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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