In most firms, net income per partner is an important measurement of how the firm is performing.
In today's environment, another important measurement is the level of investment that the firm is making in training, learning and technology. People and technology are the top two areas of investment in most firms; however, it is easy for firm leaders to get caught in the "net income per partner" trap and, as a result, reduce the future value of their firm. Some refer to this management practice as "milking versus investing" in strategic assets.
This phenomenon tends to happen in firms that have little knowledge of technology in the management group or in a leadership position. What you don't know may cost you when it comes to technology and the retention of quality personnel. On the other hand, investing minimal amounts in technology and training can maximize profits for a few years.
Due to the way some firms compensate partners and calculate retirement benefits, conflicts of interest often arise. The fact that most firms continue to bill based upon chargeable hours rather than value also justifies lower investments in technology and training. Most firms are doing well and some are predicting their most profitable year. These conditions lead some firms into the "net income per partner" trap and complacency.
The attitude of "Why should we change?" exists in many firms. In reality, competition and the shortage of labor will probably force firms to invest more in technology and training.
The question becomes, at what level should firms be investing in order to maintain or increase the value of the firm itself while maintaining reasonable profit levels? The firm's value increases as the capabilities and capacities of employees increase. Profitability is important, but it is only one measurement.
Some important metrics we have learned from the Boomer Circle member firms are:
* Revenue per full-time equivalent;
* The average rate per chargeable hour;
* The percentage of revenue invested in technology;
* Percent chargeable (charge hours/total hours for all personnel);
* The amount per FTE invested in technology; and,
* The number of IT support personnel per number of end users.
Firms that continue to improve these numbers year after year tend to have better balance than those that just focus on net income per partner. Firms that focus on charge hours and realization tend to miss the big picture and deplete their strategic assets (people and technology) in the process.
While these are general statements, the following 10 questions may enlighten you on how your firm is doing compared with leading peer firms. We define leading peer firms as those that have above-average net income per partner as well as a well-trained staff and current technology.
1. Does your firm have at least one IT support person for every 25 end users? (Technology support personnel include network engineers, application support, trainers and help desk personnel.)
2. Does your firm invest 6 percent or more of net revenue in technology annually? (Technology includes hardware, software, maintenance, communications, training and outsourced services.)
3. Does your firm have a written technology plan and budget that integrates with the firm's strategic plan?
4. Does your firm have a leader who is responsible for technology and is a member of the executive committee? (This person can be a partner or chief information officer. She is generally not a technician.)
5. Does the firm have a training/learning program for all personnel - including partners and administrative personnel?
6. Does revenue per full-time equivalent (total hours/2,080) exceed $130,000? (Remember, average is where the best of the worst meets the worst of the best. The $130,000 average is based upon national peer statistics for 2003.)
7. Does your firm value bill and utilize change orders on fixed-fee engagements?
8. Is your IT department adequately trained and up to date on current technology and communications?
9. Is your managing partner (or CEO) technology literate? (If not, does he have a CIO who he trusts and listens to?)
10. Does the firm have a learning coordinator who interfaces between the IT department and the end users?
If your firm can answer the majority of these questions positively, you probably have the proper balance. If not, you may need to evaluate leadership, management practices and your firm's strategic plan.
The shortage of experienced accountants is only going to expand as the Baby Boomers look to retirement and the competition for entry-level accountants increases.
L. Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.
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