Firms must spend more, market better, increase efficiency

The Advisory Board, a think-tank that applies a multidisciplinary approach to consulting for professional services firms, recently held its first virtual CPE seminar, a subscribers-only conference call in which participants discussed the challenges facing accounting and consulting firms.

According to Jay Nisberg, president of Ridgefield, Conn.–based Jay Nisberg & Associates, Ltd., increased human resource costs will adversely affect the profit structure of firms. He predicts they will pay roughly 40% of revenue for salaries and payroll instead of the traditional one-third.

Gary Shamis, managing partner of Cleveland, Ohio–based SS&G Financial Services, Inc., said accounting firms must recognize what marketing a multidisciplinary practice entails. For firms trying to rebrand themselves as financial services providers, this may entail changing their names to cover different business units. For example, his firm of Saltz Shamis & Goldfarb, Inc., is now one of several businesses operated by SS&G Financial Services, Inc., which uses “SS&G” to brand its other units. To cover increased human resource and marketing costs, Shamis says firms will have to increase both their fees and their efficiency and should also strive to reduce other costs, for example, by renegotiating malpractice insurance and using practice management software.

L. Gary Boomer, of Manhattan, Ks.–based Boomer Consulting, Inc., pointed out that technology is now the No. 2 expenditure after labor, and therefore requires close management. Boomer said firms tend to overspend on accounting and tax research software (e.g., redundancies and duplications) and underspend on technology training. Also, most firms do not know how much they really spend on technology because they often overlook certain costs such as servers and cabling, hardware, software, maintenance, communications, remote access, presentation equipment, training, and related labor.

Based on discussions at partner retreats he had recently facilitated, Allan Koltin, CEO and president of Chicago-based Practice Development Institute (PDI), talked about key issues that firms face as they move into consulting and other nontraditional services: redefining the role of the managing partner, changing the partner-compensation model, and redirecting resources. Managing partners must find ways to continue to build their book of business without jeopardizing their leadership position in the firm or, alternatively, hire a CEO from the outside to manage the firm. Better compensation models include return on invested capital, bonus pools, and market-value draws. Koltin said firms will also need to spend more on activities that prepare them for the future, such as strategic planning, marketing, technology, retooling and retraining, new product development, recruitment and retention, and integrating staff acquired through mergers or acquisitions.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.