MANAGING YOUR PRACTICE TODAY

By Lisa F. Quint and
Nicholas T. Florio

You arrive at your office earlier than most, only to face that pile of unreturned phone calls and other messages from the previous day. While preparing for today, a disgruntled employee catches you to talk about the last assignment; your phone rings and your secretary says she will be late; and your partner needs to speak to you about the new client he pitched yesterday. Finally, a moment to get some work done, when you realize that your 9:30 appointment has been waiting almost 15 minutes.

If this is a typical day, you're not
alone! A recent survey conducted by the New York State Society of CPAs' Small and Medium-Sized Firms Practice
Management Committees showed that 80% of managing partners in smaller firms do not have the assistance of an administrator.

The survey, circulated to over 2,400 firms throughout the state, provided 550 replies, a 23% response rate. As noted by one committee member, "This is a clear indication of the interest level for trends and practices."

The multiple choice format of the survey listed questions on marketing, professional liability insurance, employee benefits, and overtime compensation, as well as other topics not included in this discussion. The results were tabulated according to firm size, measured by
gross revenues. The following table
summarizes the categories and responses received.

Percentage of Revenue Range Responses

Under $500,000 41%

$500,000 to $1,000,000 30

$1,000,000 to $2,000,000 16

$2,000,000 to $5,000,000 10

Over $5,000,000 3

Total responses 100%

Care should be taken in interpreting and relying on the information and statistics reported for firms with over $5,000,000 in revenues; the number of responses was not statistically significant.

Marketing

The survey identified firms with
marketing programs. Exhibit 1 depicts the results--nearly 78% of the two
smallest categories of firms indicated
that they do not have formal marketing programs.

Marketing programs, in any size firm, do not have to consist of expensive advertisements or fancy firm brochures. One formal tool, part of a marketing plan, might be a well-written, one-page direct mailing that touches on some key "buzz words" of a particular industry. The cost of purchasing a mailing list runs pennies per name. An investment of several hours to write a letter and $200 for a mailing list of 1,000 names, can generate up to 15 or 20 leads. One mailing piece or a firm brochure, however, while effective, do not in themselves constitute a marketing plan.

Professional Liability Insurance Coverage

Because of the profession's ongoing exposure to litigation, accompanied by record-breaking settlements and awards, the cost of professional liability insurance continues to climb. Is this why 28% of those surveyed with under $500,000 in revenues, carry no insurance at all (see Exhibit 2)? Have smaller practices shied away from accepting engagements which carry heavy potential liability? What about coverage for their tax practices? Perhaps, cost alone is the main factor, and some firms are willing to accept the risk of self insuring.

One thing is certain: If a firm maintains professional liability insurance coverage, shopping for the right policy and negotiating fees should be done periodically to ensure the lowest cost for the most coverage. Insurance companies are competitive and offer a wide array of coverage limits and deductibles. The survey indicates that CPA firms with revenues under $2,000,000 carry between $1,000,000 and $2,500,000 of insurance with various deductibles up to $25,000.

Employee Benefits

The most common benefit provided by public accounting firms for their professional staff is medical insurance. While only 73% of the surveyed firms with revenues under $500,000 offer medical coverage to their staffs, almost 100% of all employees working in firms with revenues over $500,000 have medical benefits available. Other benefits varied with a majority of firms offering life insurance and 38% offering retirement plans.

The survey indicates that staff contributions for medical insurance increase with the size of the practice. According to Exhibit 3, of the smallest firms responding, 13% require an employee contribution, while 61% of the largest firms require an employee contribution. The amount of contributions vary, with the general trend being, the larger the firm, the larger the percentage of employee contributions.

Overtime Compensation

Many firms are compensating professional staff for overtime, combining both money and time. Over 40% of the surveyed firms with revenues under $1,000,000 compensate in straight-time dollars for overtime (see Exhibit 4). Firms with revenues in excess of $2,000,000, for the most part, compensate for overtime with a combination of money and time (see Exhibit 5). This latter trend reflects the need for firms, regardless of size, to more effectively manage cash flow--in this instance by not having to pay out cash, as the overtime is worked, or even as a single bonus-type cash payment at the end of the busy season. Compensating time-off also allows for improved staff management by giving time-off when the flow of work is slower.

Other Results

Responses to other topics in the survey yielded equally interesting results. The responses in some ways suggest that smaller firms are more restrained than larger firms in their approach to practice management. Larger firms appear to be using more innovative techniques to increase their business and manage their costs. We should, however, not conclude from this that smaller firms lack interest in improving the management of their practices. In fact, the large number of responses from this category suggests that smaller firms are anxious to learn about different practice-management ideas. They also appear to be willing to share their knowledge and experience with their colleagues. This suggests that networking should not be overloaded as a total for learning effective practice techniques, especially for smaller firms. A cooperative sharing of ideas will improve the practice management of individual firms, thereby resulting in a higher standard of performance for the entire profession. *

Lisa F. Quint, CPA, is with Buchbinder Tunick & Company LLP. Nicholas T. Florio, CPA, is a partner of Citrin Cooperman & Company. The authors express their appreciation to Shelley G. Lieff, CPA, of Advice Personnel for assisting with the article.

EXHIBIT 1

CPA FIRMS WITH MARKETING PROGRAMS

EXHIBIT 2

FIRMS WITHOUT LIABILITY INSURANCE COVERAGE

FIRM REVENUE

AUGUST 1995 / THE CPA JOURNAL69

EXHIBIT 3

MEDICAL BENEFITS

EXHIBIT 4

OVERTIME COMPENSATION: FIRMS

UNDER $1,000,000 IN REVENUE

EXHIBIT 5

OVERTIME COMPENSATION:

FIRMS OVER $2,000,000 IN REVENUE

Editor:
Michael Goldstein, CPA
The CPA Journal