Poor health is expensive. It results in wasted resources and time, decreased productivity, increased turnover and loss of clients. Firm health is determined by five basic components:

1. Leadership.

2. Teamwork.

3. Culture.

4. Strategy.

5. Communication.

This doesn't sound difficult, but without innovation, discipline and a bit of paranoia, as Jim Collins says in Great by Choice, firms can easily lose their health. Anyone who has worked in an unhealthy firm knows the issues of dealing with politics, bureaucracy, confusion and dysfunction. Most firms desire great health, as it gives them a competitive advantage.

In order to gain and maintain great health, a firm must focus on all five components consistently. A common mistake is to focus on the components individually, rather than in their entirety. This takes time and involves working on the firm, rather than just working in the firm.

Let's further explore each of the components and look at resources and tools that are available to improve your firm's health. I prefer a practical, rather than an academic, approach, knowing that every firm is challenged for competitive resources. In order to make this a relatively short and easy-to-read article, I will utilize a framework and table (see "The 5 components of firm health" here, or below). The resources listed are proven for both accounting firms and their clients. You may have your own resources you prefer.

[IMGCAP(1)]The summary below shows all components fit together, yet the tendency in most firms is to ignore one or more of the internal components and only focus on productivity (chargeable time and client services). Both firm health and productivity are important. They must be balanced for your firm to maintain its health.

If you review the accompanying table, it addresses two (leadership and talent development) of the five elements of the "missing structure" that are commonly ignored by smaller and midsized firms.

The three other elements are technology, client development and compensation. These elements are normally recognized as important by most firms, yet how they deal with these elements dictates financial success, rate of growth, and succession. The following 10 questions will help you assess your firm's health.

1. Does your firm have an annual planning process?

2. Do you include managers and others (non-owners) in the process?

3. Do you have written goals for the firm and each person that consider revenue per full-time equivalent (all employees)?

4. Do you assign people to teams based upon their unique abilities?

5. Does the firm know each person's unique abilities?

6. Does each person have a personal development plan that includes training and learning objectives?

7. Does your compensation system reward people (including partners) for accomplishing the firm's strategic initiatives?

8. Do you hold everyone (including partners) accountable?

9. Does your firm have a management and leadership development program?

10. Does each partner over age 50 have a written succession plan?

The above list is certainly not all-inclusive, but for illustrative purposes. Building a healthy firm can be a messy process that requires doing multiple things at once and maintaining consistency over a long period of time. This requires a cohesive leadership team, clarity and over-communicating the message.

Dysfunction at the top is one of the primary risks in firms. Firms that have cohesive leadership, clarity, and communicate that clarity again and again and again create an environment of success that is almost impossible to prevent -- a competitive advantage!

Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.

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