New Strategies for Profit and Performance

Your strategy should be the solution, not the problem.

CPA Leadership InstituteAugust 7, 2013

What do you find is the greatest marketing

challenge facing your firm?

How do you think the most successful firms

will address these marketing challenges

in the future?

Current Strategic Challenges

• Shrinking margins• Downward fee pressure• Complexity• Labor

– Shortages– Demographics– Cost– Efficiency

• Technology integration

Average Profit Margins

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

2005 2006 2007 2008 2009 2010 2011 2012

34.6%

32.5%31.5%

30.5%29.1% 29.1%

30.0% 30.3%

Perc

enta

ge

Margin

 

© INSIDE Public Accounting 2012 Used with permission

Complexity

• Laws and regulations• Standards• Information overload• Deal structures/financial

instruments • Risk analysis• Technology

• “Any fool can make things bigger, more complex, and more violent. It takes a touch of genius-and a lot of courage-to move in the opposite direction.” Albert Einstein

Competition

• Every firm– Needs more good people– Needs for everyone to work faster– Needs everyone to be more

accountable– Needs more clients that will pay their

fees– Needs brain power and capital for

succession– Wants to be the best

“If rivals all pursue the “one best way” to compete, they will find themselves on a collision course”.

Understanding Michael Porter Joan Magretta 2012

Competitive Forces that Shape Strategy

Bargaining Powerof clients

Bargaining powerof experienced CPAs

Threat of new firms

Threat of substituteproducts or services

Rivalry among existing

competitors

Adapted from Understanding Michael Porter Joan Magretta 2012

AICPA Demographics

 

Source: AICPA 2009

AICPA Demographics

-20 -15 -10 -5 0 5 10 15 20 25 30 35 40

26

31

36

41

46

51

56

61

Women

Men

 

CPA Human Capital “Cliff”

 

CPAs

Non-CPAs

MenWomen

Women Men

Salary & Benefit Costs• Average personnel costs as

a percentage of net revenue– 2012 45.1%*

• Many firms 50%+

 

* © INSIDE Public Accounting 2012 Used with permission

Salary Trends

5000055000600006500070000750008000085000

Dollar Am

ount

Average Pay per Professional

All Firms

T100

 

© INSIDE Public Accounting 2012 Used with permission

Average Pay per Professional

0.0%

5.0%

10.0%

0-2 3-5 6-7 8-9 >10 Avg

Percentage Increase 2007-2011

 

© INSIDE Public Accounting 2011 Used with permission

5 Year Trends

0.0%

2.0%

4.0%

6.0%

8.0%

All FirmsT100

Avg Salary Realized RPH

 

© INSIDE Public Accounting 2011 Used with permission

Innovations in Communication

• Written language >3500 BC• Printing press China 1000AD

Gutenberg1436AD

• Digital word About 1940AD• Accounting 1970-1980’s

Innovation Curves

Strategy

“Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition”.

Competitive Strategy Michael Porter 1985

Keys to Success

• Strategic competition means choosing a path different from that of others.

Understanding Michael Porter Joan Magretta 2012

Firm of the Future

 

CPAs

Non CPAs

Strategies

• Consolidation• Cost advantage• Differentiation• Technology

Consolidation

Shake-Out

• Age of partners• Lack of succession options• Unwilling to invest in technology• Lack of capital• Unable to extract value• Lack of expertise/specialty• Profitability pressures

Is growth in itself a strategy?

Growth Objectives• Talent • Niche/Specialty• Geography• Critical mass in practice areas• Economies of scale• Profitability• Improved client service

 

Consolidation

• Challenges– Management– Integration– Processes and systems– Standardization– Capital/investment– Risk

Consolidation

• Challenges– Transition/succession– Client relationships– Client service– Increased fee structures

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

Cost Advantage

• Labor costs• Efficiency• Leverage• Technology

Reduce Labor Costs

• Reverse upward delegation– Don’t allow people to work below

their level– Higher level personnel must

leverage– Utilization levels need to increase– Hire skill levels for the task

 

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

 

Redefine Positions

• Data management• Executive assistants• Data input• Technology specialists• Client relationship specialists• Technical specialists• Team

leaders/managers/supervisors

Reduce Labor Costs

• Manage and control• Gain efficiencies

– Standardization– Processes and procedures– Specialization– Leverage/critical mass

• Manage margins

• “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency”. Bill Gates

 

Processes Lagging

 

Over 60%

Files not Consistent

 

Over 72%

Innovation 2009

The Henry Ford of Heart Surgery In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits

Source Wall Street Journal Nov 2009

Innovation Headline 2013

Inside India's 'No-Frills' Hospitals, Where Heart Surgery Costs Just $800

Source: Business Insider April 21, 2013

Innovation in Public Accounting

www.cpainnovationproject.com

Technology

• Adoption and integration• Appropriate level of experience• Consistent application• Improve proficiency• Avoid duplication• Simplify!

Technology

• Strategic partners• Process driven• Limit manual tasks

 

Processes• Intake

– Standardized– Paperless– Organized– Timely

• Type of service• Relationships?

Differentiation

• Specialization• Geographic location• Niche services• Client service

Specialization

• Critical mass• Expertise• Efficiency• Processes• Investment• Rapid growth• Reputation

 www.SteveEricksonCPA.com

Leverage

Strategy and Value Curve

$

Geography

• Less competition• High value• Convenient• Technology• Need for better management

and processes

Client Service Strategy

• Staff– Engagement– Control – Part of something bigger– Success

 

What Employees Want

• Valuable work• To be successful• To feel secure• To be needed• To be cared about

 

Rating of Motivators

0

100

200

300

400

500

600

700

Flex Time Money Position Fringe Clients Team Success Learning

7

8

9

 

 Copyright ©2012 Steve Erickson LLC

 

Leadership Lesson from Neha

Leadership Lessons from Neha

• Care for me and I just exist.• Care about me and

– I will care about you– I will try harder– I will do better– I will learn– Our relationship will grow ever

deeper– I will succeed

You know what needs to be changed in your firm to improve client retention and client

acquisition.

Start the Journey• Start building a culture of success• Tie the marketing plan to the firm

strategic plan• Change the language in your

practice• Make outstanding client service the

gold standard in your firm• Define marketing in terms of the

solution, not the problem

Take advantage of the opportunity before you

to truly differentiate your firm from your

competition.

 

Copyright © 2012 Steve Erickson LLC

Accounting FirmProfit Improvement Model TM