This is the time of the year when firms start planning their retreats and firm meetings. Following are a few ideas to help you with this process.

1. Focus on the future. We can’t change the past but we can react and manage the present which leads to future success. If partners have unresolved issues hold a separate meeting in advance of the retreat to get resolution. It is very difficult for partners to be genuinely positive, focused and engaged in discussions concerning the future of the firm when old unresolved issues are still on their mind. Make sure everyone understands that the retreat is about the future of the firm.

2. Prepare in advance. One wise managing partner told me to never call for a vote of the partners if you don’t know how the partners will vote. Sage advice that is very important to keep partners from getting boxed in a corner and becoming overly defensive during a retreat. Interview or poll your partners so you know their positions and feelings about matters to be discussed and acted upon in advance of the retreat. If you find there are significant differences of opinion among the partners start the reconciliation process well in advance of the meeting. Sometimes a disagreeable or obstinate partner will have to be told how the other partners feel about certain matters, what the group decision looks like it will be and that you would like to have their acceptance of the majority decision. A retreat is no place for surprises!

3. Have an agenda. A carefully designed agenda will go a long way toward making your retreat a success. I usually recommend that firms use a two day meeting format as it is very difficult for people to get from a problem to the right solution in a very short period of time. Discussing issues and alternatives on the first day of the retreat and making decisions on the second day of the retreat works best. I recently read in a medical journal that researchers have found that most of us have better problem solving abilities and make better decisions after a good night’s sleep and I believe it as I have commonly observed this fact over the past ten years of facilitating retreats. The “sleep on it” advice that our mothers gave us really works! The agenda needs to be distributed well in advance of the meeting and must include the objectives, the process as well as the decisions to be made at the retreat. You don’t want partners at the retreat telling the group that they need to “think about it” before they can make a decision.

4. Adopt and enforce ground rules. This is especially important if there is a history of getting off the topic being discussed or behavior at partner meetings and retreats that has been disruptive or disrespectful. The facilitator of the retreat should prepare a list of the ground rules that are important and then ask the group for any others they would like to add to the list. Once the list is developed have it adopted by the group and make sure the facilitator of the meeting is given the authority to enforce the ground rules. Here are a few examples:

• I will give the sessions my full attention
• I will listen to others
• Only one speaker at a time
• I will stay on topic
• No verbal attacks
• Focus on solutions (the future) rather than problems (the past)
• Keep a positive attitude
• Focus on the long-term health and benefit of the firm
• Support for the decisions made by a majority of the partners
   

5. Remember your conversations define your relationships. There is a very clear pattern between strained partner relations and how the partners communicate with one another. If conversations are chronically heated and emotional I can almost guarantee their relationship is strained. When this happens repeatedly partners start to meet as little as possible because they don’t want the conflict and meeting just causes more disagreement and conflict. Don’t let your partners get caught in this trap. If partners want to have productive relationships remember to keep the conversations productive and professional as it promotes respect which leads to more effective collaboration and better decisions.

6. Know when to use a facilitator. If past retreats have not been as productive as you would like or you would like to cover more ground in your retreat you might want to consider hiring a facilitator. Someone to hold the partners accountable and to keep the agenda moving forward. This also allows every partner to speak their mind without appearing to control the agenda and discussions. It’s often tough for partners to serve as facilitators and still appear independent and objective when they have some skin in the game.

7. Make decisions and follow up. At the end of the retreat there must be an action plan designed to implement the decisions made during the meeting. The action plan must be approved by the partners and include the person that is responsible and the date for completion. I encourage partners to make the action plan a standing agenda item at monthly partner meetings to monitor progress and maintain accountability. The level of trust among the partners will improve as plans are successfully implemented.

Once partners develop a pattern of positive and productive retreats they will become more engaged and willing to participate in the development and implementation of the strategy for the firm going forward.

Want some help? Call me… we can talk about options, and get your firm on a solid footing for profitability and performance into 2012 and beyond! 505.331.9100

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During this busiest time of year it is very important that CPA firms focus on client service as a large percentage of client interactions will take place over the next few months.

Great client service is all about managing your client’s expectations about your fees and then doing what you say you will do rather than having them form in their mind their expectation of your services and fees. Why leave this to chance? Most client disagreements involve fees.

Fees

Most conversations with clients about fee disputes occur after the engagement has been completed which puts many accountants on the defensive. Have you had some of these discussions?

“I had no idea it was going to cost this much”.

“You said the fee would be between $20,000 and $25,000 and now you’re billing me $40,000”.

“My fee was $7,500 last year and now you’re billing me $10,000”.

Clients don’t like to be surprised with your fees just as you don’t like to be surprised by professionals you engage. Here are five things you can do immediately to substantially eliminate the confusion and misunderstandings with clients about your fees.

1. Stop quoting fee ranges. The moment you quote a range you are setting your client’s expectation for the maximum fee.

   Rather than say “We estimate our fee will be between $10,000 and $12,000” use the phrase “We estimate our fee could be $12,000 or more”.

   This dialog helps to eliminate the upper limit fee expectation and allows you to have a discussion with your client if additional fees are warranted. In all of my years of practice I very seldom experienced an engagement where we were at the lower end of the fee estimate so why even include it in your quote. If a client insists on a maximum fee be sure to build in the contingencies you might experience during the engagement. Fee estimates always need to be realistic rather than overly optimistic.

2. Initiate the conversation about fees with all of your clients. Draft a general letter about fees that you can include with your engagement letters and in addition formalize and distribute a copy of your firm wide credit policy.

   The general letter about fees should start with a discussion that you want every client to receive the maximum value for the fees they pay and that there are certain instances where this can occur. Follow with examples of how additional fees are often incurred. These examples might include incorrect accounting records, incorrect accounting methods, failure to provide agreed upon information and starting and stopping work.

Another essential document is a Firm Credit Policy. It should cover your receivable policy, interest on unpaid balances and the fact that the firm will stop work if payments are not made as agreed to in your engagement letter (this is not a substitute to having a stop work clause or receivable terms in your engagement letters) simply it is a document that partners can use to take the edge off of fee conversations with long standing clients.

“The partners of the firm have agreed to abide by our firm credit policy. I have no ability to override the policy”.

Of course you want to be sure that your credit policy is in compliance with the laws of your state.

3. Negotiate the scope of work not your fees. The moment you agree to unilaterally reduce your fees you then have lower fees. I’m encouraging my clients to negotiate the scope of services rather than just lowering fees without consideration.

   I know that times are tough out there but firms really have to look at their pricing decisions strategically for the long-term viability of their practice.

4. Use scheduled billing techniques. The only thing worse than doing work for a substantially reduced fee is doing the work and not getting paid. Firms need to stop extending excessive credit. Get retainers (50% of estimated fee is due before starting work, the balance is due upon delivery of the product) especially for new work. Use scheduled billing techniques for larger engagements (i.e. 30% now, 30% in one month, 30% the next month and 10% due upon delivery of the product) to mitigate your risk. Before discounting your fees please consider how you have to pay just about any service provider you engage.

   I can’t think of too many that don’t get some money before they start work. After you deliver the work many clients think there is no rush to pay until they need more services.

5. Call before sending an unexpected bill. The absolutely biggest fee mistake an accountant can make is to send a client a big bill that they didn’t expect. I’ve actually seen cases where clients refuse to pay anything until they have the invoice adjusted in their favor.

   If you find yourself in the situation where you have cost overruns that have not been discussed with the client rather than just sending the invoice (I call these letter bombs) and wait for the client’s reaction make a call before you send the bill.

   The conversation might go something like this, “Mr. Jones I was just going through the time on your engagement and wanted to explain why we were over our budget estimate. (explanation here) Before I prepare the bill I wanted to make sure you understood what happened”. At this point there are three possible outcomes.

   1. The client tells you they understand and to send the bill. You get paid.

   2. The client wants to negotiate the overrun. You agree on an amount, send the bill and get paid.

   3. The client informs you that your engagement letter stated that you would inform them before incurring any fees in excess of the estimate. You did not inform them and they will not pay for the excess. Send the bill for the estimated fee and get paid. Evaluate the client relationship and decide if you want to provide further services.

For many years I have contemplated why it is so difficult for accountants to discuss fees with their clients and have come to the conclusion that most don’t like conflict and don’t want to risk their client relationships.

In my opinion not talking about fees with your clients leads to a much greater likelihood that misunderstandings, hard feelings and the loss of clients will occur. It is very important that both the client and the accountant feel they are getting a fair deal if the desire is to perpetuate a long-term relationship.

It takes a little time to deal with client fee issues but the rewards are well worth the effort. Become not only a great biller but also a great collector of fees and watch your stock in your firm soar.

Share!

Have you devised a way to talk easily with your clients? Do you have a story about the changes in your client relationships that might have occurred before and after discussing fees? Share below!

It’s important to remember to take care of yourself – and your family – during this stressful time of year.  Nothing, really, is more important, and you can’t serve your clients well if you’re running yourself ragged, feeling resentful or panicking about not having time.

Time is an equal opportunity employer.  Each human being has exactly the same number of hours and minutes every day.  Rich people can’t buy more hours.  Scientists can’t invent new minutes.  And you can’t save time to spend it on another day.  Even so, time is amazingly fair and forgiving.  No matter how much time you’ve wasted in the past, you still have an entire tomorrow.  ~Denis Waitely

The Future is something which everyone reaches at the rate of sixty minutes an hour, whatever s/he does, whoever s/he is. 
~C.S. Lewis

Use the comments section below to share.

I really appreciate when the greater accounting community “gets” my approach and shares it with their clients.

Click to read the article, “Accountability, Efficiency and the Quest for the Perfect Public Accountant“, and by all means, share your comments & feedback!

I hear a very common concern from the employees in many firms that I have visited. “The partners are not on the same page. In fact many of the partners openly disagree or criticize other partners”. Now let me ask you, if you were an employee in this firm how would you feel? Maybe a little fearful, concerned about the future and how partner differences might have a negative impact on your career? These thoughts can lead to feelings of insecurity and stress and if the feelings become too great maybe a job search will be in order. Your staff will leave if they think their future is threatened or in question at your firm and not only that, they will not give your clients the level of service you expect. Remember the old saying, “Happy people work better than unhappy people”, it applies to employees as well as partners.

I have surveyed well in excess of a thousand partners and I have discovered a direct correlation between the level of trust among partners and the profitability in their firm. If the level of trust and respect among the partners is high the profitability also is high and just the opposite is true when trust and respect are low. You are probably thinking this just seems like common sense but if this is case why is it so hard to accomplish? After giving this some thought I have come to the conclusion that many partner relationships are somewhat conditional based upon profitability and income.

If they are making money then they will trust and respect you. Absent that, they will withhold judgment and question your motives. Peak performance is difficult to achieve when partners as well as employees do not have absolute confidence in the leadership, direction and performance of the firm.

If you would like to change these perceptions I think there are deliberate steps that can be taken to remove these conditional barriers to your success. Doing business as usual with many paying lip service to the issues will not facilitate change. A leadership and culture intervention is the place to start.

Improve the Culture and Relationships in Your Firm

1. Hold a Partner Summit-I call this a summit as it is about firm strategy at the very highest level to stress the sense of urgency and importance of these matters. This is not about the “soft” stuff; it is about the “smart” stuff. The important stuff that really makes you money.

   1. Adopt a partner “Code of Conduct”-Typical subjects include behavior, time and billing requirements, scheduling and resource management and adherence with systems and processes. After approving a Code of Conduct it must be supported by leadership. If the partners will not follow the rules is it realistic to think the employees will? Partners must “walk their talk”.

   2. Adopt or reemphasize your firm core values-When I read many core value statements I find them overly complex and not followed in the day to day practice. Pick 3 or 4 non-negotiable core values and live them every day, no exceptions. Once adopted the core values must be adhered to by both partners and employees otherwise many individuals will lose faith in the partners’ ability to govern the practice.

2. Invite your senior through manager personnel to a “leadership summit” to inform them of the policies and rules that have been adopted and solicit their input to gain support and ideas for implementation. This is a very important step! In many instances I have seen partners try to implement these policies without the support of management only to subsequently have the effort fail.

   1. Include your management team in the solution by letting them have a stake in the outcome. (i.e. How the policies will be applied in the practice and how they can help with the implementation)

   2. Many firms have included support of these policies and core values as a component part of their evaluation process. This let’s everyone in the firm know that you are serious about improving the culture in the firm.

3. Hold a firm wide meeting to announce the new initiatives and then develop a program to keep the word out among your employees. In order to be effective these matters must be continually reinforced.

Partner accountability and unity was listed as the #1 concern in the 2011 PCPS survey of firms. This is a huge issue in the profession. Take some action now to improve partner and staff relationships and watch 2012 be the best year ever!

During this time of year I tend to reflect on my life and develop plans for the future and I imagine that many of you are doing the same so I thought I would share some my thinking with you.

First, you think as you speak so speak kindly to yourself and others.

There is so much negative and fearful information competing for space in your brain that you have to limit how much time you listen to these messages.

Choose a more positive and happier (I certainly know this isn’t always easy) path in life. Like anything else it requires effort and will get easier over time. I start every day with the intent that it will be a great day and sure enough most of my days are great days. Try it, you have nothing to lose.

Second, choose to be a person that others want to be around.

Everyone wants to be in contact with kind, helpful, considerate people. It feels good.

When others want to be in contact with you it creates opportunities for you which will make your career more satisfying and successful.

Third, choose to be accountable.

It is a great feeling to know that you are in charge of your career.

Take responsibility to get your charge hours, improve your realization and give great client service.

Take the initiative to discuss fees with your clients. They love to talk about their money.

Practice doing what you say you will do and notice how much easier your life gets.

Fourth, choose to be successful.

Profits are planned, they don’t just happen.

Start with a great day that turns into a great week, a great month and a great year.

I call this active management of your practice–taking control over your success rather than sitting back and waiting to see what happens.

I guarantee you that some of your peers will have their best year ever in 2012 regardless of the economy by using this approach to their business.

I know you’re probably thinking that this is simple stuff that everyone knows, and you are so right.

The difficult part is the execution and that is where many fail.

Be accountable to yourself first and all of your other responsibilities will fall in line. If you’re not accountable to yourself you risk having an unsatisfying year.

Choose to make 2012 a great year!

I’d love it if you’d share the ways you choose to create success in your life and practice. Please do so below!

“Our people need to be more efficient”.

“When I was doing that job I always brought it in on budget. Why can’t they do the same”?

Does any of this have a familiar ring to it?

I’m fairly certain that these and similar statements have been espoused on multiple occasions in your firm as the topic of efficiency and realization is universal in the public accounting profession.

Realization rates have been declining for years while salary and benefit costs in firms are now at record highs. Simply put, the value of accounting, auditing and tax services has not increased as quickly as the value and cost of highly skilled accountants yet we continue to perform the services in the same manner and expect to get a different result.

Rather than re-engineering the processes and firm structures to lower the cost per hour of providing services, most firms have kept riding the same efficiency horse and demand that it continually go faster.

In many firms the needed improvements, when looking at efficiency alone, are as much as 10% to 20%–which is somewhat unrealistic. Improvements in human efficiency are typically small and incremental.

Between 1954 when the world record for the mile run was under four minutes for the first time and the current world record set in 1999, fifteen seconds have been trimmed off the record. Just a 4% increase in efficiency and performance in 45 years! I don’t know that it is possible to make up our efficiency shortfalls in a very short period of time as expected by many practitioners.

Certainly technology has helped the profession gain more efficiency but much of this progress has been offset by the higher cost of accountants. If we improve our efficiency by 2% per year and the cost of labor is increasing at 3% we will continue to fall behind. It will not work. What will work is a gradual increase in efficiency along with a gradual decrease in labor costs.

Given that many low value tasks are now performed by some of your most expensive staff I think it would be very reasonable to start 2012 with a goal to improve efficiency by 2% and to reduce labor costs by 2%.

All you have to do is actively manage the process to make sure it happens. Continue this trend for 5 years and efficiency will be improved by 10% and labor costs will decrease by 10%. For a $5 million dollar firm this could mean $500,000 to $750,000 in improved profitability.

Nothing to sneeze at and you won’t even have to break a sweat!

Many of the ideas and recommendations can also be applied to the challenges the accounting profession is currently facing. Accounting firm profit margins have been declining for some years yet we continue to practice in the same manner. This quote from Samuel Palmisano about IBM especially struck a chord,

“You spend more time arguing amongst yourselves over a shrinking pie than looking to the future and so you miss the big turn”

Don’t miss the next big turn in public accounting because you are focused on a shrinking pie.

Reliance on the Financial Audit

The audit product simply must get better in order to remain relevant and essential in today’s business world.

The current events at Olympus are but another example of where the audit procedures did not discover and disclose essential financial information.

Before this we had Bear Sterns, Lehman Brothers, World Com and Enron bankruptcies where each had been given a clean opinion on their most recent financial statements and were out of business before one year had passed. A year in the life of any business has become more difficult to predict as the business world has become more complex and transactions more numbered.

Through technology, company information has become readily available and as a result the markets react faster which makes the “going concern” evaluation that auditors must perform much more challenging. The financial audit must get more reliable if it is to retain its relevance in the future.

In these times, the reliability and quality of financial information has never been more important and must be the focus of every quality control program in every firm.

Retention of Staff and Clients

Competition for your best staff and best clients has never been greater and will continue to increase in 2012.

The best people have always been hard to recruit as they typically are employed and engaged in their current position. Over the past few years, however, salary increases have been limited due to the recession worldwide and thus, firms have become vulnerable and their top performers are being actively recruited by their competition.

The competition for great accountants will only intensify in 2012 and beyond. If you want to retain your best and brightest accountants make sure you communicate early and often and let them know exactly how they can be successful in your firm and what success will mean for them.

Client retention will also be a challenge for many in the accounting profession, as there has been little organic growth for the past few years and as a result they have focused their marketing and sales efforts to the clients of other firms. Competition has been tough in many markets and substantial fee-cutting has become the norm.

In 2012, firms must focus on providing extraordinary value to their clients. This includes thoroughly discussing fees, service and delivery expectations and looking for ways to provide value beyond their necessary compliance services.

Improve Profitability

The consumers of accounting, auditing and tax services have matured and are now expecting more value for the fees they are willing to pay.

Fixed fees have become the norm for routine compliance services at a time when salaries and benefits for most firms are at an all time high.

In 2012 accounting firms must start evaluating and minimizing the cost per hour to provide services to their clients by not allowing high-cost personnel to perform low-value services (see my last post on this idea). Over the past decade there has been a huge reverse delegation of administrative tasks by having technology on the desks of our professionals.

Care must be taken to ensure your high-cost professionals are performing high-value services in the coming year. Failure to take these steps will result in lower profits and increased fee pressure from your clients.

2012 will be a year of change for the accounting profession. Firms that initiate these changes and manage their process will have a significant competitive advantage over those firms that just maintain the status quo.

This is, in many cases, due to the upward delegation of routine tasks to experienced accountants just because they have scanners and computers on their desks.

Technology is supposed to replace high cost labor, not the reverse. As a result we have many of our best and brightest performing clerical tasks in an inefficient manner. CPA Firm staffing choices can make a significant impact on bottom line and overall firm performance.

“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

I have come to realize that the CPA profession is operating by the second rule in many instances.

It is time to rethink your staffing models to make sure you have employees with the right skills to perform certain tasks.

Here are a few that come to mind:

DATA MANAGEMENT SPECIALIST-An employee that prepares and files electronic data for use by the professionals in the firm. This year I have been in firms where $100K+ managers are preparing PDF documents. It’s really hard to make money with this cost structure. Hire an expert in electronic documents. Costs will go down and productivity will increase.

EMAIL EXPEDITER-An employee that files email into folders for use by the professionals. According to a survey I recently conducted, professional staff are spending in excess of 1 hour per day dealing with email. In a firm with 25 professionals with an average billing rate of $150 this represents almost $1,000,000 in potential lost fees every year. I have no doubt that this position would pay for itself many times over in the span of a year.

TECHNOLOGY COORDINATOR-Hire some folks that really know the software and can become expert in its application. Let your professionals focus on professional matters. I’m not saying to not allow professionals to use software; I’m just saying they shouldn’t have to become software experts to practice public accounting. Just look at all the training costs and lost efficiency simply due to the lack of expertise in software use.

It is time to reconsider the staffing levels that are needed in today’s CPA firm. The world around us is changing and I think the time has come to rethink the structure, processes and staffing in most firms.

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