According to 2012 firm metrics, accounting firms are spending approximately $10,000 per full-time equivalent on technology. Included in this metric is hardware, software, phones, bandwidth, data storage, labor and support, IT training, and network infrastructure.
Another way to calculate is by taking 6 percent of your net revenue (e.g., $5 million firm x 6 percent = $300,000). Assuming revenue per FTE is $160,000, ($5 million/$160,000 = 31.25 FTE), this would result in technology expenditures of $312,500. The range of $300,000-$312,000 is pretty close. Also, from our research we see smaller firms spending about 10 percent more than average and firms over $20 million in annual revenue spending 10 percent less due to the economy of scale. Other variables are the number and size of offices.
With this key information, your most important question should be, "Where are we investing in IT - on maintenance or innovation?" Next you should ask, "How can we improve our results?"
Most firms are spending the majority of their budget on maintaining infrastructure, and core applications (which often require significant maintenance due to the lack of integration) and desktop support. These core applications are often built upon multiple databases and require manual reconciliation and maintenance. They also often do not integrate with consumer technology (e.g., tablets, phones, and productivity applications like time and expense reporting).
The following are just some examples of IT innovations that we have seen leading firms implement:
- A collaborative, cloud-based accounting platform;
- Knowledge management;
- Project management, workflow and scheduling; and,
- Business analytics.
While there are similarities in requirements, firms differ due to a number of factors, such as how IT-savvy the end users are, the market segments they serve, success with content management, vendors, and the vision of the firm leaders. Therefore, there are five critical elements that firms should pay attention to in order to maximize the return on their IT investment and stay relevant and competitive.
The five critical elements have not changed over the years, but their importance has increased. These five elements are:
- IT governance;
- IT plan and budget;
- A peer network; and,
- Looking outside the CPA profession -- listen to leading clients.
The CPA profession is comprised of approximately 45,000 firms. The Top 100 Firms break at approximately $31 million in annual revenues. Ninety percent of firms are under $4 million in revenue, so the range of requirements varies. So does the approach and return on investment. In fact, some firms simply view IT as overhead and manage it accordingly.
The firms with the highest rate of return manage IT as a strategic asset. Even as a strategic asset, IT management is changing from an internal focus to a service delivery focus, where IT is simply a part of the firm and not a separate department. It has taken time for this to evolve from both a technology as well as a service delivery perspective. Today, the client experience is of ultimate importance, and that experience requires a technology component ranging from 24/7 access to real-time information. Let's quickly review the five elements and see how they have changed.
Leadership is critical to IT and firm success. The primary change today is in the type of IT leader required, as well as the leader's focus. Today's focus is more on business processes, technology and revenue creation for the firm and the firm's clients. While the technical aspect of IT is still important, much of the technical expertise can be sourced or delivered in a shared environment. IT is much like electricity. Initially every company had a power plant, and then Edison changed the industry with public utilities due to transmission capabilities and cost. The same is occurring in CPA firms with technology. Do you need the infrastructure of the past or should you source and focus on better client service and revenue-producing activities? Great leaders see this opportunity to transform their firms and are investing accordingly.
Leaders can also build unique-ability teams focused on client requirements and revenue opportunities. Technology is an integral part of today's team. They are also capable of identifying opportunities and managing change.
The size of the firm does determine the governance of technology. However, today firms are using IT task forces to provide better communications, identify opportunities and focus on priorities.
These task forces range in size from three to nine people in most firms, meet at least quarterly and are charged with developing an annual IT plan and budget that integrates with the firm's strategic plan.
Successful firms find that rotating members of this task force provides valuable insight and leadership experience.
IT PLAN AND BUDGET
Both a plan and a budget are important, and firms should manage from the plan in order to address priority projects like content management and an integrated cloud-based platform. It is tempting to focus only on the small and easy projects, rather than addressing the larger projects that will allow firms to share resources across offices and enable people to work from any location.
A summary budget can be developed quickly by simply using some of the metrics. With the approval of firm leadership, the budget can then be detailed and support the firm's technology plan.
While these are basic IT management tools, many firms fail to spend the time planning in advance and focus more on a list of maintenance projects. Innovation requires hindsight, foresight and insight.
A PEER NETWORK
Access to peers, expertise and personal development are critical. For 14 years we have conducted the Boomer Technology Circles where we bring partners (decision-makers) and IT professionals together to bridge the gap between firm management and technology. We also started the CIO Advantage for IT professionals preparing for and serving in the chief information officer role. Many have developed into chief operating officers and one into the chief executive officer of their firms.
These peer groups provide insight, research and development, metrics, relationships and confidence that save their firms time and money. The value of having peers to call who have experienced the same or similar situations is invaluable in the CPA profession.
LOOK OUTSIDE OF THE CPA PROFESSION
IT in our profession supports five times the applications that most clients support. In addition, those applications are often from different vendors and don't integrate or play well together on the same network. A look at other professions such as health care, banking and insurance often provides insight as to what is coming. The consumerization of IT also requires firms to look at trends such as tablets, smart phones and remote data storage.
Simplification is often the answer to breaking through the ceiling of complexity. This is currently happening in the accounting profession. As we move into cloud-based applications, there is less friction and better integration of applications from multiple vendors.
The accounting ecosystem expands, with firms having access to digital data, rather than being forced to re-enter information for tax and other compliance-based services. This is providing several new opportunities for accounting firms and changing client requirements and expectations.
With all this change, you might want to evaluate how your firm is doing in these five areas. Chances are that some upfront planning and increased emphasis on IT leadership will provide big dividends. It will also ensure that you remain competitive and relevant in a rapidly changing world.
Gary Boomer, CPA.CGMA, is the president of Boomer Consulting, in Manhattan, Kan.
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