accountability which starts with individual motivation.
MOTIVATION
In Abraham Maslow’s book, Motivation and Personality, he discusses two types of behavior, coping and expressive. Coping behavior is where an individual is reacting to the behavior of others while expressive behavior is doing what is important to you. He further states that an individual cannot be motivated when they are coping with another person’s behavior and will only be motivated they are in an expressive mode of behavior. Of course it is impossible for us to avoid both of these behaviors every day of our lives but what we do want to focus on as effective leaders is to make sure our people are in the expressive mode as often as possible to improve their motivation.
In public accounting the work and in most cases the feedback concerning that work is given after the fact. Review notes about the job, annual performance reviews and in many cases discussions concerning why a promotion or a raise is not going to happen because some unknown expectation has not been met. The one excuse given to most staff when they are not getting a promotion is “You’re just not ready yet” but in most cases they have not been told what it takes to be ready. In effect we place most of our employees and in some cases even partners in the coping mode much too often. If you want your employees more accountable you have to have to define success in advance of the task or period of time by using what I call success plans.
SUCCESS PLANNING
Smart younger individuals joining the accounting profession have in most cases been very successful in their educational pursuits and are not used to failing. This typically is not the case in their first few years of public accounting as it’s not uncommon to feel a little inadequate for the first few years in the profession. I know I felt like I didn’t know much when I first joined the profession and was reminded of it constantly by those above me. Everyone wants to be successful but to do so they have to know how to achieve that success in advance of their performance. Our profession in general does a very poor job of communicating performance expectations according to a national survey of non-owner accountants I conducted several years ago. A significant number of the respondents replied that they did not know exactly what was required to get a raise or get promoted nor did they get the feedback they felt they needed to be successful. What is needed is a formalized process to communicate the requirements for a specific task or position and how success will be measured. If improved accountability is the goal all parties need to know what is required in advance. Review notes and backward looking evaluations might well have some influence on future performance but do not have any impact on what has already taken place. There is a better way to get to get your partners and staff to take ownership and agree to be accountable.
THE CYCLE OF ACCOUNTABILITY, PERFORMANCE AND SUCCESS™
To begin the cycle of accountability, performance and success (CAPS™) the person in the supervisory roll must clearly communicate the ultimate goal and help develop a plan to achieve that goal. Whether the task is doing a tax return, auditing cash, responsibility for an entire client engagement or annual job performance the time needed to complete the cycle will vary significantly but the CAPS™ process follows the same flow.
Too often we try to shortcut the process and then are disappointed when we don’t get the result we wanted because our expectations had not been clearly communicated and success had not been clearly defined.
DIRECT AND SUPPORTIVE SUPERVISION
Staff accountants with less experience need more direct supervision as they haven’t been exposed to the complexities of public accounting before. Specific instructions concerning the steps to be performed, the time expectations and frequent checking and feedback are needed to make sure you get the result you want rather leaving it up to chance.
Supportive supervision techniques are used with those individuals that have more experience. General instructions are given as to expectations and we generally tell the experienced accountant that if they have any questions to please let us know.
Using an inappropriate supervision technique can lead to not getting the job completed timely or successfully or in some cases it can demoralize your experienced staff. Inexperienced accountants getting supportive supervision don’t know when they have a question and experienced accountants will accuse you of micro managing if you use direct supervision techniques with them. You should always consider the individual and the task to be performed to determine which supervision technique to use during the course of the project.
IMPROVE ACCOUNTABILITY IMMEDIATELY
Here’s how you can immediately improve accountability and performance in your firm:
• Communicate your expectations clearly
• Discuss the plan to accomplish the goal
• Make sure the plan is understood and agreed to and that success is defined
• Use direct or supportive coaching/supervision techniques appropriately
• Give timely feedback
• Celebrate success
In future articles I will be discussing success plans for partner and employee annual performance, job performance and career coaching. Please feel free to share your thoughts on these subjects by emailing me or on my blog.
MOTIVATION
In Abraham Maslow’s book, Motivation and Personality, he discusses two types of behavior, coping and expressive. Coping behavior is where an individual is reacting to the behavior of others while expressive behavior is doing what is important to you. He further states that an individual cannot be motivated when they are coping with another person’s behavior and will only be motivated they are in an expressive mode of behavior. Of course it is impossible for us to avoid both of these behaviors every day of our lives but what we do want to focus on as effective leaders is to make sure our people are in the expressive mode as often as possible to improve their motivation.
In public accounting the work and in most cases the feedback concerning that work is given after the fact. Review notes about the job, annual performance reviews and in many cases discussions concerning why a promotion or a raise is not going to happen because some unknown expectation has not been met. The one excuse given to most staff when they are not getting a promotion is “You’re just not ready yet” but in most cases they have not been told what it takes to be ready. In effect we place most of our employees and in some cases even partners in the coping mode much too often. If you want your employees more accountable you have to have to define success in advance of the task or period of time by using what I call success plans.
SUCCESS PLANNING
Smart younger individuals joining the accounting profession have in most cases been very successful in their educational pursuits and are not used to failing. This typically is not the case in their first few years of public accounting as it’s not uncommon to feel a little inadequate for the first few years in the profession. I know I felt like I didn’t know much when I first joined the profession and was reminded of it constantly by those above me. Everyone wants to be successful but to do so they have to know how to achieve that success in advance of their performance. Our profession in general does a very poor job of communicating performance expectations according to a national survey of non-owner accountants I conducted several years ago. A significant number of the respondents replied that they did not know exactly what was required to get a raise or get promoted nor did they get the feedback they felt they needed to be successful. What is needed is a formalized process to communicate the requirements for a specific task or position and how success will be measured. If improved accountability is the goal all parties need to know what is required in advance. Review notes and backward looking evaluations might well have some influence on future performance but do not have any impact on what has already taken place. There is a better way to get to get your partners and staff to take ownership and agree to be accountable.
THE CYCLE OF ACCOUNTABILITY, PERFORMANCE AND SUCCESS™
To begin the cycle of accountability, performance and success (CAPS™) the person in the supervisory roll must clearly communicate the ultimate goal and help develop a plan to achieve that goal. Whether the task is doing a tax return, auditing cash, responsibility for an entire client engagement or annual job performance the time needed to complete the cycle will vary significantly but the CAPS™ process follows the same flow.
Too often we try to shortcut the process and then are disappointed when we don’t get the result we wanted because our expectations had not been clearly communicated and success had not been clearly defined.
DIRECT AND SUPPORTIVE SUPERVISION
Staff accountants with less experience need more direct supervision as they haven’t been exposed to the complexities of public accounting before. Specific instructions concerning the steps to be performed, the time expectations and frequent checking and feedback are needed to make sure you get the result you want rather leaving it up to chance.
Supportive supervision techniques are used with those individuals that have more experience. General instructions are given as to expectations and we generally tell the experienced accountant that if they have any questions to please let us know.
Using an inappropriate supervision technique can lead to not getting the job completed timely or successfully or in some cases it can demoralize your experienced staff. Inexperienced accountants getting supportive supervision don’t know when they have a question and experienced accountants will accuse you of micro managing if you use direct supervision techniques with them. You should always consider the individual and the task to be performed to determine which supervision technique to use during the course of the project.
IMPROVE ACCOUNTABILITY IMMEDIATELY
Here’s how you can immediately improve accountability and performance in your firm:
• Communicate your expectations clearly
• Discuss the plan to accomplish the goal
• Make sure the plan is understood and agreed to and that success is defined
• Use direct or supportive coaching/supervision techniques appropriately
• Give timely feedback
• Celebrate success
In future articles I will be discussing success plans for partner and employee annual performance, job performance and career coaching. Please feel free to share your thoughts on these subjects by emailing me or on my blog.
July 24, 2009
CONTROLLING LABOR COSTS IN CPA FIRMS
Salary and benefits expense as a percentage of net revenues is approaching and in some cases exceeding 50% in many CPA firms at this time. Fifteen years ago these expenses averaged around 35% of net revenues. The revenues of accounting firms have not increased at the same rate as salaries and benefits during this period when technology was supposed to save time and help accountants be more efficient. In order to address this issue I think we first need to understand the changing dynamics in the profession and the past events that have brought us to this point.
DEMOGRAPHICS OF THE PROFESSION
The following chart reflects the age and gender demographics of AICPA members:
Source: Misean E. Reed Manager - Diversity, Work/Life & Women's Initiatives, AICPA
For many of you this is not surprising as there has been much discussion in the media and at conferences about the aging baby boomers and the succession crisis. What I would like point out is that the vast majority of CPAs are now 46+ years old, experienced and expensive yet still doing much the same work they did 10 or 15 years ago. The value of the work has not kept up with the salary costs of trained professionals. Yes, a number of individuals have become partners and provide high value services, however their numbers are relatively small when compared with the total number of CPAs. At conferences and meetings where I have given presentations most accountants tell me that at least 50% of their work could be done by someone with less experience. It is no wonder that salaries and benefits as a percentage of revenue are at an all time high as many accountants are not providing commensurate value for the fee being charged. The recent downward pressure on partner income will only become greater as time passes if we continue this current trend. To further understand this problem we have to look at the staffing models and client service strategies presently being used in many firms.
STAFFING MODELS AND CLIENT SERVICE STRATEGIES
When I ask partners why they are doing work that could be done by someone with less experience I typically get two answers, “there is no one to give it to” or “because I have the relationship with the client”. As a result of this type of thinking, the staffing model in many firms looks like an inverted pyramid or an hour glass that is bigger on the top. Using a high cost relationship service delivery structure to provide routine compliance services is typically not economically successful. To demonstrate my point, if a doctor practiced in the same way many accountants do they would call the patient in from the lobby, take their blood pressure and temperature, do the examination, write prescriptions, do the billing, collect the fee and schedule their next appointment. Just think what impact this would have on the cost of healthcare! The accounting profession needs to change from the labor intensive models of the past to a more process driven model that will take advantage of the time and labor cost savings when technology is used correctly. Please note that I am not saying that client relationships are not important, they are extremely important. It’s just that the work needs to be done in a more cost efficient manner.
PROCESSES AND TECHNOLOGY
In most industries, the use of technology replaces labor intensive activities or allows less experienced labor to perform tasks previously performed by higher cost employees. Just the opposite has happened in public accounting. As CPA firms have increased their investment in technology their labor costs have increased to an all time high. This has happened because most CPA firms have evolved and are designed around people rather than processes. When I inquire about certain processes in many of the firms I visit I usually get back the response that “Joe does that” and when I further inquire to see if what Joe does is written down, the answer is “no”. If Joe leaves the firm that part of the process handled by him goes with him. If the firm can’t find another person with Joe’s skills, which is often the case, they split his duties among several different employees making their processes ever more complex! I cannot begin to count the number of times I have seen processes in CPA firms designed to meet the needs of employees instead of designing a process and then hiring staff at an appropriate level to perform the needed tasks. It is time to reengineer CPA firms in a way that will allow for sufficient time to develop and maintain client relationships and provide value-added services while still being able to produce a quality product back at the office in a timely manner. Our industry needs to start thinking about how we can incorporate the “front office/back office” model used in many service industries.
A SUCCESS STORY
I recently gave a presentation at a meeting of an international accounting association on the subject of benchmarking and profit improvement. As part of this presentation I analyzed the member firms financial results for the past year and found one firm that was bringing 50% to the bottom line. This piqued my interest so I had the managing partner from this USA firm explain to the other attendees how they had accomplished this achievement. He stated that he and his partners had started over several years ago and decided that they were going to do business differently. Their oldest staff accountant is 28 years old and their salaries and benefit costs are about 30% of revenues. Partner income is on par with the top 100 firms yet they are about $3 million in size. This is quite a success story and one that can be replicated in most CPA firms with persistence and improved processes.
DON’T TEAR UP THE HOUSE
I told you this wouldn’t be easy but before you tear up the house and make drastic changes let me caution you that this is a journey not an event. Process improvement takes time and thought. If you set a goal of 2% improvement per year for 7 years, a 36% netting firm would become a 50% firm at the end of that time. The important thing is to start this profit and process improvement journey now in order to institutionalize the value of your practice. Here’s where I would start:
Standardize EVERY process in the firm that can be standardized
Document all standardized processes
Deal with exceptions individually, don’t change the process
Gradually reassign appropriate work and tasks to lower level staff
Actively manage the delegation process to insure success
Use non-CPAs whenever possible
Analyze the contribution margin for all clients and develop a profit improvement plan which includes using less expensive labor to perform some of the services
Don’t get side tracked. Keep moving the agenda forward
DEMOGRAPHICS OF THE PROFESSION
The following chart reflects the age and gender demographics of AICPA members:
Source: Misean E. Reed Manager - Diversity, Work/Life & Women's Initiatives, AICPA
For many of you this is not surprising as there has been much discussion in the media and at conferences about the aging baby boomers and the succession crisis. What I would like point out is that the vast majority of CPAs are now 46+ years old, experienced and expensive yet still doing much the same work they did 10 or 15 years ago. The value of the work has not kept up with the salary costs of trained professionals. Yes, a number of individuals have become partners and provide high value services, however their numbers are relatively small when compared with the total number of CPAs. At conferences and meetings where I have given presentations most accountants tell me that at least 50% of their work could be done by someone with less experience. It is no wonder that salaries and benefits as a percentage of revenue are at an all time high as many accountants are not providing commensurate value for the fee being charged. The recent downward pressure on partner income will only become greater as time passes if we continue this current trend. To further understand this problem we have to look at the staffing models and client service strategies presently being used in many firms.
STAFFING MODELS AND CLIENT SERVICE STRATEGIES
When I ask partners why they are doing work that could be done by someone with less experience I typically get two answers, “there is no one to give it to” or “because I have the relationship with the client”. As a result of this type of thinking, the staffing model in many firms looks like an inverted pyramid or an hour glass that is bigger on the top. Using a high cost relationship service delivery structure to provide routine compliance services is typically not economically successful. To demonstrate my point, if a doctor practiced in the same way many accountants do they would call the patient in from the lobby, take their blood pressure and temperature, do the examination, write prescriptions, do the billing, collect the fee and schedule their next appointment. Just think what impact this would have on the cost of healthcare! The accounting profession needs to change from the labor intensive models of the past to a more process driven model that will take advantage of the time and labor cost savings when technology is used correctly. Please note that I am not saying that client relationships are not important, they are extremely important. It’s just that the work needs to be done in a more cost efficient manner.
PROCESSES AND TECHNOLOGY
In most industries, the use of technology replaces labor intensive activities or allows less experienced labor to perform tasks previously performed by higher cost employees. Just the opposite has happened in public accounting. As CPA firms have increased their investment in technology their labor costs have increased to an all time high. This has happened because most CPA firms have evolved and are designed around people rather than processes. When I inquire about certain processes in many of the firms I visit I usually get back the response that “Joe does that” and when I further inquire to see if what Joe does is written down, the answer is “no”. If Joe leaves the firm that part of the process handled by him goes with him. If the firm can’t find another person with Joe’s skills, which is often the case, they split his duties among several different employees making their processes ever more complex! I cannot begin to count the number of times I have seen processes in CPA firms designed to meet the needs of employees instead of designing a process and then hiring staff at an appropriate level to perform the needed tasks. It is time to reengineer CPA firms in a way that will allow for sufficient time to develop and maintain client relationships and provide value-added services while still being able to produce a quality product back at the office in a timely manner. Our industry needs to start thinking about how we can incorporate the “front office/back office” model used in many service industries.
A SUCCESS STORY
I recently gave a presentation at a meeting of an international accounting association on the subject of benchmarking and profit improvement. As part of this presentation I analyzed the member firms financial results for the past year and found one firm that was bringing 50% to the bottom line. This piqued my interest so I had the managing partner from this USA firm explain to the other attendees how they had accomplished this achievement. He stated that he and his partners had started over several years ago and decided that they were going to do business differently. Their oldest staff accountant is 28 years old and their salaries and benefit costs are about 30% of revenues. Partner income is on par with the top 100 firms yet they are about $3 million in size. This is quite a success story and one that can be replicated in most CPA firms with persistence and improved processes.
DON’T TEAR UP THE HOUSE
I told you this wouldn’t be easy but before you tear up the house and make drastic changes let me caution you that this is a journey not an event. Process improvement takes time and thought. If you set a goal of 2% improvement per year for 7 years, a 36% netting firm would become a 50% firm at the end of that time. The important thing is to start this profit and process improvement journey now in order to institutionalize the value of your practice. Here’s where I would start:
Standardize EVERY process in the firm that can be standardized
Document all standardized processes
Deal with exceptions individually, don’t change the process
Gradually reassign appropriate work and tasks to lower level staff
Actively manage the delegation process to insure success
Use non-CPAs whenever possible
Analyze the contribution margin for all clients and develop a profit improvement plan which includes using less expensive labor to perform some of the services
Don’t get side tracked. Keep moving the agenda forward
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