Innovative Practice Management

In a recent post on Trendlines, Gary Boomer held forth on the staffing crisis in our profession.  Succinct and to the point, Boomer lists four reasons.  While all four are valid, my experience over the past five years has identified one as being most significant - Firms with low retention and high staff turnover work their associates too many hours.  It’s not rocket science.

When you employ a business model that is predicated on billing by the hour, your alternatives to increasing revenue are basically limited to increasing hourly rates, or working more hours.  The knee jerk reaction in most firms is to ‘work more hours’.  Short term, this may work, but ultimately our young associates realize they have a ‘job’ rather than a career - and they leave. Very few of us ‘live to work’, but rather we ‘work to live’.  When the Firm takes away your time, they take away your life.  Knowledge workers are too savvy to allow that for long.  Carl Sandburg summarizes it nicely.

“Time is the coin of your life.  It is the only coin you have, and only you can determine how it will be spent.  Be careful lest you let other people spend it for you.”

We have addressed this as a firm, but until we address this as a profession we will continue to see the best and brightest leave.

Just read Michelle Golden’s post on sending out mass mailings.  I thought it was very funny, and says so much about why we are so turned off by most of the mail we get today.

But most of all, I thought it also shows the value of criticism.  I read the other day, that the best thing you can hear as a company is a criticism, because that’s when you have the chance to improve.  If you never hear them, you can never get better.

So many times we dismiss them and make excuses for them (like this partner in her story), but a lot of times they can be the most valuable thing we can use to improve our company as a business.  The problem is a lot of times our customers don’t tell us what they don’t like about us, or even more often, we discount them when they do.

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“Thank you” goes a long way. Many firms have survived  their “busy season”  (whatever that is)  and I’m sure management planned some food n’ booze event to thank their staff, but I just want to remind people that saying “thank you” can go a long way for morale, and it’s free.  So don’t wait until the end of next busy season to say it again.

There are numerous posts on this site that begin to break the surface of the difference in culture at our firm, but one of the biggest things I’ve noticed is communication. The partners in this firm reach out to us on a daily basis; simple things like, “how’s it going, “hey, nice work on that…” or “I just want to thank you for all your hard work on this.”  Or sometimes they just tease me but they know I can handle it. Many firms may hold on to the philosophy that work is a fact of life and the only thing you owe your employees is a paycheck. You may be able to find enough professionals to buy into that philosophy in the short run, but it may prevent you from transforming a good firm into a great one because the best and brightest will go where they are appreciated.

I hailed from a large international accounting firm and like most of my coworkers there I became sick of the long work hours and never ending cycle of stress and emotional guilt tripping that comes with trying to justify going home after just ten or twelve hours.  Searching for another job was difficult, as I rarely had a minute that wasn’t filled by working, commuting or sleeping.  But the most substantial barrier to quitting my big accounting firm job was the myths that circulated concerning small firms. 

Most of my former coworkers whispered to each other about quitting from time to time, but someone always piped up with their own assumptions, or tales they had heard from their friend’s cousin’s ex-boyfriend or some other likekind form of twisted communication.  I address just one common myth (of many) here:

I heard that working at a small firm would stunt your professional growth, as smaller revenue clients do not face complex accounting issues.  HA!  In my experience I have seen there is not much a large revenue client can do that a small revenue one can’t, including going public.  They mimic their bigger brothers in both use of derivatives, usual debt/equity hybrids, and VIE’s as well as bring you back to old-school accounting practices which us newer accountants currently coming out of college were taught but told we would “probably never use” , such as valuing perpetual inventory and related LIFO challenges.  

There are many other myths such as hours, compensation, limited chance for meaningful promotions, etc.  which plague the minds of overworked accountants from the staff to manager level when they think of switching to small firms.  Keep in mind during your search for a new position that “Big 4” or even the slightly smaller international accounting firms don’t hold all the challenging work in the accounting field.  They (and their overworked staff) just like to think they do, which is why they perpetuate such myths.

Did you suck at ‘Economics’ in college.  I did.  So when my friend and mentor, Ron Baker, recommended that I read The Economic Naturalist by Robert Frank, I smiled politely, assured him I would, and then blew it off.  (I did buy it, just so I could document my intent and not feel entirely guilty for lying through my teeth.)  Last week, I again found myself in an airport, having mistakenly thrown this tome in my computer case, thinking it was an adventure novel.  With no other entertainment, besides trying to determine which passenger had the worst hang-over in the Las Vegas airport, I read the book.

It’s a great book!  Very entertaining.  The format is a series of questions, e.g. “Why do bars charge for water, but peanuts are free?”, or “Why do cleaners charge more for a woman’s blouse, than a man’s shirt even though they are both made of the same fabric?”, or “Why are brown eggs more expensive than white eggs?” (and it’s not a scarcity issue).  The answers postulated are supported with economic principles. 

On p. 62 he asked the question “Why does a worker’s wage often rise more quickly over time than his or her productivity?” 

One hypothesis was “employees in such firms are paid less than they are worth during the early years of their tenure, and more than they are worth during their later years.”  Is the logical extension then that staff accountants are underpaid?  And management is over-paid?  While this might be the case for laborers, it is not the case for knowledge workers. 

In my opinion, Adam Smith’s theory of compensating wage differentials in The Wealth of Nations is more appropriate.  That is ‘wages are higher in jobs that are more risky, require more arduous effort or are located in ugly or smelly locations’.

No, it’s not more risky, and hopefully neither more ugly or smelly. It’s more intellectually ‘arduous effort’.  Simply stated, you get paid for how effective you are at your job.  As your career progresses, productivity is not so much defined as how fast you complete your engagement, but how ‘effectively’ you complete it. 

The more effective you are, the more you get paid.  Being more effective requires being more knowledgeable.  And not just technically.  It can also include your skill in client interaction and supervision of subordinates which are both key components of effectiveness.  Hopefully your firm defines what constitutes ‘effectiveness’ at each level necessary for advancement.  If not, it should be the first topic you discuss with your mentor. 

I’ve posted frequently about the deleterious effect I believe time sheets have on professional knowledge workers and professional knowledge firms. Regardless of the origin, or the use for which they were originally intended they have become at once a measurement of productivity, value, worth and efficiency. And I don’t believe they do any of those things particularly well. Granted they can generate useful and important information for reactive decision making but the costs of that information to the culture of the user far outweigh any marginal benefit derived. They are a very efficient tool for micromanaging. There are other very efficient micromanagement tools as well. There are performance evaluations - which we’ve previously posted about. How about ‘checklists’?

The purpose of using checklists is to ’standardize’. By standardizing our engagements we believe we can reduce risk and simultaneously improve efficiency. Checklists are tools for ‘control’ (micromanagement).

Six years ago during the exit interview for our peer review, the reviewer criticized us for not using ‘canned programs’ in favor of the custom programs we wrote for each client. He agreed our programs were better than canned programs but if we used PPC or Cch or some other canned programs we would by default be considered in compliance with all the professional standards. (I now realize he was just lazy). We immediately converted to canned programs.

In the mid 1970’s we had very few checklists. I recall a reporting checklist, an internal control evaluation guide (ICEG), and a post issuance review checklist (PIRCL). There were probably a couple more. We used them after the fact as a double check. We understood the audit process and the objectives very thoroughly. Today, even the simplest assurance engagement requires no less than a dozen check lists, each with up to 30 pages of single spaced, ubiquitous, multi-part questions, the vast majority of which are answered ‘n/a’ for any specific engagement. And they’ve replaced the necessity to analyze and understand. Correspondingly, I believe audit skills have degenerated as well.

We are evaluating the process necessary to eliminate canned programs and checklists - at least until the engagement is complete, and then using them as a ‘double check’ only. ( I’ll let you know how that goes. I can already hear the crying, moaning and gnashing of teeth by the audit teams at the prospect of losing their security blankets.)

It’s not just the audit process. Look around your firm, at the checklists you use. I’ll bet you lunch, that in most cases your knowledge workers would be more effective after a short period of time if they didn’t rely on them, because they would have to understand what they were doing and why, rather than just being able to check off steps.

You hire and pay for intelligent, motivated, conscientious, creative minds and then smother all those characteristics with a business model based on control and doom your professional knowledge workers to be only as good as the checklist they fill out. Does that make sense?

In my recent post, Beware the Jabberwock, I intended to suggest that as practitioners we always question what is the ‘common body of knowledge’ and accepted management philosophy we have been indoctrinated with over the past 50 years.  My comments were not directed specifically at Ric Payne or Principia, but rather at traditional thinking, while I did use one of Ric’s posts as an example.  My comments were apparently interpreted as a personal attack based on Ric’s comment which we have posted.  After again reading my post, I do see it could be interpreted as a personal attack.   That was not my intent, and I sincerely apologize.

Our purpose is to provide a forum where practice management theory and experience can be shared and discussed with the ultimate goal of improving our profession.  Personal attacks, intended or perceived, will not accomplish our goal of providing a forum for the exchange of ideas.   They are not acceptable and will not be published.

 That said, I don’t agree with some of Ric’s thought and it is my singular intention to ‘take him on’ and expose the fallacy and inconsistency in his logic, as I’m hopeful he will attempt to do with mine.  We will start in this space,  and as he has suggested we will continue ‘mano y mano’ in Reno when he returns.     Your participation is welcome, necessary and  encouraged.

“Twas brillig and the slithey toves did gyre and gimble in the wabe,  all mimsy were the borogoves, and the mome raths outgrabe.”

Written by Lewis Carroll, his poem “Jabberwocky’ in “Through the Looking Glass and What Alice Found There” is considered the most famous nonsensical poem in the English language.  It was certainly one of my favorites during my alcoholiclly impaired college years in the 1960’s.  It re-occurred to me today as I read a post by Ric Payne on the Principa blog titled Time Based Billing is Unethical - What Rubbish. 

I wouldn’t recommend reading the entire post.  Payne talks in circles.  He at once advocates advising clients of the proposed fee in advance (which I agree with) but supports using timesheets as a necessary tool in doing so.  He has thoroughly confused the importance of knowing what your resource cost is with the value of the project.   He naively seems to believe that the majority of clients who receive invoices based on time sheets know in advance how much those bills will be and they are “happy with a bill based on hours” because they were some how able to divine how much it would be prior to receiving it.  That is counter intuitive.  He rants on and on trying to justify time sheets, but at the same time advocating ’pricing’ in advance as a superior alternative.  It all seems to make sense, until you realize the methodolgy he is proposing can’t get you to the results he seeks.   That’s my point.  Don’t take everything you read at face value - especially if it comes from a consultant - think about whether or not it makes sense.  Question authority.

Most consultants I’ve met are regurgitating the same tired old garbage they were taught in college 40 years ago.  They wouldn’t recognize a new idea if it bit them.  The practice management methodology they espouse is antiquated and without innovation.  You can’t get better doing the same old thing.  Yes it’s safer, but remember the reward for risk is profit.  People like Ric Payne know there is opportunity for improvement, but they will consistently try to justify old methodology because it is safe, they are cowards and they don’t know any other way. 

Like Jabberwocky it sounds good and seems to make sense.  It just doesn’t work.  Oh, and if anyone wants to debate the specific issues of his post I’m happy to do so.  Just comment.

After writing my first blog post, “Intern’s Corner: The Big Four Push” I began to think about how does one choose the right firm. I am lucky enough to have had to opportunity to experience different firms and different values over the past two years. I have been a member of Beta Alpha Psi (BAP) in that time period. By having those opportunities, I feel that I have been able to explore different options, and I know what is right for me. These are the steps that I took when choosing the firm I choose:

1. How does the office make me feel? BAP has given me the opportunity to tour almost every local firm within the past 2 years. Within the first hour there, I know if that is a place I would be able to work. Some firms feel more comfortable for one person than another. For example, I am a very laid back person, so certain conservative firms are not for me. However, some of my classmates are very conservative, so those firms work out great for them. Know yourself, and what you like.

2. What have you heard about the firm? It is true that you shouldn’t believe everything you hear, but do listen. Talk to people that are current employees there, and talk to employees that no longer work there. That will give you the feel for the office (the good, the bad, and the indifferent). Make sure to ask current and past employees about the overtime required by the firm. This will come back into play in step three and step four.

3. Does the firm support your core values? I know this might take some thinking and looking into, but it is imperative that you find a job that does this. For example, ethics has always been a hot (and grey) topic. Find a firm that has similar ethical values to yours. By finding a firm that supports your core values, hopefully you will not have to get put in a situation where you have to question yourself. Also, if family is a core value, look at activities the firm does. I cannot stress how important this step is. This step is the key to your happiness at a firm.

4. Look at the pay. Just coming out of college (with no experience for some people), $37,440 ($18 an hour) might seem great. But, is that what other qualified candidates getting? I know a girl who graduated last semester that was offered that. She took the job and was happy about the pay. That was until she heard that other graduates were starting at $10,000 more a year than her. That made her feel undervalued. And trust me, you do not want to have a career somewhere you feel undervalued. Also, make sure to find out if the salary offered is strictly for a 40 hour work week, or if it is a normal salary. There are many local firms that may start you out a bit lower than a big four firms, but they will allow you to bank your overtime. Take that into consideration.

5. Don’t quit interviewing after you get one offer. Make the firms work for you. You will not get stuck feeling undervalued if you get more than one offer.

Take these steps into consideration. Accountants are in high demand right now. There is no reason to take a job somewhere you are not 100% happy.

Earlier this week David Maister posted Satisfaction Guaranteed on his website.  You can read it for yourself, but the essence is committing to a service and performance guarantee for the services you provide.  Several years ago we began including this language in our client service agreements:

                 ”Our work is guaranteed to the satisfaction of the customer.  If you are not completely satisfied with the services performed by Mark Bailey and Company, Ltd., we will, at the option of the Company, refund the price or accept a portion of said price that reflects the Company’s level of satisfaction.”

Initially this sentence caused serious concern among my associates, and I’ve have heard numerous ‘warnings’ from peers.  But what is it that we have to be afraid of?  It’s our work, and certainly if we don’t have enough confidence to back it up we shouldn’t be a service provider.  Should we be concerned about the unscrupulous client who arbitrarily decides not to pay, and uses our guarantee as an excuse?  We’ve never run into that problem, and don’t expect to.  We ‘price’ our services in advance so that our client agrees up front and is not ’surprised’ by a bill they didn’t expect.  Realistically you are already giving this guarantee, whether you realize it or not, because it’s usually not worth a lawsuit.

If a client claims to be dissatisfied with your service and refuses to pay your invoice are you really going to pursue it in court?  Hopefully not.  Most lawsuits against accountants are filed as counter claims to collection attempts.  The legal costs, including the wasted efforts, frustration and stress on your part generally just aren’t worth it.  Negotiate a settlement that makes everyone unhappy, and  move on.  (And then fire them.)  Certainly if your service was sub-standard you would already have agreed to negotiate a write-down. 

The confidence our clients gain from receiving our ‘guaranty’ extends not only to the price, but also to the quality of work we are doing for them.   Offering performance guarantees has set us apart, and  has been nothing but positive for us.