By, Gary Boomer, Boomer Consulting
With uncertain economic times ahead, the first call from many partners is to look for ways to cut overhead. As I have said many times in previous articles, the firms that are winning with technology are those who view technology as a strategic asset rather than as overhead. If you don’t believe this, ask yourself the question, “will technology play an increasing or decreasing role in our firm’s future”? The majority of accountants will answer with – an increasing role!
Stretching the IT dollar in the short term can be a bit tricky, but there are management techniques that can be used to improve cash flow and increase revenue. Amazingly, the strategy is similar during economic expansion to the strategy used during a recession. This may sound strange to many of you, but it is true. Technology needs to be managed during good times and bad. There is a limit to the dollars that can be spent on hardware and software and the amount a firm can absorb and change in a given period of time. There also is a limit on the amount to which you can cut your investment in the short-term without having a severe negative long-term impact.
Most firms have done a relatively poor job of managing IT and it is now the 2nd largest expenditure behind salaries in most firms. One of the primary reasons firms don’t manage IT is that it had crept up on them over the past twenty years and now has a major impact on every facet of the firm. Another important reason is that often the managing partner and executive committee have a limited understanding of technology and are only capable of managing technology as if it were overhead. Managing strictly by the amount of the investment is a dangerous and often costly management style. The following ten tips should help you in the management process:
1.Benchmark key indicators.
Review your firm’s current situation and benchmark the key indicators such as revenue per FTE (2,080 hours per FTE), chargeable percentage, revenue per charge hour and investment in technology including labor. Chargeable hours are still a measurement tool in most firms, although revenue per FTE is more indicative of real productivity and profitability. It is amazing how many firms don’t know how much they are investing in technology. It appears as though some don’t want to know. Reducing time by investing in technology and training; then billing by the hour does not make good business sense. It is impossible to measure your improvement if you don’t benchmark. All progress starts with the truth.
2. Prepare an inclusive budget.
Budgeting is one of the basic management tools. You should budget for the current year and two additional years. This will allow you to plan future large projects as well as predict cash flow requirements. Years two and three generally do not happen exactly as originally planned. With a good budget and strategic plan, projects tend to happen sooner rather than later. Most of you have experienced projects that do not meet deadlines and the expected return on investment. This is typically due to poor planning and the lack of committed resources. Your first technology budget is the most difficult. Start by calculating your current year’s expenditures and then prepare a three-year budget adding projects such as document management, training, and etc. Stop using “peanut butter accounting” and then spreading your total costs until they are impossible to capture and track. Change your firm’s chart of accounts to reflect line items in the budget. Most firms are operating with an outdated chart of accounts.
3. Evaluate your telephone and communications costs.
The changes in bandwidth and communications have been significant over the past three years. Most firms will soon be experiencing the need to evaluate their requirements and their existing telephone and Internet contracts. Service-level-agreements (SLAs) are important as well as bandwidth and the monthly investment. This is not a job for someone who is not familiar with communications and technology. Too often firms give this job to the office manager or firm administrator who is not trained in these types of negotiations. A significant amount of time and money can be spent. Use an experienced professional. We are seeing firms negotiate increased bandwidth from 2-8 times greater for a lesser amount than they are currently investing.
4. Train your end-users.
The Gartner Group states you will receive 5 hours of timesavings for every hour of training. Most firms have done a poor job in training their partners and staff in the IT area. The key for the future is to integrate core competencies with IT training and tie the training into performance evaluations. A quick calculation…40 hours of training equals 200 hours of additional capacity. Billing by the hour typically places training low on the priority list. You must think differently in today’s economy. It is what you don’t know you don’t know that will hurt you. As an example, have you trained your employees on how to filter and manage email? Email management is becoming a huge consumer of time.
5. Prioritize key projects.
Firms can accomplish multiple projects on time if properly planned and task forces are utilized. We will talk more about task forces latter. Large projects such as integrated financial reporting and document management are more difficult to plan and implement due to the fact they require significant resources and bring significant cultural changes to a firm. Accountants tend to be resistive when it comes to change. They are trained to identify every obstacle that must be overcome in order for a project to succeed. Therefore winning strategies are required and the time must be spent to build consensus on large projects. Prioritize your requirements and go for the projects with the greatest return. These are generally the more difficult projects.
6. Eliminate redundant processes.
Many of the processes currently employed in an accounting firm are the same processes and procedures as were used 20 years ago. You probably don’t want to believe that statement, but take the time to document the processes involved in an audit from start to the delivery of the report. Most firms are over auditing and using outdated processes in preparation of reports and tax returns. The technology is available to reduce time significantly if partners, professional and administrative staff are properly trained and motivated to change. Too often firms are using the computer as a typewriter rather than as a tool to reduce redundancy and steps in the processes. Eliminating redundant steps in your processes will save significant amounts of time. Perhaps you simply aren’t interested due to the fact you are still billing by the hour. This attitude will only make it more difficult to compete in the future.
7. Utilize charge backs.
Firms markup their labor, why don’t they markup their investment in technology. First you have to know the amount of your investment and second you have to change your thought processes. Many firms are billing and collecting $15-$20 per charge hour for a technology surcharge. I know many of you think you are already billing high hourly rates and just can’t increase your rates. Your peer firms are, and the only difference I can see between those who can and those who can’t are those who can think they can and do it!
8. Use task forces for implementation.
Leverage your resources. Don’t expect your IT department to take on the responsibility for all of the tough projects. Your end-users are the key to your success and will allow you to complete multiple projects simultaneously. We have found it is best to head these task forces with non-partners. Partners tend to procrastinate and never get the project completed. Task forces tend to work best with 3-5 people. The complexity of the project also dictates the number and type of required personnel. Don’t forget about politics. A good strategy is to include resistors on the task forces.
9.Retain your brains!
There has been a bit of a reduction in the staffing pressures for accountants and technology personnel, however, this will not last for a long period of time. Enrollments are down at accounting schools and IT professionals are in high demand. Government continues to expand and the public sector is a big competitor for IT professionals. Many of their IT professionals are at, or soon will be at, retirement age. Technology and training are both important to the younger work force. They really don’t care that you know how to prepare a tax return with a pencil or research from a book. They are learning more efficient research methods in college and expect your firm to utilize state of the art technology. Now is a good time to upgrade talent with the recent layoffs by larger companies.
10. Align with peer firms.
Your firm is not unique! IT personnel within the CPA profession do not utilize peer experiences and resources enough. They have a tendency to try and solve problems by themselves. The professional often views contacting peers as a weakness, while firm management generally views getting an outside opinion as strength. We have learned through the Boomer Technology CirclesTM that firms can reduce their frustration and build their confidence significantly by frequently meeting with peers. Firms are exchanging statistics, policies and procedures, and management tools over our Extranet. Visit www.boomer.com for examples of the types of information they are sharing. Emails to knowledgeable peers produce quick results. The support network is very valuable.
Most firms view themselves as unique. I can assure you that your firm is not unique. Your peers are experiencing similar challenges and developing strategies to meet the challenges. Your firm has a team. Will they play together and can they win? A game plan and coaching will increase your chances of success. Practice (training) and execution are the differentiating factors between those who fail and those who succeed. A good coach is also an important differentiating factor. Quickly ask yourself the following questions:
1. Do we have a winning game plan?
2. Do we have the right people on the team?
3. Do we have a winning coach?
If you can answer these three questions affirmatively, you are on your way to maximizing your return on your technology investment as well as firm profits.
By L. Gary Boomer, CPA, Boomer Consulting, Inc. http://www.boomer.com