Art of Accounting: Small firm complacency

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I have always been ambitious in wanting to build my firm. Even when things weren’t going well, I never lost that ambition. However, I know many small firm owners who are not too ambitious and do not want to grow.

Being successful is a personal goal, with each of us having different measures of success. For some it is annual income; for others it is the attainment of a dollar amount of liquid net worth, or a beach house, or certain tangible assets. For others it is being able to coach their kids’ teams, or to be home in time for dinner with their family, or to be able to work part-time or flexible hours. One thing in common is that many accountants are not overly concerned about growing their practice beyond a specific size, usually its present size.

However, I see a conflict between their desire and actions, and the reality of running a business. While I do not want to upset them or preach to them about different ways they should consider, I want to share some concerns with them.

I gave some reasons why many do not want to expand their practices in an earlier column and do not need to add to that list. But here are some business practicalities:

1. The tax and accounting rules are continuously changing. Accountants must stay up to date. That requires attending CPE, extra reading and some concentrated study, while continuing to provide regular services to clients. Last year’s Tax Cut and Jobs Act required learning the new tax law in a very short period and no doubt disrupted client service routines.
2. Clients are usually unaware of many of the changes their accountants have to keep up to date with. However, they all are aware of the TCJA, and because of that, clients are expressing concerns and want to know how the tax law will affect them. Almost everybody who receives W-2s has questions about withholding tax changes, for example. Those discussions can accelerate the normal learning patterns, disrupting the routine many accountants are comfortable with. Responding to clients takes time.
3. The TCJA also created situations where some clients needed more structure modeling and projections. This increased workload patterns, but hopefully (and should have) created additional billing opportunities.
4. Small firms need to provide their staff with CPE courses to maintain their licenses and stay up to date with the changes. Based on the timing of the legislation or official accounting pronouncements, the scheduled CPE periods may need to be altered and in many cases can cut into the startup procedures for tax season.
5. Technology upgrades are commonplace and need time and attention to consider their applicability and test them. There are also financial outlays for those firms adopting the changes. Again, this is disruptive to normal routines. While some of the new technology might eventually save money and time, the costs are front-loaded and that creates a burden.
6. Staffing is always a problem, except for sole practitioners with no staff. Those with staff are usually in a constant whirlwind, often settling for less than they need or would like, but making do, so they can get through the day. For many firms, training is not done with formalized methods but is usually hit or miss, depending on the skill levels of the new hires and the exigencies being worked out.
7. While many smaller practices say they want new business, many do not actively look for it. That’s because of the “good news/bad news” syndrome. The good news is they got a new client; the bad news is they now have to do the work. Because of the lack of serious marketing, the practice does not grow. Settling into a routine is comfortable, but it only maintains the status quo.
8. Fee increases dwindle. There are many reasons for this, but the bottom line is that revenues and profits do not keep up with what they need to be to meet increased costs. In some cases this creates a discontent with the practice and a lack of desire to “freshen” it up with a more modern look and what has become necessary technology. What’s working is working and the desire to change has been diminished. There may also be some financial pressure in making pension contributions, planning a more ambitious family vacation, paying for the children’s school, or funding new equipment and technology. Thus, more of the same old, same old.
9. The age of the accountant factors into this substantially. As the entrepreneur ages, settling becomes easier and less burdensome. However, there are many younger accountants (you supply the age delineation between younger and older) whose practices were started not as first choices, but as default choices, so this is not purely an age issue.
10. Lethargy begets lethargy. Inertia begets inertia. But a practice is a dynamic body. If it doesn’t grow, it declines. The only variable is the speed.

Running a practice requires assistance and the assistance needs to be sought out — whether passively or aggressively. Some of the assistance should come from professional organizations and consultants, but I feel many of them do not address a major part of the firms I am describing. Also, the smaller firms that do not seek to change or grow have to change their mindset. Change is ubiquitous and cannot be forestalled or ignored.

The first step needs to be a desire to make some changes or rekindle the original energy. A concurrent step needs to be availability of the ways and means to make essential changes. I feel I’ve done a lot toward this with my columns and many articles and blogs sharing my experiences. However, I am one person and I cannot do it alone.

In a future column I will make some suggestions about what can be done. In the meantime, if you’ve read this far, then reread it and consider the validity (or total lack of validity) of what I wrote and start thinking about whether some changes are in order for you. If you disagree with me, or if you want to discuss anything I wrote about, please contact me. Send an email to emendlowitz@withum.com with a sentence describing your concern. Include your telephone number and I’ll gladly call you. This is an important issue and should not be treated lightly.

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