“Rumors of my demise are greatly exaggerated.”  While I’ve been absent from the ‘blogosphere’ for a week or so, there actually was a reason.  I could think of no other way to sneak in the following post.  By being ‘gone’ I’m hoping the blasphemy of suggesting that time sheets may in fact have some value will slide under the radar.  Ok.  Here goes.  Time sheets have value  -  in a cost accounting context.  There.  I said it.

The traditionally accepted  business model for medium and small accounting firms is predicated on a revenue model that is cost based.  Value is driven by cost, and  cost is calculated as hourly rates times hours worked.   Hourly rates are established by comparison to other firms in the same market.  And then of course you have to accept the premise that every firm has identical expertise and will require the same amount of ‘hours’ to complete the engagement.

So if you have an average hourly rate times an average number of hours you have the value of the service provided.  Right?  Wrong! You may have your ‘cost’, but you absolutely, unequivocally do not have your value.   Cost accounting 101 – value is not a derivative of cost.  What you can reasonably expect to realize (value) determines the amount of  costs you are willing to incur to deliver that specific product, not vice-versa.    So why are you predicating value as a function of cost, and you are by accumulating hourly rates and billing them to your clients as the value of your services?

Typically I’ve railed against using hours and rates because I believe they under estimate value.  But be careful.   That knife cuts both ways.  In our current market, the use of hours and rates as a basis for a proposal can almost guarantee you won’t be successful.  In 35 years of practice I’ve never seen a market as cut-throat.  Frequently in our firm it has gotten down to one question.  “How bad do we want it?”  When considering any unique advantages we would normally expect to get an advantage from (industry expertise, idle capacity, contacts, etc.) we use them to get to our ‘walk away price’.  (The amount we won’t go below, regardless).  Certainly we consider ‘cost’ in proposing on an engagement, but we consider it in light of what we believe we can price the engagement at to determine our level of interest.

How do we determine ‘cost’?  Not by a standard rate.  There are other more relevant metrics.  That’s another post.  How do we determine ‘value’?  It’s unique to each potential engagement and to your firm.  Do you have a Pricing Committee?  You should.  Let’s talk about that next week.

Long known for our inability to communicate effectively either orally or verbally (yes there is a difference) as accountants we’ve found new facades to hide behind. Our communication with our clients is typically limited to brief general conversations, and written communications mandated by professional standards, such as engagement letters. The email / text message / voice mail have supplemented the traditional letter facilitating the anonymity so many in our profession seem to prefer, with the frequent result being misunderstanding or no understanding at all. Read more…

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. Read more…

Unquestionably, large mature accounting firms can have some distinct advantages.  As smaller firms can we overcome them and compete on the same level?

When I left the ‘Big 8′ (yes children, before it was the Big 4 it used to be the Big 8 back in the olden days) to practice with several other big firm refugees we were certain of the many opportunities that existed to invoke positive professional change, and do it better.  Like most teenagers, we knew it all – especially everything that was ‘wrong’.  We missed no opportunity to criticize.  And like most teenagers, we somehow missed all the things our former Big 8 employers had done that were ‘right’.  The naivete of youth.  And we were professionally youthful having only been recently emancipated.  Read more…

One of my sincerest hopes for this blog is that it will provide a forum for a discussion of alternatives to traditional practice management philosophy and practices by service firms in the United States. One such debate compares the relative merits and shortcomings of the billable hour. We have written much about this subject. For whatever reason, likely cultural in nature, our Australian and British counterparts seem to be much more engaged and progressive. Read more…

Several years ago we discontinued using time sheets as a basis for doing our billing, and began pricing our services based on our conviction that the amount of time committed had absolutely no relationship to the value of the service being delivered. Read more…