CPAs are often characterized by a propensity to cut expenses, but are they good at pruning? New growth comes from pruning, whereas death can result from cutting. Some firms are resorting to making cuts wherever possible, while others are finding quality personnel and skillfully managing overhead.
At our Boomer Technology Circle meetings and other conferences, I often hear managing partners, chief operating officers and firm administrators state, "I wish the partners would just get out of the office and meet with clients, rather than tell me how we can cut another service unit's budget."
Reduce, cut, shrink and eliminate are all prominent words in the accounting profession's vocabulary. Pruning sounds like a similar concept, but it has a different meaning. Merriam Webster's dictionary defines it this way: "to cut off or to cut back parts of, for better shape or more fruitful growth."
Pruning is different from cutting. Partners are typically a "protected class" within almost all firms, but this cannot continue.
In many firms, revenues and even profits are up during the first four months. Nevertheless, I have observed about a 5-to-10-percent reduction in staffs at larger firms, and most admit that they should have done this last year or even earlier. They were growing at full speed, and it took too long to change directions and make tough management decisions. This is not surprising in an industry where management is not valued as highly as personal production.
Some firms are failing to recognize some critical realities:
* Underperformance is different from a staff reduction. Many firms have done a poor job of documenting performance and conducting formal performance reviews. Therefore, they run the risk of potential litigation when they say that they eliminated the non-performers.
* Skills of the future will differ from skills of the past; however, attitude, motivation and intelligence will continue to be important. IT skills and cost of production are important facts moving forward in a competitive market. The tendency is to cut entry-level and lower-paid employees, rather than managers and partners. Underperformance is not limited to a particular level. The economic model of the future is much better when you prune and plan for growth, rather than just cut in order to maintain net income before partners' salaries. The ability to change and develop talent is critical. Firms with this culture have a significant advantage over competitors that lack a training/learning culture and resist change.
* Team members and the firm are more important than rugged individualists in a shared-vision culture. The demands of today's clients require a team, rather than a rugged individualist, approach. Teams require a diversity of unique abilities and the attitude that the whole is greater than the parts.
Here are some characteristics of accounting firms that prune but see green sprouts from making the tough decisions:
* Leadership has an edge. The firm's leaders possess the ability and willingness to make decisions, even when unpopular - and in a timely fashion.
* A strategic plan - with a strong vision and unchanging core values.
* A vision of organic growth with acquisitions that fit culturally and can be linked through standardized technology. This vision provides opportunities for quality people.
* Accountability - where everyone, including partners, is held accountable.
* A training/learning culture where knowledge- and wisdom-sharing are two-way streets.
* A sales strategy that includes movement toward larger clients that fit a defined profile and have expanding requirements.
The common message I hear from firms across the globe is the prevalence of work and new revenue opportunities. More regulation appears certain, providing accounting and auditing opportunities. CPAs are the most trusted business advisors. Use this perception to your advantage in today's uncertain markets.
Relationships are vital, because they provide confidence. Leadership provides direction, and creativity provides new capabilities. In today's environment, clients and even accountants can get caught in paralysis because of feelings of confusion, isolation and power loss. Entrepreneurs know how to take people out of paralysis mode and into action. Once they are in action, good things start to happen. This all transpires through a process of communication (talking about losses or potential losses and bad things), clarifying what is really important (planning and focus), and developing or acquiring new capabilities.
The prescription for helping clients avoid paralysis (it also works for accountants) is being in motion, interested and useful.
Most firms recognize the importance of talking to clients, but are your partners and managers doing it regularly and are you holding them accountable?
For many firms, new "green" is starting to appear.
Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kansas.
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