Every firm is looking for a competitive advantage in today's markets. Now is not the time to cut your technology investments. In fact, now is the time to invest in technology!
Here is a challenge: Commit an additional 1 percent of your firm's revenues toward its technology budget. In doing so, your firm will earn significant returns from these investments during the remainder of this year, as well as in years to come. To make sure you succeed, follow the formula outlined in this article and focus new investments on workflow, processes and training.
In order to understand the importance of this additional 1 percent investment, you must understand the economics of technology spending in CPA firms. Most current technology investments go toward maintenance, with little, if any, dedicated to innovation and training. For the past 10 years, firms have spent approximately 5.5 percent of their net revenues on technology. Today, technology includes anything that plugs into the wall, including copiers, phones, software, data and voice charges, depreciation from capitalized hardware and software, labor, and maintenance.
According to 2008 Boomer metrics, firms are spending approximately $7,750 per full-time equivalent. The investment in 2008 averaged 5.38 percent of net revenue. (A full-time equivalent is calculated by dividing total hours worked by 2,080. This provides comparative information among firms, rather than simply having management estimate the head count, which varies throughout the year in most firms.)
Another rule of thumb is that small offices (under $3 million) pay a premium of about 10 percent, while larger firms over $20 million benefit by about 10 percent from the economy of scale. There is a basic cost of just turning on the lights! Smaller firms also get squeezed on revenue per charge hour, because their clients tend to be smaller and rates lower.
A trend for 2008 is that revenue per FTE was down approximately $10,000 (in all firms). This is because many firms had increased capacity throughout 2008 and did not make staffing adjustments until it was too late. It appears that average revenue per FTE in 2009 will run approximately $155,000. Average is where the best of the worst meet the worst of the best, and firms should use their metrics to improve their own performance. Markets and types of clients also have an impact on revenue per FTE.
The missing component to increasing production is training. Gartner Research reports that for every hour of training, firms gain five hours of increased capacity. Firms continue to average 50 percent chargeable - proving they do have time for training. In fact, how can your firm better use this capacity than to invest in its people? Firms simply are not taking the time to provide IT and core skills training to partners, managers and administrative personnel. For the most part, they focus only on the compliance requirements of CPE and let people learn technology without guidance.
These realities form the bedrock for my challenge to add 1 percent to your firm's IT budget and focus on improved processes, workflow and training to firm standards. Partners must participate in this process to achieve the anticipated return. They must attend training and commit to being held accountable.
Consider a $3 million firm with 20 FTEs that invests 1 percent of revenues to give each FTE 40 hours of training. The 1 percent increase will cost $30,000, but with the Gartner multiplier, the 40 extra hours of training for each FTE will yield 4,000 hours of increased capacity, or $560,000 at an average billing rate of $140. Even after you take out the opportunity cost of the training ($112,000) and the extra 1 percent investment, it still yields a return on investment of 294 percent, and an 18.67 percent increase in revenue.
I encourage you to change the assumptions and use your own firm's numbers. Back in 1992, I convinced my partners that a 3 percent increase in revenue per FTE would justify a full-time training coordinator and provide a positive return on the investment. It doesn't make sense to invest in technology and not train. The above example shows an 18.67 percent increase in revenue. You have to believe, commit and execute in order to succeed.
Even if you get one quarter of this return, your firm is better off. It will have increased its capacity as well as its IT intelligence. Your firm's processes will also improve with this type of focus, and you will be capable of doing more with less.
Technology will have a major impact on all jobs coming out of the current recession. Employees will no longer be able to work outside the firm's systems and remain competitive. All progress starts with the truth, and firms need to face the reality that some employees are weak links when it comes to firm systems.
Now is the time to give everyone in your firm the opportunity to improve their employability. Most firms have some excess capacity. If people resist this opportunity and do not see the difference between leveraging and simply using technology, they should be counseled out of the firm and replaced with employees that have the required skills.
In order to succeed, firms must have strong leadership and be willing to hold everyone accountable. Lifelong learning and IT skills are no longer a luxury - they are a requirement to compete.
Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.
(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.
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