Accounting Office Management & Administration Report

As your CPA firm starts its year-end plan, you are likely focusing on the year ahead. But have you evaluated your firm’s strategy and made needed changes in how it is going to be implemented? Has your firm taken a hard look at organization, infrastructure, and accountability as part of the planning process? Have you figured out yet how you will make do with a lack of midlevel staff?

If these are some of the issues that you and your partners haven’t tackled, then your firm may not be truly "future-focused." Ideas about how to make this leap were shared by consultant William Reeb of Winters and Reeb PLLC (bill@billreeb.com) at the Association for Accounting Administration National Practice Management Conference in Indianapolis in a session titled "Management on Purpose Instead of by Accident."

With succession on the horizon, more firms are taking strategy seriously, but it is difficult to make the changes, Reeb noted, since partners are often conflicted over issues such as compensation, retirement, and ownership votes.

Despite the difficulty, firms must move their planning to a more strategic level, Reeb advised. Just "tacking on extra to what they did last year" won’t do it any longer.

Without an agreed-upon strategy, it is hard to resolve conflicts at the owner level, change the culture to be more competitive, or focus the required resources on your firm’s critical foundation-support systems. Without a strategy, the stronger the partner, the weaker the firm. And your firm will spend too much on services that are "nonsynergistic." Furthermore, if you can’t align your compensation and incentives with strategic objectives, you don’t develop future leaders, and, added Reeb, "you constantly spin or live the zigzag effect." In other words, firms are vulnerable to sharp diversions that throw you into a spin.

"Offering what is best for clients should be the goal of where your firm is trying to grow," Reeb said. A strategic approach helps your firm roll with the punches and adapt to the new global realities (see the sidebar).

The planning cycle. Reeb described the difference between conventional planning—what many firms do now—and strategic planning. Conventional planning is when management determines where they want to be and charts a course to get there. Strategic planning "is really to determine where your market is going to be and find a way to continue servicing it," Reeb explained.

How to focus on strategic planning involves a cycle of steps. Many CPA firms already do a fine job with some of them, including developing a mission and vision, evaluating SWOTs (strengths, weaknesses, opportunities, and threats), establishing goals, and identifying plans. However, firms need to work on the additional steps in the cycle: deriving objectives, creating budgets, formulating incentives, completing missions, attaining goals, and realizing objectives, budgets, and actual plans.

New rules. Reeb blasted many of the "that’s-the-way-it-has-always-been" beliefs about the profession that he contends are holding firms back. These include partners believing they can’t delegate work, failing to pay for training and marketing, neglecting to invest in proper technology, not insisting upon accountability, and refusing to reward for achievement rather than hours billed.

To move successfully to strategic planning and the cycle of steps that will make it work, Reeb urges CPA firms to consider these changes:

• Accept change—and then do it. The firm needs to readjust its focus to make the necessary changes. "Staying the same has the highest chance of damage," insisted Reeb. This step may be the hardest of all, but until you achieve it, the partners won’t be able to proceed with meaningful strategic planning.

Accountability and fair treatment are central to making these adjustments. They will help the firm to modify its organizational dynamic to focus on the right things to bring about change and not waste time or resources. He admits this too is not easy: It is hard to alter long-standing operations. But the firm must be willing to move beyond ideas that have outlived their time. The firm must also be willing to enforce new policies. "Managing partners need power to force partners to do things," Reeb said.

• Put technology to work. Technology is changing the minimum standard for operating a business, so you have to invest in it and you have to keep up. It isn’t any longer about reducing or obtaining a strategic competitive advantage, he pointed out. Instead, it simply becomes the new standard that you have to meet. Fortunately, technology can be a great asset in addressing the staffing shortage.
• Get real about staff. Your firm will cope much better when you have rethought the work that is done, how it is done, who does it, and how staff are managed. "We tend to burn them out," Reeb observed. "We’re so worried that people will have nothing to do, we take on horrible jobs. Get rid of the horrible ones. Fear of letting clients go must be overcome."

A system that compensates and incentivizes staff and partners for their contributions is one that will encourage development and productivity—a much better result than the old "lock step" annual raises and bonuses. A revised compensation and rewards system also supports your goal of accountability.

• Ante up for leadership and other training and for marketing. A real problem now with CPA firm leadership is that although many expect and want and need staff to step up, they don’t want to pay for staff development. This attitude will not only drive staff away and fail to develop strong leaders, Reeb warned, but your firm will also lose its leverage. "Never be surprised that you get what you pay for," he added. "Without incentives, nothing will change, and they must be meaningful in type and amount."

The firm must begin to see training and marketing as respected items in the budget and not the first place to cut. Despite the fact that these items don’t show a direct impact to the bottom line, the firm has to consider these necessary and important expenses for building the firm’s future and fulfilling the goals of the strategic plan.

• Reconsider the billable hour. "Sixty hours a week isn’t the answer. It’s billing more for the time you use. This is a capacity issue," not a matter of how hard young professionals are working. They are working very hard, but it is the organizational structure that isn’t succeeding—not your staff.

Identifying and serving client needs will help beat back price resistance, said Reeb. "The more the client perceives that you can help, the less price-sensitive the client becomes."

Flexible work arrangements, including letting people work at home, should be an easy adaptation for CPA firms—but they aren’t yet. This ties in with the billable hour problem, Reed argued: "We value more how long it takes to do something, and then we wonder why we have the problems we have." Flexibility can help maintain the staff you need to have the capacity to serve your clients’ needs, Reeb noted.

• Institute workflow redesign. Most firms simply take what Reeb calls a Band-Aid approach. "We add more Band-Aids each year," he said, "instead of asking, ‘what’s the real problem?’" For instance, when it comes to the staff shortage, this is not a surprise; it is simply demographics. The firm must address it, rather than looking for those elusive midcareer accountants that you probably won’t find because they don’t exist any more.

Partners must learn to delegate as part of a workflow redesign. Those that think they can’t because others aren’t competent need an attitude readjustment. "If you think they are all stupid, you made it that way" Reeb says to partners who believe this. If you think staff are "stupid," fix the situation. And, he remarked, "it’s amazing how smart they really are" when you stop comparing them to the current generation of owners. He gently reminds partners that "boomers don’t always have a clear memory of their past."

• Change the role of the partners. Owners need to spend more time managing client relationships and less doing the work of engagements, even though many partners fear this means that they will have to spend time "selling." Reeb urges firm leaders to understand that partner time in building relationships is not about sales. Instead, it is about understanding client needs and ensuring that the firm can answer those needs.

"Every ‘A’ and ‘B’ client should have a partner assigned to pay them regular visits," he suggested. "You need to know the client’s priorities for the next 18 months. Otherwise, you are not managing the client."

Relationship-management is not about "cross-selling," either—it’s about managing the client and delivering whatever services the client needs. This is where growth and increased profitability will come from, Reeb maintained. "We spend more time chasing a nickel and running away from a dollar than any profession I know. It’s easier to get the dollar than squeeze the nickel."

• Make management a top priority. Management is a job with special skills that involve developing others. Without good management, the firm can’t be leveraged properly. Reeb stressed the importance of differentiating between personal development and management. "Don’t set the bar too high for your staffs. Set one bar for each job, and reward for exceptional performance."
• Make time for strategy. Making time to think about strategy is the crucial backbone of all this. "Think about how to make the firm better, faster, stronger." This is not something to be delegated to "when all the detail work is done," he emphasized.

More ideas for coping with change. To help CPA firms become more flexible and more strategy-oriented, Reeb recommends these general approaches:

• Continually rethink how you operate. What worked 10 years ago may not work today.
• Embrace the unexpected. Effective management means the firm can take advantage of unforeseen opportunities that arise.
• Be willing to take risks. Play it safe and your firm will miss those opportunities that can bring growth and profitability.
• Keep it simple. Don’t make things more complicated than they have to be.
• Understand that mistakes are part of the process. Without them, you can’t learn and the firm can’t grow.