The Future of the CPA Profession is Now! Leadership Institute December 5, 2011

Objectives Today  Identify the 3 most critical areas that must change  Start the dialog about the firm of the future  Offer suggestions for immediate improvement

PCPS Top Issues  Partner accountability/unity  Bringing in new clients  Retention of current clients  Fee Pressure/Pricing of services  Developing a succession plan Source: AICPA 2011

Critical Change Needed  Structure and Governance  Competitiveness and client retention  Matching skills with tasks and/or advice needed by clients

“Right” Structuring  Structure and governance Ability to make timely decisions? Technology application Appropriate client service Required expertise Economic viability

Firm Organization

Ask yourself  Are we making timely decisions?  Does everyone understand their role in the firm?  Are we able to react to changing conditions?  Are we using technology to our full advantage?  Are we fully utilizing our resources?

Firm Governance Firm Resources P P P P Governance CLIENTSCLIENTS

Structure & Governance  Defined roles  Clear decision rights  Timely decisions  Unacceptable to “opt out”  Increased accountability

Increased Competition  Fees  Client service  Quality of advice  Depth of relationships

Reactive Client Service  Not managing client expectations Timing of work Fees Delivery Scope of services Value

Key Drivers of Strategy, Differentiation & Profitability CompetitiveDistinctBreakthrough Products Client Service Relationships Source: How to Maximize Fees Alan Weiss, PH.D. 2008

Skill Sets Needed  Communication  Critical thinking and problem solving  Technical expertise  Task oriented  Forward looking advice

AICPA Demographics Source: AICPA 2009

AICPA Demographics

Current Demographics CPAs Non-CPAs MenWomen Men

Increased Salary & Benefit Costs  Average personnel costs as a percentage of net revenues %* % * % * %* %*  Many firms now 50%+ * © INSIDE Public Accounting 2011 Used with permission

Increasing Salaries © INSIDE Public Accounting 2010 Used with permission

Average Profit Margins © INSIDE Public Accounting 2011 Used with permission

Passive Firm Management & Client Service  After the fact monitoring Charge time/Budgets Accountability/Profitability Credit & A/R  Inefficient processes & systems  Reactive client service

Firm of the Future CPAs Non CPAs

Active Management  Continuous budgeting and reporting  Partner & staff accountability plans  Manage Margins Leverage Scheduling/utilization

Active Management  Continuous budgeting and reporting  Partner & staff accountability plans  Manage Margins Leverage Scheduling/utilization

Staffing Strategy  Reverse upward delegation Must use lower cost labor when possible Don’t allow people to work below their level

What tasks are you doing that you shouldn’t be doing?  Scanning  Admin duties  Setting up files  Making copies  Inputting 1099s  Typing letters  Write up work  Payroll reports  Chasing client info  Data entry  Data imports  Filing PDF docs  Ordering supplies  Deliveries  Filing  Bank reconciliations

Staffing Strategy  Reverse upward delegation Use lower cost labor when possible Don’t allow people to work below their level Higher level personnel must leverage Utilization percentages must increase

Qualities of Successful Firms of the Future

Governance Will Be Supported  Roles will be defined and supported  Decision making will become more efficient  Managing Partners will be allowed to manage  Accountability will be the norm

Average Profit Margins © INSIDE Public Accounting 2011 Used with permission

Reactive Client Service  Service centered Task oriented Deadline driven “Have to” services “Emergency room” processes

Reactive Client Service  Not managing client expectations Timing of work Fees Delivery Value Scope

Client Service  Communication will improve  Expectations will be managed Better engagement letters Change order process Timing will be agreed upon  Firms will focus on client value

Client Service Strategy  Describe the engagement  Communicate early & often  Responsive  Deliver on time  Understandable fees  Deliver value

Change Orders  Develop a firm wide standardized change order process Starting and stopping work Failure to prepare Errors in records Records not ready at time specified

There will be a One Firm Culture  Staff will be encouraged to work together Compensation systems Coaching Evaluations  Mutual success will encourage teamwork

Rating of Motivators

Firms will embrace coaching for improved performance Copyright © 2011 Steve Erickson LLC

They will hire and retain the best professionals  Positions will be competitive  Pay will be above market  Individual expertise will be high  Appropriate leverage will be the norm

Firms will focus on what they do best.  Industry specialization  Functional area specialization  Exceptional client service  Relationship management

They will not only manage change, they will create change  Client service innovation  Value enhancement  Improved leverage  Higher levels of quality  Firm structure and ownership

Technology will be fully integrated into every part of the practice.  No ability to “opt out”  No shortcutting  Standardized processes  Consistent files  Real time information

Processes Lagging Over 60%

Files not Consistent Over 72%

Firms will live their core values, no exceptions.  Clients Service Integrity  Partner/staff relationships  Partner/partner relationships

Implementation  Change process Simplified Incremental Positive Sustainable

Trusted Business Advisors  Reading Clients for Life – Sheth & Sobel Making Rain – Andrew Sobel Trusted Business Advisors – David Maister Million Dollar Consulting – Alan Weiss True Professionalism – David Maister

Copyright © 2010 Steve Erickson LLC Accounting Firm Profit Improvement Model TM