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.

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?

“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.

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. 

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. 

Most things were easily overcome.  Questionnaires, checklists, time and billing, general ledger, due date monitoring and scheduling were all available from multiple vendors.   Continuing professional education which had been so strongly emphasized by the big firms as their special strength was (and is) provided on a far superior basis to small firms through the various state societies and the AICPA.  (The big firms tout their advantage but with few exceptions the programs available and taken advantage of by us little guys are far superior with respect to the quality of the presenters and variety of topics.)    

Anyway, everything was easily overcome - except the depth of technological talent and resources available.  How can you compete with the level of expertise a national firm can assimilate to address a difficult tax or accounting issue, and yet if you are going to be a top tier firm, you must.  We sell knowledge and expertise, (not time).  So we need to find and develop that knowledge and supplement that expertise.

I already mentioned our advantage as small firms with regard to superior cpe.  We also found a tremendous resource in our local university.  We have always had at least one accounting professor retained to assist in technical review,  provide supplemental in-house training, and coordinate recruiting.  They are paid on a contract / hourly basis.  CPE is tailored to our firm needs and client base.  We almost have an unfair advantage when it comes to recruiting.  From the standpoint of technical expertise, no one is more current.   I have two PhD’s available.  Can your local office of Big 4 match that?  (This week we have an in-house seminar on the IFRS for our audit teams and interested clients.)  When we were smaller we shared this cost with other local firms who were also too small to justify the cost.

Finally, what about your competitors?  If you’re honest with yourself you’ll admit you can’t be all things to all clients.  For those engagements we can’t or don’t want to undertake we’ve formed strategic alliances with other firms / practitioners.  There are also some very strong professional associations you can join.  We were previously a member of cpaconnect.  Great folks and a very worthwhile affiliation.  We benefited greatly.  Unfortunately we’ve out grown that, but we’re looking for a new affiliation.

Here’s what we’ve done to not only level the playing field with the Big Firms, but to give us the advantage:

     1.  Take full advantage of the cpe offered by the state societies and the AICPA

     2.  Contracted with local university professors to give us the best technical expertise available, provide unparalleled in-house training and assist with recruiting.

     3.  Affiliated professionally with organizations like CPAmerica and cpaconnect. 

This has worked for us.  We feel we can more than compete with any firm.  What works for you?

Recently I was asked by a former tax partner of an international firm how we measured the productivity of our associates given that we no longer keep time sheets. Ignoring for the moment that Peter Block has already answered that question in his book The Answer to How is Yes, I have more than one issue with this question. » » » more

Recently, Bob Nugent the Chief Financial Officer for Scolari’s Markets, a chain retail grocer in Northern Nevada and one of our favorite and most valued clients, gave our firm a compliment that created a HSD for me. (HSD is the acronym for High Satisfaction Day - a phrase I first heard from author Ron Baker.) We had recently completed several projects for Scolari’s, which had involved several of our team members. Bob, not known for lavishing unsolicited praise in the thirty years I’ve known him, told me how impressed he was with the knowledge, professionalism and service level he had received from our associates. » » » more