Software Solutions for Common Practice Management Pitfalls

After managing two CPA firms for a period of 25 years, in 1999, I changed careers and became a developer of practice management software for the CPA industry. After consulting with thousands of CPA and accounting industry clients, I would like to document some of the most common challenges that arise in practice management.

Some of the common pitfalls in practice management relate to one of the following two areas:

  1. Lack of compatibility, cooperation and unified goals.
  2. Failure to effectively implement effective practice management software.

Typical Roadblocks against Compatibility, Cooperation and Unified Goals

From my experience, a tone of cooperation and mutual respect is always more effective than control and dominance. Would you be surprised to learn that many accounting firms have a top-down controlling culture rife with intimidation, suspicion and mistrust?  Firm management styles driven by ego and intimidation create suspicion and mistrust among employees. This reduces the quality of client service and creates an atmosphere of conflict and disruption. Employees simply don’t work well in this kind of environment and high turnover is a common problem.

An Example from Real Life

One of my first experiences involved a national firm that established its’ offices by acquiring the firms of local practitioners.  One former owner – let’s call him Dave – did not integrate well with the new political environment. As a young staff accountant, I noticed that the “corporate” partners coming “up the ladder” looked down on Dave – he wasn’t from the same school.  This attitude trickled down to the staff who were encouraged not to follow his practices. It was like working for two firms. This created inefficiency since much of the work given to the staff during tax season was from clients that Dave generated years before. Should I do it Dave’s way, or the “right” way?

I personally found Dave to be very engaging and realized why he was so successful in developing business. He was very knowledgeable about taxes and easy to understand and work with. Regardless, he was eschewed by the other ‘corporate’ partners. I don’t think Dave cared since he probably sold his former practice at a nice profit. More significant was the fact that the lack of unity among the partners in this office reduced client retention and, consequently, undercut the efficiency of the staff and reduced firm profits.

Differences in Personalities, Lifestyles and Skills

Another example involves conflicting lifestyles of the owner-partners.  A small firm that courts its new clients by taking prospects to long lunches over drinks may not merge well with an individual practitioner that grew up in a family of alcoholics even though their clients may be in the same industry. Sound too personal? Happens all the time.

In the accounting partnership, individual traits and preferences have a huge impact on the success of the firm.  The sole practitioner managing a large firm with talented support staff might be more successful by virtue of the unified set of goals stemming from the personality of one individual.

The Importance of the Individual in Accounting

The lowest common denominator in the accounting profession is the individual. Each professional develops a set of skills, passes exams, and earns degrees and titles. While there are overlapping skills, there are also many distinctions among individuals. Some individuals may specialize in divorce and expert witness testimony, others tax or audit. In many cases, the clients you attract are based on your individual personality and goals.

Ironically, much of the staff accountant’s work is done in isolation. After all, you don’t require someone to hold the keyboard when analyzing fixed assets. However, you may need to ask a question and have someone review your work. You must also be aware of firm policies and procedures. However, in order to succeed we must achieve a consensus among the staff and partners concerning common goals and practices.

The Need for Uniform Practices and Consensus

Uniform practices, quality control, transparency and realistic goals are required to ensure effective firm administration. This contrasts starkly with firms that encourage excessive overtime and not reporting all hours to avoid budget overruns. Such policies lead to high staff turnover and always cost the firm more in the long run.

Ideally, individual skills and talents should complement each other. For example, small firms performing bookkeeping and management advisory services might develop a tax specialty, rather than attempting SEC financial audits.

Gently Down the Stream?

In actual practice the variations in partner style and personality among small firms amazed me when I first began developing software for the accounting industry. Well organized firms that establish unified goals are successful. Firms with management challenges often “row the boat” in different directions (some staff without paddles) and operate in chaos. Firms unable to establish consensus about firm focus, practice development and billing are predestined to failure. This type of firm often has several individuals call with the same technical support question.  Many partners cannot agree on simple billing strategies and are unwilling to hold themselves accountable to any kind of realization or collections standard.

Challenges Associated with Firm Mergers

Local firms that merge and grow to a size of 30 to 40 individuals often lack consensus about rules of operation. After the initial honeymoon and new letterhead, below the surface an embattled group of individuals marches to the drumbeat of different goals and agendas.  As a result, firms carry larger accounts receivable balances, suppress “hidden” write-offs, and engender jealousy between the partners and discord among the staff.

In this environment, information about firm results is “managed” often by delay in an attempt to obfuscate, manipulate and control others. As noted earlier, an accepted practice by one partner might be subject to reprimand by another. In this environment, partners often make derogatory comments about the other partners directly to the staff. This is a ship that’s about to sink.

Of paramount importance to successful practice management should be the generation of common goals and policies that staff and partners willingly embrace in a common culture. Firms must either change and develop positive consensus or fail.

Failure to Effectively Implement Practice Management Software

Effective practice management software can help to isolate and in many cases avoid some of the common pitfalls previously discussed.

In practice, a wide variety of software use exists among professional firms. Some firms as large as eight staff still maintain manual systems for just about everything except their tax software and general ledger system.  Many owners fear change and a loss of control and refuse to implement new software. Use of spreadsheets for complex recurring tasks reflects this fear.

Work in Progress Write-offs are Delayed

Poorly managed firms habitually accumulate questionable billable time against progress bills and “face the music” at a later date. The practice of postponing the financial effects of time overruns in the hope of offset by unrelated profitable work in the future is a practice that most accountants would recommend clients avoid. Consequently, this results in a significant loss of efficiency: multiple pages of the same time slips re-analyzed during invoice preparation. Partner’s that claim this is a way to remind them to recover the amount against future invoices are in reality failing to promptly address the problem. This make matters worse by cluttering the database with useless information. Furthermore, It violates the principle of matching revenue and expenses in the correct period.

Budget Overruns

The most effective time to address overruns with clients is at the time when it’s fresh in everyone’s mind. Hence, a better practice would be to write-off the time and record the poor realization.  Effective time and billing software ensures the discovery of dysfunctional client and staff relationships. Clients with poor realization stand out like a sore thumb: manage the relationship, increase fees, or terminate the client.

Partner Accountability and Client Expectations

Successful implementation of time and billing software ensures partner accountability with regard to productivity, realization and collections. Workflow management systems ensure that partners schedule staff on a timely basis in cooperation with other partners and avoid conflict. Consequently, uniform practices ensure that your firm meets important deadlines and achieves client expectations.

Furthermore, it’s especially relevant when partners disagree to have the timely capacity to accurately measure profit contributions and document task completion. Accurate information reduces controversy and allows you to hold individuals accountable to profit goals and deadlines. When accountability is established, effective decisions can be made about compensation and separation, when appropriate.

Effective Practice Management Reporting

Another example from my own experience involved a partner that suffered from addiction that worsened over time. The individual’s productivity dropped and the number of mistakes increased. Missed deadlines and penalties were the direct consequence of the partner’s refusal to implement the firms due date software. Closer examination of work in progress revealed significant amounts of dated chargeable time not eligible for billing. This delaying tactic masked the actual contribution of the individual, but the facts speak for themselves. After recording work in progress write-downs, we discovered the partner’s actual contribution to the firm’s bottom line. The result was a no-conflict, fair decision for all concerned. Ultimately, the partnership ended. A good time and billing system helped us reach this conclusion.

Most of all, these situations contain a human element that can be very painful. To ensure your firm’s success, implement practice management software that measures staff productivity and client contribution to the bottom line.

A Sample Accountability Report

In that regard, the following report example from ImagineTime software shows productivity for a particular partner. It includes work in progress, aged receivables, time slip production, realization, billing write-offs and the average collect days. This information is essential information to determine partner efficiency and effectiveness. Our related practice reporting blog provides greater detail, including numerous report examples.

In conclusion, practice management software improves profits and brings conflicts into resolution by eliminating confusion by providing factual, irrefutable data.

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