As we navigate the start of a new decade, who could guess that it would start like this — with a global pandemic? Independent accounting firm leaders are tasked with the sustainability of their firms, and it is even more critical to understand what that means now.
As we consider firm sustainability now and in the future, I still see three time-tested tenets found in high-growth accounting firms:
- People;
- Performance; and,
- Profitability.
While having success in one tenet is possible, it is necessary to have all three in order to experience long-term sustainability. One without the other simply lacks the foundation needed to manage threats of consolidation, competition and many other disruptors.
Sustainability of people: If an accounting firm is focused on performance and profitability, but people aren’t at the center of their strategy, then a fractured culture will not sustain the firm. Staff must feel a deep commitment to something greater than themselves, and that is achieved through culture. Staff who understand the challenges ahead, and how they fit into a sustainable future, will seek to be part of the larger effort. At the owner and shareholder level, individuals also need to see a clear path for a sustainable firm of the future. If you can’t communicate a vision for your employees — particularly at times of crisis and distress — then they will imagine the outcome on their own. The impact may not be felt immediately, but losing key people could lead to merging, selling or closing the doors.
In the long term, imagine for a second that you are a top performer and offered a base salary at a new firm that is 25 percent higher. However, you later learn that the partners are retiring soon with no succession plan in place. What would you do? Staff are always making choices about their employer, and the competition is fierce to attract and retain the best. It’s important to promote a shared vision among people, to create buy-in, and to develop the next generation of firm leaders from the first day you become a firm leader. A shared people vision with innovative training and leadership tracks gives your people a path to success within your firm as it grows. With this clarity, they will work hard to sustain it and to help it grow.
Sustainability of performance: Most accounting firms have specific measures to indicate success toward their goals, whether it’s a dashboard, a graph of key performance indicators (KPIs), or other tools. Small, midsized and large firms that want sustainability must focus on innovation in their performance. Innovation should fit into your strategy to grow, increase services, improve efficiencies and help you meet your overall goals. Clients, stakeholders and staff expect the firm to be solvent and sustainable into the future.
Especially during uncertain times, firms should prioritize the top-line opportunities for their businesses. Otherwise, they risk falling into reactive mode. Besides people skills and capacity, accounting firms should have a clear system to regularly evaluate efficiencies, productivity and overall performance. Staff should also understand what is expected of them in the performance model — whether that is revised client service standards, new marketing and business development activities or regular process improvements.
Sustainability of profitability: Successful, high-growth accounting firms understand shifts in the profession and in the world. They are also willing to take calculated risks to stay ahead. For example, Firm A might decide that increased costs are allowable in order to dedicate additional resources to innovation. Firm B might not have the tolerance to increase costs, as these efforts could reduce human resources and capital needed to maintain or improve existing profitability.
While profitability is a key indicator of performance, the most innovative firms aren’t afraid to make deeper investments to modernize technology, introduce new services, reinvest in people and more. Savvy firms understand that profitability alone will not lead to growth if it’s not sustainable. For example, you can only cut expenses so far before it fuels a scarcity and fear mindset.
We’ve seen examples in other industries, such as retail, where leaders weren’t prepared for the threat of e-commerce and internet-based companies that disrupted the entire industry. Holding perpetual sales and discounts have not helped. Accounting firms are dealing with some of these same disruptors in technology and global uncertainty. They must consider investments back into the firm that will sustain their relevance and attractiveness to clients and talent. This can range from workflow tools and marketing automation to customer relationship management tools and alternative billing models.
Accounting firms that manage people, performance and profitability will have the insights and resources to prepare for threats and opportunities, leading them to a sustainable future for years to come.
