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.

The Four Seasons Resort at Manele Bay on Lanai in Hawaii is a genuine five star resort.  Of course you expect ‘over the top’ service, and you get what you pay for.  Even so, having the pool staff bring iced lemon water around; re-arranging chaises; providing fresh towels; more sunscreen, etc. was awesome, but the over the top service was exemplified when they came by with lens cleaner and a soft cloth and offered to clean your sun glasses.   Greeted by name in the lobby with champagne, fresh fruit in the rooms.   The cost to the Four Seasons in providing these ‘extras’  was minimal.  The impact was massive.  I hadn’t run into anything quite so impressive until last week when I spoke at the Small Business Conference hosted by the Michigan Association of CPA’s.

Getting to Grand Rapids from Reno with the current state of the airlines proved to be a challenge.  Arriving late, and after midnight I was surprised and  relieved to be met at the airport and taken to my hotel, the Amway Grand Plaza.  Upon arriving, and too tired to wait for room service I was again surprised to find MACPA had left a very welcome gift basket with a light snack in my room, with a personally written welcome note.  The next day while re-writing my presentation (and trying to decipher the ink splotches on a cocktail napkin that had been my notes), a box of ‘home made’ cookies was delivered to my room with another personal note and offer of assistance.  Again from MACPA.  After my presentation a car picked me up for my trip to the airport along with a small gift and a thank you note from MACPA.

The staff was incredible.  The hotel was wonderful, and the food was fine but that’s expected.  That’s a given.  It  was the little inexpensive unexpected things emanating from the thoughtfulness of the MACPA team  that made this presentation a great experience.

In the weeks before, the staff at MACPA were incredible.  Attentive, thoughtful and responsive.  Heather McGinty gets my MVP, but Judy Trepeck and others were incredible as well.  Ok, so the beach at Manele Bay beats the pool at the Amway Grand Plaza in Grand Rapids, and the service at the Four Seasons was the best I’ve ever experienced.  For exceeding expectations though, I’d have to go with MACPA.

What do you do in your Firm to set yourself apart by exceeding expectations?  It will make a difference.

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?

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.

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.

Change is always difficult if not traumatic.  It’s also inevitable if we want to improve our situation.  We freely admit that some of our theory is just that – theory.  Almost inevitably it flys in the face of what is traditionally accepted practice management philosophy.  To be validated it must first be falsified.  That is precisely the purpose of this forum.  If you want to contribute to our profession challenge the accepted – challenge the proposed.  We will publish all opinions not just those we concur with.  Give us a topic or thought, and we’ll find ‘experts’ to comment and debate with.

If this is your first day in the profession or your 35th anniversary, as it is mine, your thoughts are critical to formulating a positive change.

This is not a forum for our opinions.  It is a forum for an exchange of opinions and theory which will hopefully result in positive change to our profession.

Well what is that? Having casual Fridays does not count either! I would love to hear what really makes your firm different or what distinguishes you from the rest?

I sat through the conference listening to presenters talk about how great the “Big Four” are. Each presenter explained that we (BAP members) are the best of the best, and should all strive to get positions at one of the “Big Four.” They all said that 60 hour work weeks are normal during busy season. After saying that, they continue to say how the “Big Four” believe in Work/Life Balance. One 2nd year staff accountant said, “They even understand that I need to be off work by 8:00pm on Sunday so I can play softball.”

All of these remarks made me think, what is so great about the “Big Four?” Is this something that I really want in my life? My answer is no. It’s not for me. I value my family life and my friends. I want to be successful, and I know I will be. I do not need to work at a “Big Four” firm in order to be successful. I have been interning at different accounting firms for over a year. I know what I want, and what I do not want. I feel bad for the students that haven’t had the opportunity to intern at a firm. They are getting pushed into believing that the only way to be successful is to work for a “Big Four” firm.

Why is there such a push for students to work for a “Big Four” firm? Many people argue that the training at a “Big Four” firm is better than that of a smaller firm. Yes, the training is very structured and intense, but I believe first year staff accountants can obtain wonderful training at smaller firms. I’ve seen it, and been through it. People also argue that you should simply work for a “Big Four” firm for name recognition. Being able to put one of the “Big Four” names on your resume is great. But, is it really worth the torture you will have to endure for the several years you work there? Are the 60 hour work weeks worth it? If you plan on staying in the city you plan to work in, then there is nothing wrong with working for a smaller firm. Chances are that people in the city will know the smaller firm just as well as one of the “Big Four.”

I think that professionals push students towards the “Big Four” simply because they had to do it. They think that if they had to put in 60+ hour work weeks then young professionals should have to as well. My father is an example of this type of mentality. He is a very successful (now retired) CPA. He tells me that I should work for a “Big Four” firm. He tells me that to be successful in life, you have to put work before family; you cannot have both. The youth of today have to change that type of thought process. We need to let people know that success does not equal being employed by the “Big Four.” Life is about more than just work.

“You rock! I was just discussing this with a client yesterday. You read my mind.”

It made me feel really good about myself. It’s great to have the time to help others (I feel like I “have” the time rather than needing to “find” the time). I also love it when someone tells me that I “rock.” Great job satisfaction.

1. Don’t procrastinate – (when discussing fees) Not only for CFP’s but for all of us. Always discuss the fee up front. Establish the value and scope of the service up front. No one likes surprises. Especially clients.
2. Present the fee structure clearly
3. Put your fees in context – “This might be a good time to explain what you are delivering for the fee”. I couldn’t agree more. By defining the scope you’ll avoid misunderstandings and establish each party’s responsibilities.
4. Put it in writing – “Make it clear you’re not hiding anything”. We use a fixed price agreement which defines the scope, performance guarantee, responsibilities, and the fee. It is an addendum to the engagement letter for specific services.

While I am not aware of Rick’s position on ‘Pricing’ (establishing an agreement for the value for services in advance) versus ‘Billing’ (sending an invoice as a surprise after the services are performed) with regard to other traditional accounting services, e.g. tax and assurance, his principles for CFP hold true nonetheless.In closing he hits the nail on the head: “In short, don’t be afraid to talk about fees. Use it as an opportunity to build trust. If you’re open, honest, specific and unapologetic, your clients will trust you, and that trust is the support system of a productive and long-term relationship.”Shouldn’t this apply to all services, and not just those of the CFP’s?