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The Boomer Bulletin - 2011
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Practice Areas to Cut & Invest

Posted By L. Gary Boomer, Tuesday, June 14, 2011

Firm management has improved over the past year. I am not referring to the fact most firms have cut costs and managed head counts better than in prior years. I am referring to the fact that many firms are now focusing on managing to a "shared vision” rather than a "shared services” model where often there is competition for resources rather than leverage. The best-managed firms are focusing on organic growth and positioning themselves to offer services desired by clients and leveraging their trusted relationships. Yes, there is considerable growth in some firms through mergers, but is there organic growth today and especially in the traditional services? Technology continues to play a key role in traditional services as well as new entrepreneurial business growth. The question for many firms is where do we invest and where do we cut? It may not be where you think.

The answer will vary from firm to firm, however, there are some core areas of concentration. I have chosen what I believe are the top three areas of investment and the top three areas to closely manage costs for sustainability and success. The top three areas are as follows:



Talent Development Rent & office occupancy
Technology and process improvement Deferred compensation
Marketing & Sales Excess capacity – Especially outside of busy season

Based upon a quick look at the above table many readers will say some of the areas are obvious while others are difficult to change due to contractual obligations. Change comes from thinking differently and beliefs are primarily based upon experiences. Actions are based upon beliefs and results are determined by actions. The accounting profession is changing, and leaders must think differently. All progress starts with the truth, so let’s assess the current situation and then develop strategies to best position your firm.

I state firm, rather than a particular individual. In some firms the tail is wagging the dog rather than the dog following a shared vision. There are always those who are at risk when it comes to change so one of the first questions you must ask is: Does the firm want to promote mediocrity or excellence? The majority of people will say excellence, but that doesn’t make it easy. Excellence requires discipline, a plan, the right talent and accountability. Accountability does more to improve a culture and improve results than anything. Accountability is empowerment, not punishment. Let’s review the investment areas first.

Talent Development

Most firms say people are their number one asset, but do they treat them as an asset? Typically "No”, in fact most firms expense them and don’t even utilize their abilities to a reasonable level. This is primarily due to the beliefs behind the "push economy”. In the push economy, the challenge is to budget and project demand while inventorying the capacity to meet the demand. According to firm metrics, firms charged less than 48% of total time worked in 2009. This tells me talent was generally under managed, under utilized and probably didn’t have the necessary skills inventory to meet the demand. Under the "pull economy” firms should position themselves to have access to tacit knowledge (knowledge and skills at the edge) while internally having core capabilities. This is brought about by technology and the platform that allows "meshing” or sharing of resources rather than ownership. Sourcing is much broader than just in the area of tax return preparation. The web-based digital platform makes sourcing feasible. Technology platforms today leverage what is known as crowd sourcing, where firms can have access to the best talent and knowledge. The best firms will continue to invest in excellent talent. Firms that develop talent won’t have to worry about retention and attraction.

Marketing & Sales

Everyone is a great fisherman when the fish are jumping in the boat. Fish are no longer jumping in the boat and firms are realizing they need growth for sustainability. Firms are also realizing many of their services are being commoditized or no longer in demand. Not everyone is a great sales person or marketer. Professional sales and marketing people invest in developing their skills, just like excellent accountants. I believe everyone has unique abilities and if they are placed in a job where they utilize and develop those abilities, they can excel. Given the fact that marketing and sales are important in today’s firm, invest in professionals and don’t expect all of your client service personnel to be great in sales. Use the team approach. There are great programs available to develop these people.

Again, technology plays a role. Many firms have tried to control or resist social media in their firms, while a few firms have embraced it. Those who accepted social media with the idea of influencing it are learning how to leverage and profit from the technology. Marketing and sales have been the first to see positive results. Human resources with a focus on talent develop has profited and now technical areas of the practice are benefiting from social media. As with any technology the early adopters determine if it has applicability to their jobs and then leverage the technology and their knowledge.

Technology & Process Improvement

Technology is broad based and impacts every area of the practice. Those who are incompetent with technology are at a distinct disadvantage and their life expectancy as top producers has past. Current technology allows firms to significantly reduce the number of steps in their processes and improve the quality of the service as well as the client’s experience.

In a recent presentation, I heard Ray Barlow, VP of Sales at CCH, refer to the next generation as Generation V - for Virtual. Investing in the technology that allows talent to work from anywhere at anytime will be key. Some of the high priorities for firms should be:

  • Internet connectivity to the cloud (public and private)
  • Content management (a digital platform so you can share work among offices and people)
  • Knowledge management (transfer and leverage internal and external knowledge)
  • Integrated systems rather than siloed applications
  • Process improvement in tax, audit/accounting and practice management in order to leverage the technology
  • Training

Technology is the accelerator. Planning, people and processes are the keys to performance.

Rent & Occupancy Costs

Many firms are faced with excess office space or even space that is configured in a manner that is not in accordance with today’s requirements. Do partners really need large offices that are seldom used or do they need access to shared conference rooms set up for presentations? Is hoteling a concept whose time has come in the majority of firm’s? Generation V views work as what they do and not where they go. There are many who will resist simply because their beliefs and experiences are not in alignment with these trends. As a former partner in a regional firm, who had a sizable office that was empty a majority of the time, I can attest to the fact that giving up an office was difficult for about the first week. Being able to work from anywhere at anytime is enabling. The original idea that inspired me came from Dan Sullivan at Strategic Coach over 10 years ago and was not based upon technology and being able to work remotely. His strategy was not based upon technology or cost, but rather on focusing on priorities. Now the technology has advanced significantly and firms should leverage the capability.

Many firms are opening offices in new markets using shared office space such as Regus using the concept of meshing. Again technology allows firms to reduce costs, grow and maintain flexibility.

Deferred Compensation

This is a topic on which everyone has an opinion and the purpose of this article is to provide a cautionary flag. Many firms have unfunded deferred compensation plans that may impact their ability to attract and retain quality people for the long-term. The jury is out and the market will determine the ability of these firms to grow and meet their future obligations. Most firms have contractual limitations as to the percent of current revenues that can be paid to retired partners. If those limits are exceeded, then the retired partners are paid out over a longer period of time.

With the high number of people approaching retirement, firms should develop strategies to transition clients, transfer knowledge and leverage relationships. Again, technology can play a significant role allowing for part-time partners to work from any location and leverage their knowledge and relationships. However, it is alarming to me the number partners and firms that do not have succession plans. Continuing to focus on client needs and ignoring the needs of the firm may be a diversion tactic, but not a good strategy for the individual or the firm.

Excess Capacity

In 2009 firms were less than 48% chargeable according to our survey. This indicates excess capacity as well as issues with regard to the hours times dollars economic model. In conversations with many firms leaders, they waited too long to make the necessary cuts and the trends in 2010 seem to be reversing. The Push versus the Pull model is certainly in play. Under the old model (Push) firms had to predict expected demand and inventory resources to meet the demand. Under the (Pull) model firms will reduce their core resources and go to the edge for knowledge and resources based upon demand. This requires a digital platform, relationships and the ability to quickly develop talent.

The challenge comes in identifying where the excess capacity exists and making the difficult decisions to terminate resources. This is especially true if the excess is at a high level, particularly at the partner or owner level. In some firms we are seeing a lack of advancement opportunities for quality younger people. This presents challenges that some choose to ignore, but in the long-term this will have an impact on succession, future leadership, and attraction and retention of quality people.

Some leaders have chosen to source rather than inventory the necessary resources. This requires the relationships and technology to meet the demand without the risk of projecting demand that never develops or keeping up with strong demand when the firm doesn’t have the internal capacity.

There are regulations that make sourcing strategies more difficult (e.g. IRS 7216), but not impossible with proper knowledge, planning and communication. The trends I am talking about go way beyond tax compliance. In the past, many of the hours in tax compliance have been in the aggregation of client data and the review process. Most clients are no longer willing to pay for this clerical type work no matter at what level it is performed. They seek CPA’s knowledge and trusted advice, and are willing to pay for it.

This all requires firm leadership that works on the firm rather than just in the firm. The profession has continually faced the challenge of a compressed workload, especially in compliance type of work. Many firms are leveraging technology to provide competitive transactional work while moving to a higher level of service. Clients are also looking at ways they can reduce expenses and match resources with opportunities. The concept of an outsourced CFO, HR, and IT are all viable business models only enhanced by a digital platform and cloud computing. Naming, packaging and pricing these services can be challenging. Perhaps now is the time to change your thinking and in doing so change your strategies for the future. Things are moving rapidly and managing change is a skill that will determine your firm’s sustained success. Take the time to Think, Plan, Grow!TM


Tags:  practice management 

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