It's Time to Get Down to Business - Part One

While reflecting after my retreat season for April, May and June I realized there were several recurring themes that seemed to be on everyone's mind this year:

• How do we acquire more business in the off season when we have excess capacity?
• How do we control labor costs without being short sighted?
• Relativity of partner compensation (always the case when profits are down)
• How can we make money?
• When will the economy return to its previous levels?

In this two part article series, I'll take a closer look at these hot topics and give you some techniques to help your practice not only survive but thrive in these tough economic times.

When will the economy return to its previous levels?
After giving it much thought my answer to this question is that it will probably never be quite the same for us baby boomers.  I don't know about you, but my days of incurring excess debt to buy large ticket items are presently on hold.  Not that I'm anti-consumer but I do have my priorities, retirement funding, savings, grandkids college, etc., and I imagine that many people over 50 are having the same feelings. I'm not an economist, not that they did a very good job in predicting the present situation, but I think folks are going to play it a little tighter in the future.  What this means for accountants is that many of their clients will no longer have the easy revenue streams they have enjoyed in the past and will now have to become ever more innovative to provide value to their customers.  The accountant's role in this transition will be as a "trusted business advisor", helping their clients make better decisions and navigate these rough waters of change. Looking back and hoping we get back to how it was isn't very realistic and clearly doesn't provide any value for your clients. My recommendation is to accept the current reality and develop a strategy to provide extraordinary value to your clients that will work in this economy. It's not easy.  Those firms that figure it out will be guaranteed a bright future, while those that don't will be at risk of becoming irrelevant.

How can we make money in this economy?
How does that ad go?  We earn it the old fashioned way.  Accountants need to start actively managing their firms rather than using passive management techniques.  The single greatest difference I see between the most successful firms and lower performing firms is the successful firms drive their results while the lower performing firms sit back and measure after the fact.  Truth is, the only thing we can manage and control is the future activity of our people.  The questions that partners need to be answering are how can we make money today, tomorrow, this week, this month, this quarter, and this year?  For the average firm 20 additional productive minutes per day, per employee, billed and collected represents 5% of annual revenues.  As you can see, it doesn't take very many days of idle time to have a substantial negative impact on revenues and profitability.  Schedule weekly and monitor daily, especially during these slower times of the year.  Make more money and I can just about guarantee the conflict over the relativity of partner compensation will lessen.

Excess capacity and controlling labor costs.
In my opinion this is probably the most pressing issue facing the accounting profession now and for the foreseeable future.  Workload compression continues to create havoc with traditional staffing models in the vast majority of firms.  When I look at the problem from a 20,000 ft. perspective, it seems to me that there are two strategies to deal with this situation; only pay and have the resources when you need them, or find more work in the off season.  Simple enough ideas, but from what I've seen in the field, very hard to execute, as the individual skill sets aren't readily exchangeable between audit and tax.  If the firm has a tax emphasis and that is where the interest, passion and skills exist it is very difficult to get an off season audit practice to critical mass.  Typically in these cases firms will hire an auditor and tell them to market and get some audit work. This can be a formula for disaster for a myriad of reasons, they can't market, they don't have contacts in the community,  the lead time to get an audit engagement is much longer and in some cases can take years.

To solve this problem try to answer the following questions.  Once you have the answers your strategy should be clearer.

• Do we have anyone that will champion and take ownership for growing an audit practice?
• Can we afford the investment to develop this work and are we willing to take the risk?
• Can we be competitive and make money doing this work?
• Do we have an interest in working with the types of entities that are required to have an audit?
• Can we bring this service to a critical mass that will support multiple partners?

If you answered no to one or more of these questions there is still the M&A option - go out and find an audit firm. Many firms have found this to be an attractive alternative to building an audit practice internally.

Click here to read Part Two

Source: Steve Erickson, LLC, www.steveericksonllc.com
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