Actively Manage Your Practice for Higher Profits in 2010

By, Steve Erickson, CPA

Many accounting firms are managed by continually looking at past events to analyze their practice and make business decisions. Whether it is discovering job overruns in their work-in-process that can’t be billed or reading their financial statements 3 or 4 weeks after month end only to discover that significant losses were incurred the previous month. These events are history at that point in time and cannot be changed. The conversations between partners and employees usually focus on finding fault and to blame the guilty parties. Have you had many of these conversations lately?

• “Why do we have all of this extra time in the ABC audit”?

• “We did this return in 8 hours last year. Why did it take (pick a time) this year”?

• “What happened last month? I had no idea we were going to lose so much money”.
• “Why did (pick a name) only have (pick a number) charge hours last month”?

• “Why did we have such a bad year”?

• And the list goes on

These are not productive conversations. It takes time, spends emotional energy and costs money to measure and respond after the fact or event, waiting to see what has happened and then reacting. Passive management is very costly, especially during these economic times when business decisions need to be made sooner rather than later.

It is most difficult to run any business successfully without current information, defined roles and responsibilities and communicated decision rights. Yet in many public accounting firms this is the case as typically there isn’t the availability of current information, especially concerning hours, budgets and production, roles are confused and in many instances people in the field defer significant responsibility for the job to the partner or manager back in the office. This lack of responsibility does not work in these times of rapid change and economic turmoil as significant economic events often take place quickly. To support this fact you only have to look at what has taken place in the profession since the end of tax season last April. In many firms revenues are off 5%-20% for the year as clients hold back on their discretionary plans and transactions and limit their spending for accounting, auditing and especially consulting services. Requested fee concessions have become routine. In many cases relationships between accountants and their clients have become strained as loyalties have been set aside as competing firms bid for the work at ever lower fees. Where will it stop? I don’t know but I do know that salaries and benefits are now approaching 50% and in some cases exceeding 50% of net collected fees and utilization percentages are near an all time low. The present accounting firm fee structures and costing strategies cannot be sustained in the long term. 2010 is the year to start actively managing your practice for profitability and success.

Active Practice Management

Active management techniques do not require more people or ever increasing layers of management. It does require individual accountability and self-management. Start your profit planning process now by gaining agreement on what needs to be accomplished in 2010 and how it will be done. Here’s what I consider are some the most important profit improvement steps.

Take Action Now

1. Have every partner prepare a plan for 2010 by month which includes net fees by month, hours managed by month and a budget of their time by month. The total of these partner plans will equal the revenue and production budget for 2010 by month. If you need examples of a plan email me with the subject line Partner Plan and I will send you a detailed excel worksheet.

2. Have every employee prepare an annual plan for 2010 by month that includes charge hours, marketing hours, admin hours and personal time.

3. Prepare a firm wide budget by month for 2010. As the months pass add on another month and make a rolling monthly budget your format.

4. Adopt a firm wide credit policy. Profitable firms must not over extend credit in these difficult times. Also collect your money sooner by using a payment schedule to get payment in advance of the work rather than after the fact. Make sure you are using “stop work” clauses in your engagement letters to limit losses for those clients that can’t pay.

5. Adopt and implement a change order process and use it! “Scope creep” is rampant in auditing and you must manage the process and your clients’ expectations.

6. Prepare budgets for all jobs. Make sure that everyone in your firm understands what is expected of them. Schedule weekly and make sure everyone has something to do.

7. Manage and limit time wasters. Meetings and email waste more time than just about anything else. Hold more efficient meetings and teach your staff how to manage their time and email.

Take Action Monthly in 2010

1. Drive monthly revenue and production goals by managing weekly performance by partner, employee and job.

2. Modify the budget for changes and unforeseen events that invariably happen.

3. Schedule! Schedule! Schedule! Resource management has never been more important. On average the loss of 20 minutes per day per person represents over 5% of your net revenue. The little things have a huge impact on profitability. Keep people scheduled and working.

4. Make sure everyone in the firm knows their assigned roles and responsibilities.

5. Revisit your plans regularly and adjust the rudder. People are dynamic and plans need to be dynamic to make sure they continue to be relevant.

Profitability will soar by managing in the present and making sound decisions for the future. Yes we learn from the past but we want to keep the cost of that education (school of hard knocks) to a minimum. Wishing you improved profitability in 2010!