The Keys to Profitability, Accountability & Efficiency Changing How the Work Gets Done

The Keys to Profitability, Accountability & Efficiency

Changing How the Work Gets Done

Keys to Profitability

• Profession wide issues • Firm staffing & operation• Individual accountability &

efficiency

PCPS Top Issues

• Partner accountability/unity• Bringing in new clients• Retention of current clients• Fee Pressure/Pricing of services• Developing a succession plan

Source: AICPA 2011

Challenges of the Profession

• Demographics

• Technology

• Value & Relevance

AICPA Demographics

Source: AICPA 2009

AICPA Demographics

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40

26

31

36

41

46

51

56

61

Women

Men

Current Demographics

CPAs

Non-CPAs

MenWomen

Women Men

Firm of the Future

CPAs

Non CPAs

Technology

• Ownership• Strategic partners• Process driven• Unintended consequences

“And we missed it.”Samuel J. Palmisano, Chairman of the Board, IBM

Relevance & Value

• Reliable information– Financial statements– Quality

• Value– Better Decisions

• Current information• Positive outcomes

– Cost savings

National Survey

• 2010 Career Development Survey– INSIDE Public Accounting– Over 1800 responses– Well being & work research

Average Profit Margins

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

2005 2006 2007 2008 2009 2010 2011

34.6%

32.5%31.5%

30.5%29.1% 29.1%

30.0%

Perc

enta

ge

Margin

© INSIDE Public Accounting 2011 Used with permission

Pricing and Margins

• Pricing trends– Have not kept up with

expenses– Realization issues (Real %?)– More fixed fees– Client expectations not always

managed

Firm Staffing & Operations

• Personnel Costs• Passive management• Realization/efficiency• Utilization• Processes & procedures

Salary & Benefit Costs• Average personnel costs as

a percentage of net revenues – 2007 44.7%* – 2008 45.4% *– 2009 46.8% *– 2010 46.4 %*– 2011 45.1%*

• Many firms now 50%+

* © INSIDE Public Accounting 2011 Used with permission

Salary Trends

5000055000600006500070000750008000085000

Dollar A

mount

Average Pay per Professional

All Firms

T100

© INSIDE Public Accounting 2011 Used with permission

Average Pay per Professional

0.0%

5.0%

10.0%

0-2 3-5 6-7 8-9 >10 Avg

Percentage Increase 2007-2011

© INSIDE Public Accounting 2011 Used with permission

5 Year Trends

0.0%1.0%2.0%3.0%4.0%5.0%6.0%

7.0%

All FirmsT100

Avg Salary

Realized RPH

© INSIDE Public Accounting 2011 Used with permission

False Reporting

Over 60%!

Salary Strategy

• Reverse upward delegation– Unintended consequences– Don’t allow people to work below

their level– Higher level personnel must

leverage– Utilization levels need to increase

What tasks are you doing that you shouldn’t be doing?

• Scanning• Admin duties• Setting up files• Making copies• Inputting 1099s• Typing letters• Write up work• Payroll reports

• Chasing client info• Data entry• Data imports• Filing PDF docs• Ordering supplies• Deliveries• Filing• Bank

reconciliations

Firm of the Future

CPAsCore

Non-CPAsNon-Core

Passive Management & Client Service

• After the fact monitoring – Charge time/Budgets– Accountability/Profitability– Credit & A/R

• Inefficient processes & systems

• Reactive client service

Active Management

• Continuous budgeting and reporting• Partner & staff accountability plans• Manage

– Margins– Leverage– Scheduling/utilization

Client Expectations

• Manage client expectations about fees– Better engagement letters

• Bilateral• Time sensitive

– Stop quoting fee ranges

Change Orders

• Develop a firm wide standardized change order process– Starting and stopping work– Failure to prepare– Errors in records– Records not ready at time specified

Credit Strategy

• Stop extending excessive credit• Firm wide credit policy• Payment arrangements

– Scheduled payments– Budget payment plans– Deposits

Utilization

• Overall utilization averages about 52%

• Declining for some years• Significant competition for

our time

False Reporting

Over 60%!

Utilization Strategy

• Plan• Block out time to work

exclusively• Schedule every week• Reconcile actual hours worked to

the schedule

Pay Structures

• Pay when services are needed– Is the 40 hour work week a thing of

the past?– Pay for time needed?– Core vs. non-core positions

Processes Lagging

Over 60%

Files not Consistent

Over 72%

• “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency”. Bill Gates

Reactive Client Service

• Service centered – Task oriented– Deadline driven– “Have to” services– “Emergency room” processes

Reactive Client Service• Not managing client

expectations– Timing of work– Fees– Delivery– Value– Scope– Risk

Individual Accountability

• Engagement• Coaching • Accountability• Success

Gallup Q12™

• 12 questions to measure strong feelings of employee engagement

Source Gallup Consulting 2010

Decreased Staff Engagement

• Due to after the fact:– Job management– Feedback– Career coaching

Limited Guidance

•Expectations are not clear

•Budget overruns are more likely

Over 60%

Unrealistic Expectations

•Lack of creditability

•Less accountability

•Less optimism

Over 60%

Involuntary Overtime

Over 60%

Personal Plans on Hold

Over 70%

Insufficient Feedback

Confusion About Advancement

Rating of Motivators

Management/Staff Engagement Strategy

• Annual plans• Career Development• Coaching• Focused on success

 Copyright ©2012 Steve Erickson LLC

Implementation

• Change process– Simplified– Incremental– Positive– Sustainable

Copyright © 2012 Steve Erickson LLC

Accounting FirmProfit Improvement Model TM