Is Your Firm Ready for the "Next Big Thing"?
by Tom Davis, CPA

In the next 24 months, accounting firms will see the most significant impact from their technology tools they have experienced in the last 15 years.  New tools such as Accounting Business Process (CRM, Service Management, Resource Management), Document Management, and Internet-based applications for tax preparation, time and billing, and other processes will greatly change how firms perform client services and manage their practices.

Benefits will come from several directions: 

• It will take less time to perform the services because information can be accessed much faster, reviewed easier, and turned into a finished product with less effort.
• It will be easier to “re-use” information for similar services because of improved accessibility to information (full text searches) and better organization of data.
• Client service will be improved by shorter response time, better identification of potential issues through a more complete understanding of the client’s needs at every level in the firm.
• Firm marketing and selling efforts will be more precise and will yield better results at a lower cost of resources.        

 The problem is that many firms will benefit only marginally from these new tools. 

History Repeats Itself
The most significant, specifically identifiable technology efficiency improvement for accountants in the last 30 years was the move from input sheet tax preparation to interactive, on screen tax return preparation.  Firms experienced a fairly consistent 25% ± improvement in efficiency with this tech change. 

However, for most firms, this improvement in efficiency often translated into a one-time or steadily diminishing benefit situation.  Firms valued work by the amount of time it took to perform the service (we charged by the hour).  When the amount of time spent performing the service decreased, we charged the same amount and saw an improvement in realization.  In most cases, we were able to sell more service with the same number of staff hours. 

However, these improvements were short term at best.  As a client’s service changed (became more complex, larger, etc.) and the amount of time increased, it became very difficult to spot and value these changes (technology efficiency is a continuing thing).  So over time firms that charged by the hour end up giving away increased service because it was disguised or diminished by improving technology efficiency.  New services to existing or new clients were substantially under valued because of the bill-by-the-hour process. 

Most firms still have not changed the way they value their services and the next round of big efficiency improvements from these emerging technologies will result in a big blip in realization improvement that will steady erode over time. 

What To Do?
Now is the time for your firm to take steps to avoid this negative value spiral.  There are several things that you can do. 

First, make a firm-wide effort to look at the services you provide as products.  Certainly there will be large variations in the complexities and the amount of resources needed to perform the services, but there will be many similarities as well.  Develop some firm-wide standards for valuing a service with allowances for the differences that will be encountered.  Apply these standards as “minimum billing guides” and explain both positive and negative variations. 

Adopt a fixed fee / change order philosophy for billing.  Clients love a fixed fee.  Firms should like them as well because they promote pre-planning and will result in more efficient work performance.   

Push billing down the firm’s food chain.  Many firms still reserve billing for partners and managers.  You will bill more for services if the firm member(s) primarily involved in performance of the service start the billing process.  There is a lot of important information that relates to the value of the service that never makes it into the time and billing system.  Let the staff that did the work bill the client.  Let the partners and managers review these bills and modify them as needed.  You will bill more and you will also train junior staff in the “art of the bill”.  

Use a staff compensation plan that will promote “value billing”.  The concept of a billing-based compensation plan is that staff will be compensated at market for a certain level of production (billings).  If this billing budget is exceeded, the staff person will receive a “bonus” of a percentage of the excess.  Staff are motivated to produce more, since they will make more.   

A staff’s base compensation is established at market for the level of staff employed, for an “average” level of production and realization. A staff’s billing budget is set at historical and achievable levels.  The budget should not be “optimistic” or otherwise unobtainable.  If the staff has previous work history with the firm, the budget might just be the last year’s billings for that staff.  If the staff is new to the firm, an estimate of the expected billing must be made. 

The Bottom Line
Implementing the new technologies is going to entail substantial changes in a firm’s processes and cultures.  Most firms are going to welcome these changes. We face increasing difficulty finding and requiring the quality staff and there are numerous opportunities to sell new and increased services to our clients and prospects.  We have to have these efficiencies. 

However, if firms do not anticipate the pitfalls and manage their technology process, the benefits will be much less that is possible.  

Tom Davis is owner of Tom C. Davis, CPA, LLC and President of Knowledge Concepts, Inc. in Valdosta, GA.  Contact him at tdavis@tcdcpa.com and at 229.247.9801.

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