2009 is nearly behind us, and the potential of economic stabilization and a slow but steady upturn in 2010 is just days away. Are you prepared for what lies ahead? By making a commitment to three timeless strategies, your firm will be prepared to thrive not only in the new year but also in the decade to come.

This is the time when firm leaders should reflect on the past year and build a new set of strategies for future growth and development. Some have used 2009 as a year to correct and adjust, while others have played the "waiting game” to see what happens next. Regardless of your firm’s strategy for 2009, don’t be afraid to let new ideas emerge to accelerate progress in 2010.

Conduct a Firm Summit & Document a Strategic Plan

I recently asked a group of 50 conference attendees to indicate how many of their firms had documented a strategic plan. None raised their hand. I was shocked at first and also a little saddened.

When I finished my presentation – during which strategic thinking was just one of many things I discussed – several told me they had heard me speak on this topic before. I responded with a laugh and asked, "So why didn’t you raise your hand?” They laughed in turn and said, "Because our firm still does not have a plan!”

When I facilitate a firm summit, the overwhelming response I hear from participants at the conclusion is, "Why didn’t we do this sooner? We are finally on the same page with common goals and objectives.” This is amazing! Firms that take time to think about strategy are far more likely to stay ahead of the economic trends than those who merely "ride out the storm.”

Audiences will keep hearing my message about strategy until all hands are raised proudly. What about you and your firm? Hands up or hands still down? Here are two solutions that Boomer Consulting, Inc. offers to help firms build a strategic plan:

• The Guide to Strategic Planning
• The Facilitated Firm Summit

Commit to Developing People

2009 may have been your firm’s year to "trim the fat” or adjust service niches to take advantage of its talent. Regardless, it’s good to feel pride about the gifted team shaping your firm’s future. Without appropriate nurturing, however, even the "best of the best” cannot reach full potential!

We often know what we need to do, but don’t actually DO those things. We say we should communicate regularly and mentor others but often let days pass during which we do not see – much less speak – to those on our team. We say we need to teach and train but fail to allocate appropriate resources for individuals and the firm to grow and prosper.

You want people to be ready for succession and take responsibility and be accountable, but these things do not happen without making investments. Your firm needs a training and learning champion to document and implement a plan with the Managing Partner’s backing.

How are you and your firm doing? Have you allocated the time and investment for professionals to grow into leaders that will guide your firm in the years ahead? Here are a few solutions that Boomer Consulting, Inc. offers to help firms be successful with training and learning:

• The Human Capital and Learning Symposium
• The Performance3 Management Program
• The Performance3 Management Summit

Extend Your Network of Peers

As parents and teachers understand, peer pressure can sometimes exert a negative influence on children. As people grow and mature, however, peer pressure can also elicit many positive results.

Consider the peer pressure you experience when hearing about another firm similar in size to yours that develops a new product, process or technology (and you see the potential for it in your firm). You, too, can exert positive pressure on firms and individuals to take steps forward. Interaction in person and through networking online will be imperative to a firm’s advancement in 2010.

As always, face-to-face communication is the preferred – and most powerful – way of connecting to peers; however, the evolution of online tools is making it easier than ever to interact and learn from others. Here are a few solutions that Boomer Consulting, Inc. offers to help you get started in both areas:

• The Boomer Technology Circles
• The Small Firm Advantage
• The Boomer Knowledge Network

I sincerely look forward to reconnecting with old friends while making new ones in the months ahead. I wish you and your firm the best in 2010!

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To discuss this article with a member of our staff or to inquire about our services, please call 785-537-2358. To send a message online, please visit our Contact page.

Knowing what the future may hold for you and your firm is tremendously valuable in these uncertain times. While I can’t provide every answer, I can offer some tools that will improve your thinking and the accompanying results.

Perception is real, so how you perceive the current situation determines your reaction and behavior (good or bad), and that reaction will greatly influence the results. Steven Covey calls this the See-Do-Get paradigm.

Over the past several months I have witnessed leaders at numerous firms present varying tones when meeting with employees. These range from, "We must cut every possible cost in order to maintain partner earnings” to "Our firm has decided not to participate in this recession.” In my opinion, the jury will remain out for months and maybe even years, but I believe the accounting profession will change dramatically - and for the good. We will become more responsive to our client’s dangers, opportunities and strengths while structuring our firms to deliver valuable services in an efficient and effective manner.

Like many you are probably asking what caused this global recession, or perhaps you think you know the answer. Some blame corporate greed, the mortgage industry or government. I believe the primary cause is technology, specifically the microchip. Before I explain, first consider the history of a few other industries that transformed and discovered how to do more with less over the past 100-200 years to survive.

In 1900 over 50% of the U.S. workforce was employed in agriculture. By 2000 less than 3% of U.S. workers were employed in agriculture, but production had increased over tenfold. Manufacturing in the U.S. today produces more GDP than it did in the past, but the media’s focus is invariably on the loss of jobs. Why are those in the media so interested in this issue?

One reason is that the media industry is being commoditized rapidly, and technology has dramatically changed its business model. Craigslist has significantly reduced revenue from classified ads, and the Internet is capturing more and more advertising revenue as a whole. The younger generation has quickly adopted the Internet and no longer wants to read yesterday’s news in a newspaper. They also don’t care as much for TV programming that lacks the interactivity offered by what they experience online. In fact, TV to this generation is "background noise” like radio is to Baby Boomers.

Let’s explore the microchip’s impact on the accounting industry. The following indicates some of the most prevalent areas of impact.

• Many tasks and services accountants used to offer have lost value. Time and effort is no longer a measure of value in the market (though many accountants are still caught in this paradigm).
• Transparency has proliferated throughout the world, and global companies are calling for international standards.
• Clients are more interested in the future than historical data that often arrives too late to impact current decisions. Clients now demand real-time service and decision-making reports.
• Data should flow from the transaction to the decision making point without re-entering and increasing the potential for errors. Most accounting firms operate with multiple systems and applications that contain redundant data, which results in a considerable amount of time spent on review and reconciliation. While this problem has been discussed for 15 years, little progress was made until recently with middleware and web services.
• Government intervention has increased without improving processes or results. Entrepreneurs must rise to meet this challenge and take resources from current values to a higher level. (Bureaucrats typically take resources to a lower value level.)

In my opinion, dramatic changes will occur over the next few years, and opportunities are going to be extraordinary for those firms that can rapidly transform. Economist Joseph Schumpeter (1883-1950) first proposed the idea of "creative destruction”: Every industry has a life cycle of emergence, growth, status and depletion. Some characteristics of a depleted industry are commoditization, little or no new value creation, an inward focus with increased rules and regulations, outsider intervention, increased litigation and consolidation. The accounting industry has participated in each one of these during the past ten years.

Technology is a driving force in the depletion of an industry. Those who survive and thrive are committed to transformation. That requires:

• Visionary leadership
• Planning
• Coachable talent
• Committed, unique ability teams
• Passion and enthusiasm
• Unique processes
• The ability to integrate technology

Firms that ignore technology’s impact and reduce investments in it will suffer significant losses. Let me clarify, however, that orthodox investments in technology (i.e., hardware and software) are not enough. Every firm employee requires training to standards, policies and procedures. Firms must also eliminate "wizards” who are unreasonably committed to retaining old systems that foster low productivity. Resistance to change can be significantly expensive.

Specific issues firms are struggling with today:

• Paper rather than digital systems
• Email management (portals, privacy and time spent on email)
• Integration of applications (redundant data and databases)
• Tax return preparation processes (workflow)
• Time entry and billing (capturing and reporting irrelevant information)
• Managing a remote workforce that includes part-timers and Baby Boomers who are approaching retirement (often without a reasonable plan).

The big idea is that merely investing in hardware and software is not enough. Many firms are highly inefficient in deploying and training to technology. As a result, they do not receive the requisite return on it. Moreover, too many firms have simply not updated processes in order to leverage what technology can provide. In good times firms can get by with bad practices; in challenging times, however, they are quickly exposed.

Do you have the right leaders for technology? Do they understand your firm’s strategic plan, and can they communicate the capabilities of new technology to end users and firm management? Will you management team listen? Are they part of your management team? Are they focused on innovation and increasing revenues, or do they simply manage costs and stay within a budget?

Just as in agriculture and manufacturing there will be winners and losers. Firms that leverage technology to better serve clients will be the eventual winners (and survivors). Managing a firm by revenue per full-time equivalent (FTE = 2,080 hours) is more relevant than simply realization and utilization.

Your firm can be a winner, but its leaders must be willing to foster a culture in which technology and training are paramount. Reducing investments in either is too high a risk. In uncertain times, it is what you don’t know you don’t know that can cost not only profits but also the capability to remain competitive.

Watching your competition is not the most relevant or important strategy; consolidation and globalization attest that any firm’s competition will likely change as time goes on. Firms committed to transformation can maximize cash flow from current services while developing new services and people for the future. I encourage you to continue this discussion with clients who are industry transformers as well as people outside your firm. Think – Plan – Grow!

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To discuss this article with a member of our staff or to inquire about our services, please call 785-537-2358. To send a message online, please visit our Contact page.

Average is where the best of the worst meet the worst of the best. Most firms don’t consider themselves average, yet many are not performing to their capabilities due to outdated processes, attitudes toward billing and technology. Poor billing policies are only exacerbated by technology and visa versa. Value billing is talked about, but in reality few firms are utilizing it and maximizing the potential return on their technology and training investments. The economy has forced firms to manage and make tough decisions.

Before we discuss the reasons and how firms can improve, let’s examine the metrics we have accumulated over the past few years. Accounting firms with revenues ranging from $1M to over $250M participated in the survey and the results were reviewed for reasonableness. Firms were asked to enter data into a standardized form in order to produce comparable numbers. Firms of all sizes are represented in the survey.

We did not exclude the extremely large firms due to the fact the difference in results over the five years was insignificant. (Smaller firms tend to earn approximately 10% less per FTE and invest 10% more in technology than larger firms.) I encourage you to evaluate the following metrics for the years 2004-2008. Compare them to your own firm’s numbers.

Before these numbers are meaningful you must understand the definition of a full-time-equivalent (FTE) and what is included in the technology investment. A FTE is defined as a person working 2,080 hours. Simply take total hours worked in your firm and divide by 2,080. Include all personnel. Then divide net revenue by the number of FTEs to determine revenue per FTE.

The definition of technology has continued to evolve and expand over the years. Today, anything that plugs into the wall is typically the responsibility of the IT department. Many now say it goes beyond the walls of the firms with notebooks, PDAs and remote computing. The total investment includes hardware, software, communications, personnel, telephone and copiers. In many firms, reduced copier costs are starting to be offset by increased costs in digital content management systems and storage.

You will notice that revenue per FTE in 2008 was down approximately $10,000. Likewise the average hourly rate decreased by $7 per hour from 2007. This is the explained by the fact many firms were overstaffed and the economy declined through 2008. The majority of firms waited until after the busy season in 2009 to make staff reductions.

The following factors will impact your firm’s metrics:

• Leadership and the attitude toward billing (hours versus value)
• Your market and type of services offered (metropolitan versus rural markets)
• Firm standards, policies and procedures (shared vision versus shared services firm)
• A training/learning culture (integrated CPE, technology and soft skills)
• Your firm’s attitude toward technology (overhead or strategic asset)

The tendency is to say our firm is different or we are better than the above numbers. I encourage you to think of metrics much like a handicap in golf. It is personal and your goal should be improvement. If you are at the lower end of the metrics, perhaps this will provide the confidence and incentive to look at your pricing strategies, performance and staffing levels. It may also change your attitude toward technology and training programs. According to the Gartner Group, you gain 5 hours of increased capacity for every hour of training.

Most firms still use hourly rates to price projects even though technology continues to play an increasing role in the production of traditional services like tax return preparation and financial statements (reduction of time). For those who say they have not seen a reduction in time, I pose the following questions:

1. Are you doing more work for the client today than you were in the past?
2. Are your time sheets accurate?
3. Have you adopted firm standards, policies and procedures? If so, are they adhered to?
4. Have you provided adequate training?
5. Are your workflow processes efficient and effective?
6. Are you leveraging or simply using technology?

Let’s go back to the metrics and examine some of the trends in addition to revenue per FTE and average hourly rates. The rate of investment in IT is flat as the definition of technology increases and firms are adding increased communications capabilities and implementing document management, workflow and portal initiatives. From our observation, we see the firms that are successful in implementing content management systems, workflow, portals, training and supporting their end users are at a ratio of 1 to 20-25, rather than at 1-30 plus. In other words, they are investing resources in people with the right skill sets to accomplish the job. Support personnel are defined as:

• Business analysts
• Engineering
• Application support
• Help desk
• Communications
• Web development and management
• Technology training (an integrated part of a firm’s training/learning culture)
• IT leadership and vision

It is not uncommon to source many of these services, especially in smaller firms. The key differentiator however is leadership. Leaders have a vision and have put together a unique ability team that can accomplish their vision. Without IT leadership, firms tend to try to solve technology problems with departmental solutions and often do not allocate adequate resources to the projects.

Often the enterprise (firm) lacks integration in the back office and in core production applications (multiple databases). The saying "it is what you don’t know you don’t know that costs you money” often applies. We anticipate the level of IT spending to stay level or increase as firms move toward SaaS in the future. Software costs are increasing as are the number of applications utilized by firm personnel. Workflow, document management, portals, collaboration and email management are just a few of the areas where expenditures are increasing.

An important question: What is your true hourly rate, net of technology? The following table should provide some insight.

In the above exhibit we are assuming a similar markup on technology as on labor (3.5 times). Granted, most firms do not make this assumption in determining their billing rates. Should they? While I am sure this will create debate, the facts show that labor margins are being pressured and old hourly billing formulas do not produce the desired results. The purpose of this article is not to debate billing methods; but rather to present the metrics as a basis for improvement in the future.

Furthermore, until 2009, firms are experiencing their highest net income per partner. Pressure on partner income should be enough to evaluate pricing, billing and collection policies. Why should they worry or change? I believe the answer comes from the fact that we currently are asking everyone to produce more with less. Granted the labor shortage in our profession has subsided, but don’t be lulled to sleep. The retirement of the Baby Boomers and the pressure for skilled labor in the U.S. will soon put retention and attraction back as a high priority.

To maintain margins, we have to evaluate our pricing strategies and technology investments. Otherwise, we will simply pass the savings on to our clients rather than obtain a reasonable return on our investment in people and technology.

There are several steps firms should take in order to improve their results.

1. Start with a technology plan and budget that integrates with the firm’s strategic plan.
2. Monitor and manage to a targeted revenue amount per FTE.
3. Evaluate workflow procedures, especially in tax, billing and audit.
4. Evaluate pricing strategies and make appropriate changes.
5. Hire personnel with the required unique abilities or source. (They often are not CPAs.)
6. Hold people accountable, including partners.
7. Participate regularly with peers to share best practices and metrics.

Confidence that your firm is moving in the right direction is very important. There will always be skepticism among partners due to the required investment. Great leaders always vote for growth and ultimately growth requires personal and organizational change. Resistance is natural. A well thought-out plan and accurate budget will build consensus and move the firm forward with reduced resistance. An independent review can also be helpful.

For those firms that are at the top of the metrics or in markets where revenue per FTE runs closer to $200k, don’t become complacent. The shortage of quality people and commoditization are alive and well in those markets and the recommendations above pertain to your firm as well. This key is to learn from the formula of how the best get better! IT professionals, your roles are changing from highly technical requirements to innovation and increasing revenues. Are you prepared and willing to change?