I have been talking about accounting firm transformation for so many years now that sometimes it seems like I’m on repeat. What was “radical” five or ten years ago — the cloud, for example — is now a reality for pretty much every firm.
The beauty of the radical movement is that it’s always been based on innovation. It used to be that we were waiting for tech to catch up so we could really go full throttle with transformation. But the tech we need to radically transform our firms and add back valuable time is already here. Here’s how to harness it.
The why
Why should you invest in a best of breed tech stack? Why do you want to upend your current processes and migrate clients to a new model?
The truth is that inefficiency is costing you money and opportunities.
It’s harder to see in a firm that bills by the hour, but inefficiency is still there. Take last year — how many more of your clients came to you and your staff for help with everything from PPP loan forgiveness to cash flow forecasting? What other advisory services did you provide? If a firm wasn’t positioned to offer these services or didn’t have the capacity to offer them, that’s a problem. It’s hard to focus on advisory when you’re busy doing data entry and repetitive tasks.
If you know your people are busy, but you can’t tell if they’re efficient or even effective, there is a better way.
Data is the catalyst for change
What data, you might ask? Data gleaned from team surveys, interviews with key personnel and timesheets.
Information from data gathering can be grouped into four categories:
- Pricing: Billing rates, scope mismanagement and allocation of hours;
- People: Staff to manager ratio, communication, professional responsibilities and specialization;
- Process: Documentation, silos, duplication and standardization; and
- Technology: Replacing antiquated tasks with automated tech, in-house tech experts.
Your goal will be to look at each of these areas eventually, but transformation can still be achieved one area at a time. Let’s dive into each of these areas more.
Pricing
One of the many challenges with hourly billing is that hourly rates tend to remain stagnant year after year. As client size and/or scope increases, too often the billing rate stays the same. This in turn lowers the value capture.
That challenge is often made worse with scope creep; an area where teams need training. They need to be aware of what is included in an engagement and what’s not, and have the ability to communicate with the client and say, “I can absolutely help you with this, but it’s outside the scope of our engagement and I will need to charge for it.”
This is where pricing strategy comes in. Look at the services your current client base is buying and organize offerings into packages that align with those services. Make sure everyone knows the parameters of what’s included and encourage (and train) your team to communicate with clients better.
You also want to find out how hours are allocated across the firm. A common issue firms experience is that their highest value resources — partners and managers — are doing lower-value work. This drives up the cost of engagements and erodes profitability. What to do? Train your staff on how to deliver advisory services. Remove some of their workload with automated tech. It’s a win-win.
People
Speaking of staff, managers and partners, do you know what the staff-to-manager ratio is at your firm? You should. The top 25 CPA firms had an average 19:1 ratio as of 2018. If your firm moved closer to that benchmark, you’d likely see a contribution margin increase of around 60 percent. For that to happen, you will need to increase staff capacity by around 16 percent and shift 400 hours or so from partners and managers to staff. It can be done with tech.
You may also consider splitting up managers so they can specialize in a certain area. Specialization boosts value — it saves time, allows new services that can be developed and sold, and lets people thrive according to their skill set and personality. For example, a mid-size firm might have bookkeeping, accounting advisory and tech advisory as their three core areas. Restructuring processes is often the first stage in team specialization.
Process
Your goal here is to create standard processes that every team, office and department will follow. Without standardization, your clients can’t expect consistent results. Once you have your processes documented and standardized, how do you communicate that to the organization?
In this way, you can help guide clients toward best practices, instead of letting them decide how your workflow happens. (Paper receipts, anyone?)
Look for the results from staff surveys and stakeholder interviews. Identity silos, document every process for every service, and look for duplicates of any step in the process.
Tech
Last, but certainly not least, if there is an available tech option that automates an antiquated or repetitive process, run toward it with open arms. This will free up so much time within your firm.
You’ll also need people in your firm who are tech specialists. Not tech-certified CPAs, but more like in-house technicians with accounting backgrounds who understand how AI and tech impact accounting workflow. These people are leaders and will spearhead the firm’s tech-driven initiatives. You need an accounting tech visionary if you will.
Tech alone can’t fix broken processes, but when better tech plus standard processes, the result is like magic. As your firm integrates technology, the pricing model must evolve.
Automation tech lets firms scale up without adding more staff or hours. What does it take for a mid-size firm to sustain 2 percent quarterly growth? If a firm operates “as-is,” it cannot achieve that growth without hiring an additional staff person. However, a firm with substantial tech assistance can gain around 9,000 hours a year to reinvest in training, technology, advisory and growth.
After all, the business we’re in is bigger than accounting. Accounting is one piece of the entire pie.
If your vision for the firm doesn’t include filling hours with additional work, there’s something to be said about going home early. That too can be transformational in other ways.
How will you spend your time in 2021?
