[IMGCAP(1)]Every firm is looking for a competitive advantage in today'smarkets. Now is not the time to cut your technology investments. Infact, now is the time to invest in technology!
Here is a challenge: Commit an additional 1 percent ofyour firm's revenues toward its technology budget. In doing so, yourfirm will earn significant returns from these investments during theremainder of this year, as well as in years to come. To make sure yousucceed, follow the formula outlined in this article and focus newinvestments on workflow, processes and training.
In order to understand the importance of this additional 1percent investment, you must understand the economics of technologyspending in CPA firms. Most current technology investments go towardmaintenance, with little, if any, dedicated to innovation and training.For the past 10 years, firms have spent approximately 5.5 percent oftheir net revenues on technology. Today, technology includes anythingthat plugs into the wall, including copiers, phones, software, data andvoice charges, depreciation from capitalized hardware and software,labor, and maintenance.
According to 2008 Boomer metrics, firms are spendingapproximately $7,750 per full-time equivalent. The investment in 2008averaged 5.38 percent of net revenue. (A full-time equivalent iscalculated by dividing total hours worked by 2,080. This providescomparative information among firms, rather than simply havingmanagement estimate the head count, which varies throughout the year inmost firms.)
Another rule of thumb is that small offices (under $3million) pay a premium of about 10 percent, while larger firms over $20million benefit by about 10 percent from the economy of scale. There isa basic cost of just turning on the lights! Smaller firms also getsqueezed on revenue per charge hour, because their clients tend to besmaller and rates lower.
A trend for 2008 is that revenue per FTE was downapproximately $10,000 (in all firms). This is because many firms hadincreased capacity throughout 2008 and did not make staffingadjustments until it was too late. It appears that average revenue perFTE in 2009 will run approximately $155,000. Average is where the bestof the worst meet the worst of the best, and firms should use theirmetrics to improve their own performance. Markets and types of clientsalso have an impact on revenue per FTE.
The missing component to increasing production istraining. Gartner Research reports that for every hour of training,firms gain five hours of increased capacity. Firms continue to average50 percent chargeable - proving they do have time for training. Infact, how can your firm better use this capacity than to invest in itspeople? Firms simply are not taking the time to provide IT and coreskills training to partners, managers and administrative personnel. Forthe most part, they focus only on the compliance requirements of CPEand let people learn technology without guidance.
These realities form the bedrock for my challenge to add 1percent to your firm's IT budget and focus on improved processes,workflow and training to firm standards. Partners must participate inthis process to achieve the anticipated return. They must attendtraining and commit to being held accountable.
Consider a $3 million firm with 20 FTEs that invests 1percent of revenues to give each FTE 40 hours of training. The 1percent increase will cost $30,000, but with the Gartner multiplier,the 40 extra hours of training for each FTE will yield 4,000 hours ofincreased 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 oninvestment of 294 percent, and an 18.67 percent increase in revenue.
I encourage you to change the assumptions and use your ownfirm's numbers. Back in 1992, I convinced my partners that a 3 percentincrease in revenue per FTE would justify a full-time trainingcoordinator and provide a positive return on the investment. It doesn'tmake sense to invest in technology and not train. The above exampleshows an 18.67 percent increase in revenue. You have to believe, commitand execute in order to succeed.
Even if you get one quarter of this return, your firm isbetter off. It will have increased its capacity as well as its ITintelligence. Your firm's processes will also improve with this type offocus, and you will be capable of doing more with less.
Technology will have a major impact on all jobs coming outof the current recession. Employees will no longer be able to workoutside the firm's systems and remain competitive. All progress startswith the truth, and firms need to face the reality that some employeesare weak links when it comes to firm systems.
Now is the time to give everyone in your firm theopportunity to improve their employability. Most firms have some excesscapacity. If people resist this opportunity and do not see thedifference between leveraging and simply using technology, they shouldbe counseled out of the firm and replaced with employees that have therequired skills.
In order to succeed, firms must have strong leadership andbe willing to hold everyone accountable. Lifelong learning and ITskills 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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