Here are some bullet points but be sure to follow the link to read much more informative detail about each one.
Over-reliance on partner income percentage as a measure of profitability. – Many partners believe that 33% is the minimum acceptable partner income percentage and they should strive for 40%. If a firm is heavily leveraged, partner income percentages in the 20s and low 30s are perfectly acceptable.
Being content with “average.” – This is one that really bugs me! Don’t celebrate being average.
Average salary data – Salary data is too tied to geographic area for nationwide averages to be very helpful.
Utilization percentage – This metric is total billable hours of a firm divided by the total work hours of the firm, with all personnel included.
Net firm billing rate – This is calculated by taking the total annual net fees of the firm and dividing it by the total firm billable hours.
Average compensation for firm administrators – This is a mis-leading number because of the wide variety of levels of firm administrators. Rosenberg thinks the results were misleading and has discontinued using it.
Treating non-equity partners like “partners.” – Treating non-equity partners the same as equity partners will usually distort the computations. Many non-equity partners perform like managers.
Computing income per partner. – Don’t ignore the distinction between accrual and cash basis methods of accounting.
Average fees per professional – There is a problem here with definition. What is a professional? It varies by firm. Rosenberg likes to use fees per person.
Computing the average charge hours for any category of personnel, such as partners and professional staff. – There are two main issues. Most firms make the mistake of computing the number of FTE’s by adding up their total work hours and dividing by 2080. The only proper way to compute average annual charge hours for a personnel grouping is to only include personnel who were with the firm for a full year and were full time the entire year.
Order your copy of the 2013 Rosenberg Survey here.
Some of the worst mistakes of my life have been haircuts.
Leverage and a well-managed pyramid are key ingredients for a profitable CPA firm.
We have been talking about it for years….. Bill Reeb calls it the Upside Down Pyramid. It’s where partners work and work until they are “full” and then they push down to managers who work and work until they are “full” and only then do they push down to staff. Meanwhile, staff are sending emails asking for assignments!
Many firms have evolved to a top-heavy culture because:
Generational issues, including the Baby Boomer bubble, Gen Xers and Millennials.
Lack of a people plan with effective, consistent recruiting and staff development processes in our firms. We don’t have a process to see enough new faces and we let people hang around too long.
Promoting non-partner-track people or sometimes marginal folks to higher positions because “We’re preserving staff continuity” and “it’s best for the client” – - when perhaps it is just the path of least resistance, or we have no one else to fill the role.
Partner compensation plans that focus on chargeable time. Partners stay busy first. Managers are doing staff work and no one has incentive to push work down.
It’s just easier to do it myself and, besides, I’m a lot more efficient at it.
As you work in the world of public accounting, do you ever get distracted?
Ha! Stupid question, right? Everyone gets distracted, sometimes it seems the distractions never cease. Many, many people working in CPA firms tell me….. “I always come in at least an hour early so I can get some work done before other people arrive.” or “I like to stay late because it is so much quieter in the evening and I can get more done.” or “I just have to close my door at times but even that doesn’t stop people from interrupting me.”
Experiment with the Lilac Chaser, an optical illusion that’s part of the article. It’s a black cross in the middle, encircled by 12 blurry lilac-colored dots. A green dot animates over the lilacs as though counting the time on a futuristic clock. Stare at the cross long enough and the lilacs disappear, one by one. But the moment you get distracted and look away, the lilacs come back.
The only person you are destined to become is the person you decide to be.
Sadly, I must report, that inside many CPA firms many people do not “get it.” Get-it applies to a wide variety of things, such as how long it takes to get a job done.
Sometimes you just have to laugh. Do you have the 1.5 hour partner? This is one of the several partner-types I hear described over and over again as I work with firms. This partner, when asked how long it should take to do a particular client project (you know, the time budget for this job)…. always replies, “It should take about an hour and a half.”
I could go on and on about what the mature partners inside CPA firms “don’t get.” However, today I want you to consider the things that the 20-somethings inside your accounting firm might not “get.” Share this information with them.
Jason Nazar, a contributor on the Forbes site, highlights 20 Things 20-Year Olds Don’t Get. This is a good read for all ages of professionals working in an accounting firm. Here are the 20 Things – read the article to get advice on each topic.
Time is Not a Limitless Commodity
You’re Talented, But Talent is Overrated
We’re More Productive in the Morning
Social Media is Not a Career
Pick Up the Phone
Be the First In & Last to Leave
Don’t Wait to Be Told What to Do
Take Responsibility for Your Mistakes
You Should Be Getting Your Butt Kicked
A New Job a Year Isn’t a Good Thing
People Matter More Than Perks
Map Effort to Your Professional Gain
Speak Up, Not Out
You HAVE to Build Your Technical Chops
Both the Size and Quality of Your Network Matter
You Need At Least 3 Professional Mentors
Pick an Idol & Act “As If”
Read More Books, Fewer Tweets/Texts
Spend 25% Less Than You Make
Your Reputation is Priceless, Don’t Damage It
The surest way to corrupt a youth is to instruct him to hold in higher esteem those who think alike than those who think differently.
I think I have read all of David Maister’s books. Of course, Managing the Professional Service Firm is the book I still recommend most for any professional who is managing an accounting practice. I also recommend that the managing partner give every new hire a copy of True Professionalism by Maister when they first arrive at the firm.
Several years ago Maister was a keynote speaker at the Association for Accounting Administration National Practice Management Conference. I found the following on Maister’s website that refers to his AAA presentation. I like the “Maister-isms.” Just fyi, David Maister is now retired.
Memorable Maister-isms: Quotes From The Master
Nobody can turn a phrase quite like David Maister, Boston-based professional services consultant, former Harvard Business School professor, and author of five books, including the classic, “Managing The Professional Services Firm.” Here are some gems from his three presentations at June’s national symposium of the Association For Accounting Administration in Phoenix.
“I’m not a people person. I have no social skills. Everyone always told me, ‘That’s OK.’ Then I left education and made a terrible discovery: The world is full of people. I needed to learn how to deal with people, and it wasn’t optional. There’s no intelligent substitute for understanding how people work.”
“The worst way to get someone to change is to criticize them. Throw away every performance appraisal system you have. These systems say, ‘Let me tell you what your weaknesses are and what you owe to the relationship.’ We know how to change behavior in our personal lives, but not in our business lives. Why do we think they’re so different?”
“It’s not hard to find smart people. It’s hard to find people who inspire and motivate.”
“People at accounting firms are starved for appreciation.”
“The only way you motivate people and change them is one-on-one. Everything else is window dressing.”
“What could you accomplish in three months that you would find fun and that would help the business? Whatever it is, do it. Evaluate and set new goals when the three months are up.”
“Most accounting firms aren’t good at creating energy, enthusiasm and excitement, but they are extraordinarily great at destroying it.”
“The way you get rich is don’t get sucked into doing dumb stuff for people you don’t like.”
“Most accounting firms never met a billable hour they didn’t like. Report in terms of profit per partner, not in terms of hours. It’s profit that matters, not hours billed.”
“The amount of energy left in Big Four partners barely exists. The passion has just been beaten out of them.”
The job of a manager is to make other people successful, which is why you rarely see good management at an accounting firm. We use the wrong principles for choosing managers.
Be sure to read an article in the Illinois CPA Society Insight Magazine by Derrick Lilly titled, Are You Fit to Lead? I feel honored to be quoted in parts of the article.
The article urges you to take a look at yourself. Look into the mirror.
“Comfort kills,” says Jody Michael, founder and CEO of career coaching firm Jody Michael Associates. “There’s such rapid change in this day and age that it’s imperative that leaders have the ability to shift perspectives, take in multiple points of reference, and make changes with nimbleness, agility and fluidity. You have to keep growing and developing, and shaping and crafting your lens and your capacity to lead; you never stop looking in the mirror.”
I usually find that nimbleness, agility and fluidity are not common words that describe leadership inside accounting firms.
Here’s how you get in leadership shape (follow the link above to read the entire article and explanation of each of these points):
Get a healthy dose of objectivity
Boost your E.I. factor
Stretch your world view
Train as a generational guru
“It used to be that leadership was about command and control, but today there’s a clear evolution into partnerships, collaboration and two-way dialogue as the means to leadership,” says Dr. Todd Dewett
Dr. Dewett finds feedback hilarious because it is one of the most useful things there is, and it’s also one of the most passionately avoided things there is in a professional life. He urges leaders to find two interesting people who are not afraid of you, who know you as a person and as a professional, and are willing to give you unfiltered, real feedback.
Become the kind of leader that people would follow voluntarily; even if you had no title or position.
However, many experts tell us that CPAs are often lacking in emotional intelligence. While you can read business books about emotional intelligence, some research tells us that reading fictional novels can actually help improve our emotional intelligence.
Over the past decade, academic researchers such as Oatley and Raymond Mar from York University have gathered data indicating that fiction-reading activates neuronal pathways in the brain that measurably help the reader better understand real human emotion – improving his or her overall social skillfulness.
In one of their studies, they found that the more fiction people had read, the better they were at perceiving emotion in the eyes, and correctly interpreting social cues.
So, to your summer reading list of business books, add some great fiction. I have enjoyed the series by Carlos Ruiz Zafon, the Spanish writer. Begin with Shadow of the Wind. I also love the Harry Hole series by Jo Nesbro – I’ve read them all.
If you read a lot of books you are considered well read. But if you watch a lot of TV, you're not considered well viewed.
The foundation is Absence of Trust. I believe that trust is the skeleton in the closet of many CPA firms. Has the following statement (or one very similar) been uttered inside your partner group?
“I know Joe is trying to do more financial planning with our clients, but you know Joe. I’m afraid my client won’t like him and I might lose the client because Joe just doesn’t focus enough on detail.”
I just want you to begin by working on the 2 foundational dysfunctions – Absence of Trust and Fear of Conflict. Absence of trust is when team members are not comfortable being vulnerable, open and honest with each other. The next dysfunction of a team, if there is no trust, is Fear of Conflict, because people on a team should be comfortable engaging in good, healthy conflict around ideas. This is one I see again and again during partner retreats and partner meetings. There might be one partner who will say, “I’ll play Devil’s advocate here….” and voice their opinion. Most of the other partners say NOTHING and even avoid eye contact by looking at their laps!
Take a few minutes to watch this video by the author, Patrick Lencioni:
Thanks for reading all my posts during “Book Week” and happy reading.
Today, I would like to recommend a book that maybe you are not as familiar with as some of the others I recommend. When I first read Leadership and Self-Deception, I was amazed and it opened my eyes to many behaviors that I had never explored before. It also opened my eyes to what others often did in the workplace (and in home life) that they don’t even think about.
I don’t often re-read a book. I have read this one 3 times over the years and given copies to people working on their leadership skills.
From the book:
Self-betrayal – An act contrary to what I feel I should do for another is called an act of “self-betrayal.”
Self-betrayal is the most common thing in the world, Tom,” Kate added, in an easy manner. “Let me give you a few examples.”
You are in bed and you hear the baby cry at 1:00 a.m. You should get up and tend to the baby but you pretend you are asleep and wait for your wife to hear the baby.
You jump on the elevator, in a hurry, an see a man hurrying to get aboard but you just let the door close. You have the immediate sense, I should have caught the door for him but I didn’t.
Maybe it’s a time when you felt you should apologize to someone but never got around to it.
There was a time when you had some information that would be very helpful to a co-worker but you didn’t share it.
They are all examples of self-betrayal, times when I had a sense of something I should do for others but didn’t do it.
Here’s a short video setting the stage for reading the book.
The book focuses on a problem. As Bud says to Tom, “You have a problem. The people at work know it; your spouse knows it; your mother-in-law knows it. I bet even your neighbors know it. The problem is that YOU don’t know it.”
I focused on and inflated her faults when I needed to feel justified for mine.
If you have heard me speak or if you are a loyal follower of this blog, you know that I often quote David Maister. My “book week” would not be meaningful if I didn’t recommend at least one of his books.
Maister focuses on professional service firms and although he is now retired, you can gain so much knowledge about managing a CPA firm from his writings.
Everyone in the firm should read True Professionalism. I believe you should give a copy to every entry-level accountant that enters your firm. Ask them to read the first two chapters within a week and the rest at their lesiure. The first two chapters will get them hooked.
From True Professionalism:
Ask professionals what they consider to be the difference between a good admin assistant and a great admin assistant. The answers flow freely:
Take pride in their work and show a personal commitment to quality
Reach out for responsibility
Anticipate and don’t wait to be told what to do, they show initiative
Do whatever it takes to get the job done
Get involved and don’t just stick to their assigned role
Are always looking for ways to make things easier for those they serve
Are eager to learn as much as they can about the business of those they serve
Really listen to the needs of those they serve
Learn to understand and think like those they serve so they can represent them when they are not there
Are team players
Can be trusted with confidences
Are honest, trustworthy and loyal
Are open to constructive critiques on how to improve
This list can be summarized in one phrase: Great admin assistants care. Two points about this list.
First and foremost, it is applicable to all of us, not just admin assistants. This list could serve to delineate the defining characteristics of what differentiates a great CPA from a good one. Indeed, this list is a reasonable definition of what it means to be a professional.
Second, this list has nothing to do with technical skills. Few admin assistants are deemed to be “great” because of their ability to type 95 words a minute.
The opposite of the word professionalism is not unprofessional, but rather technician.
I think just this brief excerpt will capture your curiosity and you will read this book.
Professional is not a label you give yourself - it's a description you hope others will apply to you.