Increase the Value of Your Firm!

Are you building the value of your practice? Are you making the money you would like to make today and when the time comes for your transition or succession will your partners or others be willing buyers? When owners focus on the five areas of my Value Improvement Model™ they make more money now and capture greater value in the future. (Diagram 1)

Let's deal with the five areas of the model, how they relate to each other and how greater practice value is continuously created when everyone's efforts are focused on the most crucial value building activities of the firm. These activities are to:

1. Improve owner unity
2. Execute appropriate client service strategies
3. Attract and retain growing profitable clients
4. Implement efficient systems and processes
5. Hire and retain talented people

It has been my experience that partners work on many of these practice dynamics but are often not able to convert their efforts into sustained organizational change that improves and captures value. Here are a few real world examples.

Firm A is experiencing growth and has opportunities for new work but is unable to pursue these opportunities because it does not have sufficient staff to do the work. The partners of the firm have been too busy and too focused solely on their clients and have not paid much attention to the staff and their needs. It is only in recent years that this has become an issue. Now they can't find any "good" people. There hasn't been enough focus on recruiting and retention of staff. Without people the firm will stagnate and growth rates will decline or stop all together resulting in lower practice value.

Firm B hasn't grown for several years and as a result is now "top heavy". Salaries and expenses are not in line with industry benchmarks and profits are down. No one is happy. Not the partners, not the staff as there is much uncertainty about the future of the firm. This firm has not put a sufficient effort towards marketing and client development. The firm must find and retain growing and profitable clients in order to be a valuable entity in the future.

Firm C has problems with efficiency because each partner has their own way of doing things. Rather than have one process for routine compliance services that is understood and used by everyone in the firm each partner insists that their work be customized. Realization is an issue because every partner has to constantly train the staff on how they want their work done. Every time a new partner is added to the firm or there is a staff change training starts all over again. Value is not being built in this practice because of these inefficiencies. Standardized processes and procedures must be put in place for routine services in order to gain efficiency and institutionalize value.

Firm D partners like to do the work themselves instead of delegating and leveraging routine compliance services. The culture of the firm becomes "It's easier to do it myself and maintain my personal relationships with my clients". However this way of thinking has led to many fee complaints and loss of clients. The cost of compliance services keeps going up without enough value added activity taking place to justify the fees. This firm must use appropriate client service strategies and leverage in order to retain clients and build value.

Partners must focus their thoughts and efforts on the four value building activities of a professional practice simultaneously. This balancing act is not easy however with effort and attention substantial value can be added to your practice.

Let's look a little closer at each area of the model and I'll give you a few ideas to help get you started on your value improvement journey.

Partner Unity

Nothing is as important to the success of your firm as partner unity. Without it there is no "firm". There's simply a group of accountants sharing an office and competing with each other for firm resources. Resentments build due to differences of opinion and old unresolved issues often result in important decisions being ignored or postponed. When partners avoid communicating openly and honestly with each other feelings get hurt, relationships become strained and stress in the office becomes common. So if this is an issue in your firm don't fear communication, listen, speak straight and resolve the issues.

Get everyone on the same page and ready to build a real firm that is valuable. Partners, working together, can start by adopting some "Rules of Practice" that clearly set forth the expectations of all partners and staff. These rules should include things like how and when time will be recorded, when billing will be completed, what types of clients will be accepted by the firm and most importantly how the partners will treat the staff and each other.

Next adopt a compensation system that is understood by all at the beginning of each year so everyone knows exactly what they have to do to be successful. When compensation is not understood and agreed to it is very difficult to have unity in the partner ranks. Remember, partners are not employees. They need to be in control of their destiny to be satisfied and productive. With improved partner unity current income will increase and long-term value will more likely be realized. Are negative partner relationships hurting your practice?

Client Service Strategies

The goal here is to get the right person doing the right work in order to provide the greatest value. Some clients prefer a very personalized relationship with their CPAs. Others simply want their audit or tax return completed as efficiently and cost effectively as possible. Partners have to determine the level and types of service expected and then deliver accordingly. This maximizes the value of services rendered. Typically personal relationship work is less leveraged and commands a higher hourly fee while routine compliance services must be leveraged to be profitable. If you have issues with realization consider your client service strategy. An alternative to losing the client is to leverage their work. You will bring more value to them and they in turn will be more likely to hire you for those higher value projects.

Clients

Every CPA firm is a reflection of the clients its partners choose to serve. Profitable, dynamic clients make for a growing, profitable firm. Conversely, clients that don't have these attributes have a negative impact on a firm. This is why client selection, retention and evaluation are some of the most important and most difficult decisions partners will ever make.

Successful firms choose their clients and the clients determine how they will be served. Those that are building value identify the clients they wish to serve and then design their service delivery systems to meet their needs. When you build your practice in this manner substantial value is created. Partners are serving the clients they want and doing the work they want to do.

Evaluate your clients often to make sure there is still a fit and that they meet the criteria of your firm. Some samples of client evaluation questions are included in diagram 2.

Processes and Systems

Firms that are busy building extraordinary value are using sophisticated technology and innovative systems to provide many of their services. Processes evolve over time and therefore must be continually defined, documented and evaluated for maximum efficiency. Continuous process improvement programs must become the norm for CPA firms. Failure to adopt this philosophy will result in substantial loss of value as processes become less efficient and the firm becomes less competitive. This is especially important in firms that have a succession problem. Firms that haven't invested in their technology infrastructure are now finding that the value of their practice has diminished substantially. A well designed and functioning firm is essential in today's business market.

People

Recruiting and retention of staff has been the top MAP issue for several years now. Unfortunately, due to the demographics of our society, this trend will continue into the future. As a result, there is intense competition for talent between firms. In order to be the choice of those accountants seeking employment firms must become much more innovative than they have been in the past. In order to be successful and build value through their people firms must "walk their talk".

Start by adopting specific internal service standards and hold everyone accountable, including partners, for their implementation. In that way the standards will eventually become part of the core values of the firm. See diagram 3 for some examples of internal service standards.

Next, start a coaching and mentoring program that really works. We all want to know what we need to do to be successful in our careers yet in most firms there is focus on current production and very little time spent on long-term development. Give your employees and partners a road map for success. Help them understand how to build the career they want. Individual accountability and responsibility will be improved and firm value will increase. Once a coaching and career development plan has been implemented obtain employee feedback to evaluate the rate of progress in the firm and to determine if any modifications need to be made. Let your people experience success and watch your practice grow.

Start Building Value in Your Practice Now!

Evaluate your practice in these five value building areas. Start with the most critical issues and make improvements as soon as possible keeping in mind that it is never perfect. There will always be room for improvement. The journey to practice success and value creation is challenging but well worth the ride.