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CPA FIRM SUPPORT SERVICES, LLC
PRACTICE ALERT: IT IS TIME TO BE PROACTIVE!
By Larry Perry and Patricia Williams
We know its busy season and most of us have our heads down working toward tax and audit deadlines. We have little time for our families, recreation, and sleep, let alone paying attention to current events. If we have investments in the stock market or other financial instruments, however, most of us glean 10 or 15 minutes of news a day. Even these few minutes are painting a picture of concern for our immediate future.
We’re reminded each day of similar events that occurred in the 1980s, particularly in automobile manufacturing regions of our nation. During consulting work for a CPA firm in Flint, Michigan at that time, I (Larry) watched many CPA firms close their doors because their client base quickly deteriorated due to dependency on the manufacture and sale of automobiles. The firms that closed, or that suffered greatly reduced revenues, all seemed to have a “wait and see” attitude. Many of their leaders felt that the recession would be short-lived and that it would be business as usual in a few months (the recession lasted three years!).
The CPA firm I worked with, however, didn’t wait to see how things would turn out. They became proactive in their practice, both in identifying and serving client needs as well as their internal firm policies. This firm was not among those that failed! Instead, they saw their staff size more than double during the economic downturn!
The effects of economic downturn historically reach CPA firms one to two years after marketplace impact. Leaders of CPA firms across the country are telling us about some of their clients that can’t obtain financing, that are experiencing substantial revenue declines and collection problems and that are losing major suppliers to bankruptcy. Now is the time for us to become proactive in meeting our clients’ needs and to prepare our firms to withstand the economic fallout. This alert contains discussion of a few issues that we believe are crucial to the success of CPA firms in the next few years.
A Closer Look at Our Clients
One of my partners in AHI Associates years ago, Don Istvan, was a consult to many CPA firms. Whenever engaged to consult with firm management, Don’s first request was for the firm to take a close look at its clients. In fact, Don had a questionnaire that he provided for firms to evaluate the long-range potential of each of their clients. Questions about engagement profitability, economic stability and management integrity dominated Don’s list. The questionnaire resulted in a numerical rating for each client and became the basis for his recommendations to terminate relationships with the lowest-ranking clients. Many firms are considering this kind of client evaluation in view of the current economic times.
The Michigan firm mentioned above made an additional evaluation of their clients. Each manager and partner in the firm was required to identify additional services their clients needed to survive and grow through the recession. Once the services were identified, firm leadership held “sales” meetings with each client to present plans that resulted in numerous additional services engagements. Even in this “busy season,” many believe it time for our firms to set aside time, and/or personnel, to identify and plan services that will help clients maintain their profitability and, in some cases, survive!
The April, 2009 issue of the Journal of Accountancy contains an article entitled “A Path to Financial Stability.” The article contains 10 critical points to help CPA firm clients survive the current recession. It is an excellent tool to facilitate our client service.
A Closer Look at Our Firms
Many of us could write a book on this subject. In fact, our organization has developed several CPE seminars for presentation this fall that address some of the issues listed below. Not necessarily new subjects, this list contains some of the considerations many CPA firms will be considering to maintain their profitability during our nation’s economic hard times:
- Train, Train, Train—When CPA firm revenues decline, an immediate response is to look for ways to reduce operating costs. CPE budgets are often the first on the chopping block. In a time of changing tax regulations and convergence of U.S GAAP and GAAS with international standards, this should be the last area to be cut! In fact, we believe CPE budgets should be expanded to provide more high-quality live training, as well as substantially increased on-the-job training.
- Review Firm Policies—Whether formal or informal, policies regarding staff utilization, billing, managing receivables collections, realistic engagement budgets, engagement efficiency and minimum engagement fees should be considered. A partner I (Larry) worked for years ago practiced very proactive receivables collections policies, particularly in difficult economic times. He and his staff maintained overall negative WIP on their clients! Should policies like this be our objectives? I don’t know the answer but I do know we should at least be thinking about them!
- Make Engagement Efficiency a Priority—For every functional area of practice, our firms must be willing to change some of our traditional approaches to engagements to get work done in less time, even if we must make investments of time and money to achieve results. Our staff personnel must not only be trained in how to comply with new professional standards, they must know how to do it efficiently. Leadership must be willing to sacrifice traditional approaches and personal preferences to adopt policies, procedures and documentation that meet standards’ requirements and, at the same time, consider opportunities for efficiency relative to the nature, size and complexity of each engagement.
- Invest in Technology—As the costs of computer hardware and software decrease, many CPA firms are investing in equipment and electronic practice aids that save engagement time. File container software, trial balance and auditing applications, paper-less tax systems and data extraction software are among the long list of potential investments that produce time-saving results.
- Plan, Plan, Plan—For audit and review engagements particularly, CPA firm staff personnel and management should be planning each engagement to maximize efficiency. The extent of client assistance, assigning the right personnel to engagements, engagement approaches and the nature and type of documentation are a few of the opportunities for reducing costs.
CPA Firm Support Services, LLC is dedicated to assisting your firm in these difficult times. Please visit other pages of our website to learn about our many products, seminars and services. Please email or call us if we can assist you in any way.