the future of the cpa profession is now! leadership institute december 5, 2011

The Future of the CPA Profession is Now!

Leadership Institute

December 5, 2011

Objectives Today

Identify the 3 most critical areas that must change

Start the dialog about the firm of the future

Offer suggestions for immediate improvement

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

Critical Change Needed

Structure and Governance

Competitiveness and client

retention

Matching skills with tasks and/or

advice needed by clients

“Right” Structuring

Structure and governance•Ability to make timely

decisions?

•Technology application

•Appropriate client service

•Required expertise

•Economic viability

Firm Organization

Ask yourself Are we making timely decisions? Does everyone understand their role

in the firm? Are we able to react to changing

conditions? Are we using technology to our full

advantage? Are we fully utilizing our resources?

Firm Governance

FirmResources

P

P

P

P

Governance

CLIENTS

Structure & Governance Defined roles Clear decision rights Timely decisions Unacceptable to “opt out” Increased accountability

Increased Competition

Fees Client service Quality of advice Depth of relationships

Reactive Client Service

Not managing client expectations•Timing of work

•Fees

•Delivery

•Scope of services

•Value

Key Drivers of Strategy, Differentiation &

ProfitabilityCompetitive Distinct Breakthroug

h

Products

Client Service

Relationships

Source: How to Maximize FeesAlan Weiss, PH.D. 2008

Skill Sets Needed Communication Critical thinking and

problem solving Technical expertise Task oriented Forward looking advice

AICPA Demographics

Source: AICPA 2009

AICPA Demographics

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40

26

31

36

41

46

51

56

61

Women

Men

Current Demographics

CPAs

Non-CPAs

MenWomen

Women Men

Increased Salary & Benefit Costs

Average personnel costs as a percentage of net revenues • 2007 44.7%*

• 2008 45.4% *

• 2009 46.8% *

• 2010 46.4 %*

• 2011 45.1%*

Many firms now 50%+

* © INSIDE Public Accounting 2011 Used with permission

Increasing Salaries

50000

55000

60000

65000

70000

75000

80000

Dollar A

mount

Average Professional Salary

© INSIDE Public Accounting 2010 Used with permission

Average Profit Margins

0.26

0.28

0.3

0.32

0.34

0.36

2005 2006 2007 2008 2009 2010 2011

0.346

0.3250.315

0.3050.291 0.291

0.3001

Perc

enta

ge

Margin

© INSIDE Public Accounting 2011 Used with permission

Passive Firm Management & Client Service

After the fact monitoring •Charge time/Budgets

•Accountability/Profitability

•Credit & A/R Inefficient processes &

systems Reactive client service

Firm of the Future

CPAs

Non CPAs

Active Management

Continuous budgeting and reporting Partner & staff accountability plans Manage

•Margins

•Leverage

•Scheduling/utilization

Active Management

Continuous budgeting and reporting Partner & staff accountability plans Manage

•Margins

•Leverage

•Scheduling/utilization

Staffing Strategy Reverse upward delegation

•Must use lower cost labor when possible

•Don’t allow people to work below their level

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

Staffing Strategy Reverse upward delegation

•Use lower cost labor when possible

•Don’t allow people to work below their level

•Higher level personnel must leverage

•Utilization percentages must increase

Qualities of Successful Firms of the Future

Governance Will Be Supported

Roles will be defined and supported

Decision making will become more efficient

Managing Partners will be allowed to manage

Accountability will be the norm

Average Profit Margins

0.26

0.28

0.3

0.32

0.34

0.36

2005 2006 2007 2008 2009 2010 2011

0.346

0.3250.315

0.3050.291 0.291

0.3001

Perc

enta

ge

Margin

© INSIDE Public Accounting 2011 Used with permission

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

Client Service

Communication will improve Expectations will be managed

•Better engagement letters

•Change order process

•Timing will be agreed upon

Firms will focus on client value

Client Service Strategy Describe the engagement Communicate early & often Responsive Deliver on time Understandable fees Deliver value

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

There will be a One Firm Culture

Staff will be encouraged to work together•Compensation systems

•Coaching

•Evaluations

Mutual success will encourage teamwork

Rating of Motivators

Firms will embrace coaching for improved

performance

Copyright © 2011 Steve Erickson LLC

They will hire and retain the best professionals

Positions will be competitive

Pay will be above market Individual expertise will be

high Appropriate leverage will

be the norm

Firms will focus on what they do best .

Industry specialization Functional area

specialization Exceptional client service Relationship management

They will not only manage change, they will create

change Client service innovation Value enhancement Improved leverage Higher levels of quality Firm structure and ownership

Technology will be fully integrated into every part

of the practice. No ability to “opt out” No shortcutting Standardized processes Consistent files Real time information

Processes Lagging

Over 60%

Files not Consistent

Over 72%

Firms will live their core values, no exceptions. Clients

•Service

•Integrity

Partner/staff relationships Partner/partner

relationships

Implementation

Change process• Simplified

• Incremental

• Positive

• Sustainable

Trusted Business Advisors

Reading•Clients for Life – Sheth & Sobel

•Making Rain – Andrew Sobel

•Trusted Business Advisors – David Maister

•Million Dollar Consulting – Alan Weiss

•True Professionalism – David Maister

Copyright © 2010 Steve Erickson LLC

Accounting FirmProfit Improvement Model TM