Growth and staffing
Pitfalls and best practice tips explored.
June 21, 2012
Growing pains are impossible to avoid and tough to manage. If your practice hasn’t suffered its share of them, it will—or, at least, it should. The challenge for practice owners is handling growth purposefully, proactively, and profitably. Not all growth is good or even desirable. And increased sales don’t always lead to enhanced bottom lines. When managed well, however, growing your business can mean exciting new opportunities for your professional and personal development, as well as increased revenues for your firm.
Let’s examine some of the pitfalls and some of the positives, so that you can chart a course for your practice’s vitality. The most common—and most dangerous—reaction to practice growth is hiring more professional staff. As sales increase and work pressure rises, owners see a solution in bringing on additional accountants. What they often later see is a decrease in net profits, despite the boost in billing. Some experts will tell you that it is impossible to make money on professional staff in a small public practice. I’ve seen the scenario all too frequently: Owners hire too many people, too fast. It’s the quickest route I know to becoming overworked, overstressed, and underpaid.
If you find yourself in this situation, plan a corrective course of action immediately. The problem will not go away on its own. Better still, develop a solid, sustainable growth strategy for your practice and prevent the problem altogether. This strategy needs to be an integral part of your larger business plan. Just as you contemplated the focus of your practice’s work and the balance of your professional and personal investments of time and talent, it’s imperative that you consider how big a player you want to be. Size matters. Too many practice owners underestimate what is required to effectively manage a large firm and staff in a way that is pleasant and profitable.
What’s often overlooked when making growth decisions are the associated opportunity costs. In anything you do, there is opportunity cost. Doing one thing means giving up the freedom to do others; this is especially true when bringing on staff. When you hire new employees, you are creating additional work for yourself. You have to interview, investigate, secure, train, motivate, structure, evaluate, review, and administer when you hire a staff member. This is a big commitment that always comes at the expense of your own billable or personal time. This means you spend less time focusing on your client work.
You may look at the production of your professional staff and mistakenly believe that you’re making a profit. For example, if you’re billing $100,000 per year on one professional staff member’s services and only paying him $75,000, it would appear that you are $25,000 to the good on that individual’s work. This is a far too simplistic evaluation, which is always evidenced by the bottom line. A closer review would show that you’ve probably lost more than $25,000 in your own productivity. Rather than easing the load, you find yourself working harder and longer as significant administrative time is tacked on to an already crowded agenda. The net effect is a boost to the burnout timeline. Growth achieved by sacrificing your personal satisfaction will never bring success.
If your practice is experiencing growing pains, it would be wise to resist the knee-jerk reaction and, instead, do an objective self-assessment before placing any want ads. If you have the urge to hire, ask yourself why. Is the pressing issue time? Or is the problem how you’re spending your time? Remember that the practice should be built around your strengths and preferences. Is the honest answer to that question, “I really want someone to prepare tax returns so that I can become more of a reviewer/manager. I like meeting with clients and tax planning, but I don’t like preparing returns”? If so, your strategy might be very different than the owner, who is simply overwhelmed by more clients than he can handle.
Manage growth with confidence and a plan. Here’s one to follow:
Step 1: Raise your rates. The laws of supply and demand apply. If you are overworked and underpaid, give yourself a raise. Before you even think of hiring additional staff, get your rates up—all of your rates on all of your clients. However long that takes, do it. Bear in mind that raising fees is an excellent way to cull your client roster. If increasing rates results in fewer clients, your problem may be solved. You have to do frequent pruning to keep a garden thriving. Always prune before hiring.
Step 2: Carefully evaluate your lines of work. What is your account mix? Some practices strive to be full-service firms, whereas others offer a more specialized menu of offerings. What types of work do you most enjoy? It’s probably the line of work that you are best at. A simple solution might be to sub out the less desirable work—or get rid of it altogether. Again, this is a form of pruning. Take payroll as an example. If you’re doing payroll for only a handful of clients, perhaps you could peel that work away from your practice, a move that might free you up to focus on more profitable and enjoyable lines of business.Your self-evaluation may reveal that you’d like to expand the variety of your work by focusing on fewer clients in greater depth. If you thrive on variety, pursue more client advisory work, where no two projects are exactly the same. This is the value-added work that feeds your creativity. Countless successful practice owners maintain a relatively small stable of business clients. These accountants are far more than tax or accounting specialists to these clients; they are partners of a sort. Another truth is that some accountants do no individual tax work unless a business is associated with it. If you are capable of this higher-level work, then you can charge handsomely for it. My experience has shown that many accountants are quite content with a solo practice that is well-pruned, focused, and profitable.
In contrast, larger firms have an economy-of-scale advantage that permits people to play in different arenas. Their size allows them to divide labor efficiently. One partner is a tax specialist, another is an audit expert, and another is often the managing partner. One person is the firm administrator. Then there’s the business services division, where all payroll and bookkeeping is performed. These firms are like a large department store with several areas of expertise. If broad growth is your goal, a sensible strategy is to add one specialty at a time by hiring people to help you develop more depth in each practice area.
If you’ve decided that bigger is better, it’s time to talk about hiring—assuming that your billing rates are where they need to be and that you have a clearly defined growth strategy. Don’t skip steps or skimp when it comes to your staff. Hire the very best people you can find, pay them well, and work hard to keep them happy and productive.
This article has been excerpted from Accountant’s Flight Plan: Best Practices for Today’s Firms. This publication is available on CPA2Biz.
Brannon Poe, CPA, is a senior adviser specializing in accounting practice sales, mergers, and acquisitions. He has nearly 20 years of professional experience and began his career in public accounting as an auditor with Ernst & Young before working for several years in auditing and tax preparation for the regional firm of Elliott, Davis & Co.