The opinions expressed in this presentation are those of the speaker. The International Foundationdisclaims responsibility for views expressed and statements made by the program speakers.

Managing a CPA Firm in Today’s Environment

Peter F. Novak, CPAPartnerNovak Francella LLCCertified Public AccountantsPhiladelphia, Pennsylvania

Bruce A. Pavlik, CPAPartnerLegacy Professionals LLPChicago, Illinois

Patrick C. Stines, CPAPartnerNovak Francella LLCNew York, New York

Joseph M. Thiermann, CPAPartnerLindquist LLPSan Ramon, California

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Professional Liability Insurance

• How many policies do you need• Completing the application• How much insurance do you need• Claims made• Deductible• Agent is key

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Staff Retention

• Recruiting– What to look for in candidates—preparation– Schools to recruit– Who best to do on-campus recruiting– Timing

• Orientation– How long– Topics covered– Lunch

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Millennials

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Who Are the Millennials

• Generation Y (born between 1978-1996)• The largest generation in the workforce• Adept at social and professional

networking• Raised in a climate of praise and support

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What Do the Millennials Want

• Flexibility• Timely feedback• To be part of something• Seek leadership and structure• Want to have a voice

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What Are Firm Issues Related to Millennials

• Strong job market for accounting professionals• High turnover

– Highest 0-2 years– 2nd highest 2-5 years: Hardest to find level

• Too much office communication• Unwillingness to put in the extra hours• Values tend to be different than that of traditional

accounting firms• Millennials have higher expectations regarding perks and

development

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Tips for Managing Millennials

• Forbes magazine—Trying to manage millennials? Give up and lead them instead– Offer an employee-centered workplace– Life-work balance– Listen to them– Provide leadership and structure– Provide a collaborative office culture – Internal newsletters

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Staff Evaluations

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Purpose of Staff Evaluations

• Facilitates growth and development• Serves as the basis for awarding salary

increases• Facilitates goal setting• Outlines expectations• Forum for employee feedback• Firm protection from legal liability

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Timing

• Coordinated with annual reviews• Opportune times for managers to give

necessary focus

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The Annual Cycle

• How often for post job evaluations• Mentor meetings and goal setting• Annual self-appraisal• Internal management meetings to review

staff– The disconnect between “office buzz” and

what’s on paper

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Software tools

• Linked to billing system to generate evaluations based on hours

• Tracking and monitoring

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Education

• HR explains the process to the staff• HR explains the process to evaluators• How to provide constructive feedback• Importance of sending a consistent

message

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The Written Evaluation

• TMI?• Key attributes

– Productivity– Technical ability– Teamwork– Professionalism– Client service

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Training and Development

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Naming a Training Director

• A&A leader or QC reviewer

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Create a Formal Learning Curriculum and Calendar

• Coordination with HR

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New Hire Academies

• Firm introduction – Meet the partners– Firm values

• Complete audit cycle workshops

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Level Training

• Responsibilities of an in charge• Work-paper review• Effective staff evaluations

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Staff Involvement

• Lunch ‘n’ learn• Current niche topics or A&A developments

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Internal vs. external

• Internal tailored to your needs• Internal development can be time

consuming• External provides broader exposure to

outside expertise

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Specialized topics

• Annual A&A updates and implementations• Review of internal inspection results• Shadowing: client and trustee meetings• Leadership development and soft skills• Internal peer groups• Business development• IT security• HIPPAA

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Succession Planning—Different Look for Different Firms

• Size of Firm– Sole Proprietor

• Less succession—More selling• Can you really “sell clients”?• Practice continuation agreements

– Two to five partners—More options• Sell among group• Sell/merge with another firm • Retiring partner sells to newly admitted partner

– Greater than five partners—Same as two to five, plus• Greater chance to promote “internal talent”

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Sole Proprietor

• How do you go about selling firm?• How to value firm

– One times revenue or multiple thereof– Lump sum or over time– Stay on as consultant for retention

• When inform clients– Client buy in is important– Client retention

• Practice continuation agreement

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Two to Five Partners

• Is it really a partnership or several CPAs working together with different expertise

• “All for one” or “Eat what you kill”?• Notification of retirement—How much• Sales price set forth in partnership agreement

– Multiple of salary– Allocable share of revenues– Sale of practice

• Client retention• Funding—Life insurance/disability

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Greater Than Five Partners

• Partnership agreement• Notification of retirement• Valuation methodology• Payout methodology• Informing clients• Client retention• Funding—Life insurance/disability

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Partnership Agreement

• Make things clear, complete and concise• Typical succession items:

– Valuation of firm– Selling partnership interests– Payout of retiring partners– Admission of new partners

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Valuation of the Firm

• What is the correct valuation? It depends• Profitability• Type of industry—thriving or dying• Who wants to buy it• One times revenue? Smaller firms are

normally higher multiple• Specialty

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Payout of Selling/Retiring Partners

• Length of payout—monthly/annually• Will payout change if certain targets are

not met• Maximum annual payout—Percentage of

gross receipts

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Profitability

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Why CPA Firms Benchmark

• Increase profit• Measure performance against other similar firms• Identify areas going well and exploit• Identify areas needing improvement and resolve

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Achieving Profitability:Two Perspectives

Micro• Income per partner• Fees per partner• Fees per person• Staff to partner ratio• Realization• Billing rates• Billable hours per person• Overhead expense/person• Admin to total ratio

Macro• Marketing• Management• Leadership• Staff development• Succession planning• Partner relations• Quality service• Effective processes• Partner accountability• Technology

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Typical CPA Firm Metrics

Key “Performance” Indicators• Based on historical data

(such as timesheets)• We get what we measure• New Strategies +

Old Measures = Old Behaviors

Micro• Income per partner• Fees per partner• Fees per person• Staff to partner ratio• Realization• Billing rates• Billable hours per person• Overhead expense/person• Admin to total ratio

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A New Perspective?

• Key “Predictive” Indicators– What do our customers want from us?– What do our employees think?– How do we differentiate our firm?

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“When we’re looking for goals for an entire company, we make sure our employees know what we’re going for:to get the planes on time, not to aim for a certain return on investment. Goals such as certain equity or debt ratios . . . work fine for accountants . . . But when it concerns the whole company, we need a companywide goal—something that employees can immediately identify.”

– Gordon Bethune, CEO, Continental Airlines, From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback

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“This is one of the most common problems in businesses. Businesses fail because they want the right things but measure the wrong things–or they measure the right things in the wrong way, so they get the wrong results. Remember?Define success the way your customers define it.”

– Gordon Bethune, CEO, Continental Airlines, From Worst to First: Behind the Scenes of Continental’s Remarkable Comeback

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“The only way to look into the future is use theories since conclusive data is only available about the past.”

– Clayton Christensen, et. al. Seeing What’s Next

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Scottish proverb: “You don’t make sheep any fatter by weighing them.”

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Why CPAs Lose Customers

1. “My accountant just doesn’t treat me right” 2. Ignore them 3. Fail to cooperate 4. Let partner contact lapse 5. Don’t keep them informed 6. Assume they are technicians 7. Use as training ground for new team members

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Why People Select CPAs

1. Interpersonal skills2. Aggressiveness3. Interest in the customer4. Ability to explain procedures in terms the

customer can understand5. Willingness to give advice6. Perceived honesty

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Firm-Wide Key Predictive Indicators

• Turnaround time • High satisfaction days

– This is what makes a great day! (Examples: New big client, happy client response)

– The happier our employees are, the happier our clients are– The more HSDs in a given month, the more profitable is the next

month

• The value gap – Add more value to our client service– Identify our firm differentiators

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2017 Educational ProgramsFund Professionals—Accountants

63rd Annual Employee Benefits Conference October 22-25, 2017Las Vegas, Nevadawww.ifebp.org/usannual

Accounting and Auditing Institute for Employee Benefit PlansJune 26-28, 2017San Diego, Californiawww.ifebp.org/accounting

Fraud Prevention Institute for Employee Benefit PlansJuly 17-18, 2017Chicago, Illinoiswww.ifebp.org/fraudprevention

Collection Procedures InstituteNovember 15-16, 2017Santa Monica, Californiawww.ifebp.org/collections

Related Reading

Payroll Auditing: A Guide for Multiemployer Plans,Second Edition | Item #7303 Visit one of the on-site Bookstore locations or see www.ifebp.org/bookstore for more books.

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