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

Current Demographics CPAs Non-CPAs MenWomen 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 © 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 – %* – % * – % * – %* – %* Many firms now 50%+ * © INSIDE Public Accounting 2011 Used with permission

Salary Trends © INSIDE Public Accounting 2011 Used with permission

Average Pay per Professional © INSIDE Public Accounting 2011 Used with permission

5 Year Trends © 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 CPAs Core Non-CPAs Non-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 Firm Profit Improvement Model TM