Software Solutions to 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.

Regardless of a firm’s size or management style some of the common pitfalls in practice management can be attributed 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 know that many accounting firms have a top-down controlling culture that is both rife with intimidation, suspicion and mistrust?  Firm management styles that are 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.

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 undercut the efficiency of the staff and consequently reduced firm profits.

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 that manages a large firm with a talented support staff might be more successful by virtue of the unified set of goals stemming from the personality of one individual.

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. The clients you attract are based on your distinct personality and your goals. In order to succeed we must achieve a consensus among the staff and partners concerning common goals and practices.

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.

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, a small firm doing monthly bookkeeping would be well advised to develop a tax specialty rather than attempting SEC financial audits.

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. Some firms were well organized and successful; others had everyone rowing the boat in different directions (some staff without paddles) and operated in chaos without consensus about firm focus, practice development, billing, etc. This type of firm would often have 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.

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 is an embattled group of individuals with different goals and agendas.  This usually results in large accounts receivables, hidden write-offs, 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 manipulate and control others. As noted earlier, an accepted practice by one partner might be subject to be reprimanded 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. Without positive consensus, your firm will be forced to change 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, I have seen a wide variety of software used among firms. Some firms as large as eight to twelve staff are still maintaining manual systems for just about everything except their tax software and general ledger system.  Many owners fear a loss of control and refuse to implement new software. Use of spreadsheets for tasks more complex than they were designed is a common avoidance practice and reflects this fear.

Some firms habitually record billable time and accumulate it against progress bills in the hopes that time overruns can be recovered at some point against future work. This results in multiple pages of time slips that must be re-analyzed each time a new billing is sent out. Partner’s that claim this is a way to remind them to recover the amount against future invoicing are in reality failing to promptly address the problem. This actually make matters worse by cluttering the database with useless information and violates the principle of matching revenue and expenses in the correct period.

The best way to address an overrun with a client is when it occurs at the point in time when it’s fresh in everyone’s mind. A better practice would be to write-off the time and record the poor realization.  Clients with poor realization are not forgotten – fees must be increased, or the client relationship terminated. But this can’t occur if the situation is not exposed to daylight.

Successful implementation of time and billing software ensures that partners are held accountable when it comes 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. This helps to ensure that deadlines and client expectations are met.

In difficult situations when partners disagree it’s very important to have an accurate measurement and tracking software that reports the facts about profit contributions and documents task assignments. Accurate information reduces controversy and allows you to hold individuals accountable to firm profit goals and deadlines. And once you are able to hold people accountable you can more easily make effective decisions about compensation and separation, when appropriate.

Partner Productivity Report - click to enlarge

Partner Productivity Report – click to enlarge

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. Initially, chargeable time that should have been written off was hidden in work in process masking the actual contribution of the individual. Deadlines were also missed since the partner in question had refused to implement to firm due date software. After the write-downs were addressed and recorded we were able to measure the partner’s actual contribution to the bottom line and make a fair decision for all concerned. Ultimately, the partnership ended. A good time and billing system was essential in helping us reach this conclusion.

These situations have a human element that’s very painful. But in order to be objective and for your firm to not only survive – but thrive – you must have accurate practice management software that measures productivity and your client’s contribution to the bottom line.

The previous report example shows productivity for a particular partner. Work in progress and aged accounts receivable are depicted, along with time slip production, realization, billing write-offs and average number of days to collect – the essential information needed to determine partner effectiveness. When properly implemented, software can bring conflicts into resolution by eliminating confusion and providing factual, irrefutable data.

The Traditional Approach to Time and Billing

Many accounting firms follow a traditional billing pattern that is initiated by (1.) the distribution of detailed work in progress reports to the individual partners or owner as the first step in the billing process. (2.) the partners or owner analyze the work in progress reports and sometimes request copies of prior invoices, or analysis reports to determine client profitability or delinquency.

(3.) The partners or owner make notes and billing instructions on the work in progress reports and return them to the administrative staff for invoice preparation. (4.) Drafts of invoices are then printed and (5.) submitted to the partners or owner for review and changes. (6.) Corrections and edits to the invoices are made by the staff. (7.) Partners or owners perform a final review of the edits and changes. (8.) The invoices are mailed or emailed to the clients.

The whole process takes at least eight steps and can be very time consuming involving a significant amount of redundant effort.

“New Age” Time and Billing

Today many practitioners demand that time and billing software allow them to directly access their work in progress and prepare invoices from their workstation. The most obvious savings is the elimination of the middleman or administrative staff which reduces the overall time spent preparing client invoices.

Furthermore, the partner or owner is working directly with the data; therefore, no edits or drafts are necessary – just a review of the text and amounts before the invoice is emailed. Oftentimes, the owner when working directly with the data in this manner will think of additional opportunities for value billing, or better ways to express the service.  It’s more difficult for the administrative assistant to ‘get it right’ when expressing the nature of the service from written notes on a copy of the work in progress report. A partner or owner can better intuit the most appropriate vernacular suitable for the particular client because oftentimes he or she has the direct relationship.

In situations where partners prepare their own invoices, the firm might have some procedure they follow for accountability. For example, invoiced realization reports that show amounts billed compared to slips at standard rates. Also, aging of total unbilled work in progress by partner would discover situations that require further attention and leadership by firm management.  A total invoice report could be printed by partner and reviewed before the final posting of invoices.

Of course in certain cases – such as recurring monthly bills that remain the same – it may not be necessary to involve the partner or owner since the process repeats itself and is suited to the administrative staff.

The Compromise

At the very least, your billing system’s work in progress reports – see following example – should provide the partner or owner the concise information necessary to direct the preparation of the invoice from one report without running the staff around the office for additional information. For example, in addition to the sorted time entries, the work in progress report should show prior invoicing information, current year write-ups or write-downs as well as account receivable aging information.

Work in Progress Detail

Detail of unbilled time and expenses showing invoice and realization history, including aging of Wip.


Value Billing for CPA and Accounting Firms

On July 16, 2016, in Practice Management, by Fred Lindsley

Value Billing or Time and Billing for the Local CPA?

More than a few authors and reviewers in recent years seem to be minimizing the importance of tracking time for billing. Calling it “myopic and prosaic” they promote value billing as a replacement. However, my experience as a former partner in two successful CPA firms has taught me that both value and time based billing are indispensible.

Value billing is not a new idea, but the terminology oversimplifies the fee setting and invoicing process if viewed as a complete replacement for time tracking. After all, what determines and sets the limits on value?

Keeping track of your time helps to verify that you are billing correctly. It creates a correlation between the cost of the service provided in relation to the fee charged. If it wasn’t necessary to pay your staff a salary – if all staff were paid on a bonus plan – then all services could be value billed without relation to cost. Just pay the staff a percentage. However, since most firms can’t operate using that paradigm and salaries must be paid irrespective of realization and collections, it becomes critical that staff time is billed appropriately. For those not familiar with the process of value billing, click here to view the preparation of a sample invoice.

The following list of factors, while not exhaustive, can serve as determinants of value when value billing is used in conjunction with time tracking:

  1. Competition
    Other local firms in your area may charge fees that are lower or higher than what you charge. Clients that are guided solely by price may leave your firm for another when fees are the only consideration. Effective time and billing software provides the information and assurance that your services are correctly valued, or that your firm management needs improvement.
  2. Competence
    There is no replacement for professional competence in the determination of fees and competence is one of the key factors that ensures quality service. Unfortunately, competence may not be recognized by unsophisticated clients. Competence is also required as a business professional to ensure proper management of your cost structure and revenue realization.
  3. Confidence and self esteem are important.
    There are times when clients should go away. Unless you are certain of yourself and confident in your services you will be afraid to bill for the true value of your services and most likely place an inordinate amount of significance on what the competition is doing. Symptoms of this problem are revealed by the amount of work in progress that remains unbilled on a firm’s pre-billing report. Many CPAs and accountants are either unwilling or would prefer to avoid conflict. Many hope to resolve any conflict over the value of services at some more convenient and future date. Be assured that a more convenient future date usually never arrives. Good self esteem ensures that fees are billed in a timely fashion while the memory of the service is still fresh in the client’s mind and facts are clear to assist in the resolution of any conflicts.
  4. Your personal and business relationship with the client
    Trust and confidence are earned over time based on ongoing performance results. The well-informed practitioner is in a position to please his or her clients and provide them with a higher level of service.  Good practice management software can put you in the position where your clients will want to pay you more. When was the last time a client sent you a bonus fee?
  5. Ability to listen
    Listening to your client helps you to properly identify and understand their needs. Providing ”white space” in conversations instead of showing off knowledge allows the client the necessary time to react to your comments and feel satisfied that they have been heard. Many times clients need a good financial psychologist more than just a numbers cruncher.
  6. Labor and billing costs per hour
    Some firms work their staff to death in an attempt to compensate for low invoiced realization rates (the ratio of the amounts invoiced to gross recorded chargeable time). This policy is self defeating since it leads to low morale and cannot possibly create prosperity and abundance in the long run. Knowledge of hourly labor costs and billing rates assists the practitioner in formulating the cost of delivering services to the client. This knowledge should impact billing decisions just as a profit and loss statement affects earnings per share and the value of a stock.

A good example of how a properly maintained time and billing system can assist the practitioner in value billing and recovering the cost of services is shown in the following graph which depicts the ratio of chargeable time, based on an hourly rate, to the amount actually realized on invoiced services.

Shows employee recorded time & net realization grouped by partner - click to enlarge

Shows employee recorded time & net realization grouped by partner – click to enlarge

The above graph compares, for each staff person, over a one year period, the gross recorded chargeable time included in the amounts invoiced for that time period. Each staff’s performance is further broken down by billing partner. The first staff “Fritz Landon” at left shows invoiced realization for partner “FOL” slightly higher than gross chargeable time,  the opposite is true for the next partner “POW” displayed for this staff person.

The slight variations suggest a peaceful coexistence between value billing and the recorded time at standard rates.  Are the variations attributable to staff performance or client efficiencies? ….tune in next week.

ImagineTime is proud to announce the release of ImagineTime Anywhere, an iPhone and Android App.

The ImagineTime Anywhere mobile application allows anyone using ImagineTime time and billing software to record time and expenses as well as have access to client contact information while out of the office. Clients, staff, and billing rates are uploaded from ImagineTime to ImagineTime Anywhere. View clients information and easily make a telephone call just by tapping the client’s number on the screen or send an email by selecting the email address.

You can record time slips for chargeable and non-chargeable time as well as record expenses. The time slips include client name, work code, staff rate and notes. Once the slips and expenses have been approved they can then be brought into the ImagineTime desktop application.

The ImagineTime Anywhere mobile application is iPhone and Android compatible and available through the Google Play or iPhone Stores. Subscription cost is $75.00 per user per year.


Effective Practice Management Reporting Minimizes Write-Offs and Write-Downs

“Firms don’t recognize the single biggest controllable cost to the CPA firms is work-in-process write-offs” Rosenburg, M. L. (1994), The 10 Biggest Mistakes CPA Firms Make. The Journal of Accountancy, 177(1), 105-108

Stark statement?  Yes.  A prosaic one too?  Possibly, but a metric that matters intensely nonetheless.  Excessive write-offs and write-downs can lead to the outright failure of a firm even in a robust economy. A more common occurrence is reduced profitability that escapes detection and/or correction during good times but becomes a potentially fatal vulnerability to the firm during economic downturns.

There are three main lines of analysis that help to ensure the firm has adequate understanding and control of write-offs and write-downs along with client and staff performance:

  • Realization and contribution reporting – the comparison of recorded time to amounts invoiced. Contribution reporting measures the staff’s total contribution to firm revenue, i.e. a staff with average realization may compensate by contributing more revenue through recording more chargeable time.
  • Collections – invoice write-offs and bad debts.
  • Non-chargeable – excessive time spent on administrative functions that could be handled more efficiently.

Realization reporting should be looked at from four angles

  • Realization and contribution reporting by employee and partner
  • Realization reporting by client
  • Realization ratio by type of business
  • Trend reporting – is performance improving or declining over time?

Graphical Depiction of Realization by Partner and Staff

The ImagineTime graphical analysis that follows illustrates the kind of information needed to allow effective review of realization ratios for employees individually and as a group.  It depicts the total chargeable time and net realization percentage by employee grouped by partner for one year – in this example there are three partners shown. The advantage presentation is that you get a quick idea of much each employee produces for each partner. In this graph the first two columns for each partner grouping shows the total time and realization for the employee “FOL”. It quickly becomes apparent which partner “FOL” works for the most and his contribution in total time and realization.

Staff recorded time & net realization grouped by partner - click to enlarge

Staff recorded time & net realization grouped by partner – click to enlarge

Staff Time Activity by Code

The report example below is prepared to show performance totals by work code for a quarter and year but you can review this information for time periods you specify. The report shows the ratio of chargeable to non-chargeable time and for chargeable time the amounts realized and effective rate per hour.

In this example, the employee had approximately 2,000 chargeable hours of time and additional 400 hours of non-chargeable time – a hard worker. Although this employee has quite a bit of non-chargeable time is hasn’t hurt efficiency – the amount realized of $173,192 as a ratio of the total time at standard rates is almost 95%.

Another useful report would show the hours and ratio of chargeable to non-chargeable time over a user specified range of months and years.

Staff Time Activity by Work Code - click to enlarge

Staff Time Activity by Work Code – click to enlarge

Staff Time Activity by Client

Another variation of the previous report shows the same information by client – rather than work code allowing you to quickly determine from among the two presentations the staff’s more profitable work areas and the clients that perform the best under his management.

Staff Activity by Client

Staff Activity by Client – Click to enlarge

Staff Chargeable Hours by Month and Year

This report can be used as a good indicator of consistent, deteriorating or improving trends with respect to reported chargeable time. When evaluating the hourly information as a performance indicator you should to be aware of the staff realization trends during the same periods.

Staff Chargeable Time by Year - Click to enlarge

Staff Chargeable Time by Year – Click to enlarge

Invoiced Realization by Client grouped by Staff and Partner

This report shows the time at standard and the amount of billing adjustments recorded for a particular staff within the amounts invoiced for a selected date range.  You should also be able to filter this type of report for a particular partner. The total hours, rate per hour and realization percentage are also shown.

Another variation of this report (not shown) would depict the realization statistics for paid invoices in a selected period which allows firm management to base compensation and bonus programs on paid rather than invoiced performance.

Invoiced Realization - Click to enlarge

Invoiced Realization – Click to enlarge

Client Snapshot by Initials

During the early 1980’s I managed a local CPA firm in Fort Lauderdale with three partners.  It was very important to know how much each partner contributed to the firm billings. Other information such as realization on invoicing was unavailable. A sample report from those days is shown below:

Comparative Partner Billings - Click to enlarge

Comparative Partner Billings – Click to enlarge

Computers have made it possible to show comparative performance of numerous partner performance metrics. The next report example shows the performance statistics for a particular type of client or line of business filtered by partner and sorted by descending realization percentage. Shown here is information about the realization rate, collection experience and the amount of receivable and work in progress carry for this partner and client type. It also shows the average days to collect an outstanding invoice. The realization ratio becomes much less important when the client takes over six months to pay an invoice!

Client Snapshot by Initials - Click to enlarge

Client Snapshot by Initials – Click to enlarge

Client Invoiced Amounts for Selected Periods

Many CPA’s and accountants want to know specifics about client performance – for example, what clients contribute the most revenue, which areas of work are most profitable and what staff worked on specific clients. The first example that follows lists invoiced clients for a selected period showing useful information such as amounts invoiced, billing adjustments, labor costs, total hours, net realization and other information. You should also, at your option, be able to view this information by work code.

Client Invoiced Amounts - Click to enlarge

Client Invoiced Amounts – Click to enlarge

Client Time Slip Activity and Realization by Work Code

When detailed information about client performance is required, the report below shows client performance by work code for a selected period along with a separate presentation of the staff responsible for performing the work. Now you know what areas of work were most profitable and which staff were responsible – the essential information required for effective decision making!

Client Time Slip Activity and Realization by Work Code - Click to enlarge

Client Time Slip Activity and Realization by Work Code – Click to enlarge

Client Performance Trends

This report helps to determine the profitability trend for a particular client. Shown in the following report are amounts billable (recorded chargeable time) compared to amounts billed, write-offs and receipts for each month in the selected 24 month range.

Client Performance Trend over 24 months - Click to enlarge

Client Performance Trend over 24 months – Click to enlarge

You should be checking graphs and reports similar to these on a monthly basis at a minimum in order to spot problems quickly.  It’s also helpful to look at these figures on a quarterly and yearly basis.  Doing so will help you ensure that longer time frames show data consistent with shorter time frames and identify seasonal trends for which you should plan.


Time and Billing – is it time for a change?

Many CPA and accounting firms still use spreadsheets or old “DOS” based programs to perform important time and billing software functions. Others use Quickbooks® to track and bill time. Although these products attempt to accomplish the needed result, the process used is not the most efficient or effective, and often costs your firm extra time and effort as well as reduced billings.

Effective time and billing involves multiple tables that are linked in a relational database. For example, a relational database for time and billing implements – at a minimum – billing rates, staff, client, work code, and time slip tables that are related by common keys. Spreadsheets are one-dimensional whereas relational databases implement a one-to-many relationship. Work code descriptions need not be redundantly stored within each time slip – instead a link to the work code record is saved in the time slip record. This saves time, space and improves data management.

Older “DOS” and Windows based databases such as “Unilink Dos” implemented database relationships and were great programs when first released. By today’s standards, however, these programs are obsolete relics and limit your firm’s ability to compete. First generation time and billing products lack the horsepower to generate sophisticated performance reports and are unable to provide sufficient historical information to generate reports for prior periods. Required period closings limit what can be viewed from prior periods and errors or mistakes oftentimes often cannot be reversed.

Quickbooks® is a great accounting product that can track time, but lacks the ability to generate detailed work in progress reports that itemize and summarize the value of your unbilled inventory.  You never know the total value of your work in progress in relation to revenue or billed receivables – a significant asset to overlook!  Historical realization reports are also unavailable.

Please review the snippet of a comprehensive work in progress report in the following graphic:

Unbilled work in progress

Unbilled work in progress – click to expand


I know change is inevitable, but I’m afraid to change and comfortable with current procedures and practices

CPA’s and accountants have a reputation for being slow adopters when it comes to change and technology. To paraphrase a 2011 article on change by Julie Rains, Senior Writer – Freelance, Killer Aces Media – there are five reasons not to embrace change:

  1. Productivity will plummet and stress will skyrocket. The simplicity of day-to-day tasks is comforting. We take comfort in following a self-developed decision tree with a limited number of variables.
  2. Embracing change means admitting past mistakes – admitting that past procedures caused errors or less than optimum results opens the way for improvement and better practices.
  3. Failures are not occasions for learning – navigating change is like falling into an abyss rather than interpreting clues on a hidden-treasure map. In other words, learn from our mistakes. Don’t expect different results from repeating the same procedures.
  4. Difficult problems arise from change – the side effects of change may involve handling situations that we do not fully understand.
  5. Unwillingness to risk status among colleagues and employees….how long can we stay relevant by preserving the status quo?

Julie Rains suggests that in order to successfully embrace change we must establish a new performance metric when change occurs. “Emphasize the need for continual renewal, not as an indictment of the past, but as a strategy for ongoing success”.  When making a change we must “identify known negatives that will likely surface as byproducts of change…and anticipate the best practices for dealing with these situations”.

As a former practicing accountant of 25 years, I frequently experienced great resistance to change among my colleagues. During my apprenticeship at J.K. Lasser & Company in Miami, the audit staff would request lengthy amortization schedules from the IT department mainframe in order to analyze notes payable during the course of an audit.  I can recall being ridiculed in 1973 for using a Texas Instruments calculator to efficiently verify and correct the note balances with just a few button presses.

At college, I learned formulas for determining present values and level payment amounts and was able to use them with this “fantastic” new device.  The TI calculator could quickly determine the correct present value of a future stream of monthly payments at any given interest rate…no amortization schedule required!  The results were displayed on the screen in bright red. Later, a small tape printout allowed the attachment of the results to our work papers. Today, we use Microsoft Excel to do these calculations and print out the spreadsheet.

At ImagineTime, we speak to many firms that currently use spreadsheets, older “DOS” programs or Quickbooks® and are looking for a better solution…as long as it doesn’t involve too much change.  These calls usually occur when the program has crashed and the owners are desperate – symptomatic of the idiom “if it ain’t broke, don’t fix it”.

It’s best to change before things reach this point. I encourage your firm to achieve a consensus about your goals for the future, move forward and discard the relics of the past. You can teach an old dog new tricks!!

Client Relationship Mangement

On July 13, 2015, in CRM, Practice Development, by Fred Lindsley

CRM and what it means to your firm

Should you consider switching from using a list of the firm’s clients on an Excel spreadsheet to a customer relationship management (CRM) system? Has Post-it-Notes and an Excel spreadsheet really worked? Perhaps you are a small to medium sized CPA firm and don’t feel the need to adopt a system that logically organizes a way to view all your company’s clients and prospects and all the employee’s interactions with them.    Let’s look at how a CRM can improve efficiency in your office, help retain and grow your client base, pin point where to expand services for your current client base, improve customer service, and form relationships with clients.

A CRM improves efficiency by allowing the user to access all information for clients, prospective clients, and vendors from a single place.  In addition to seeing contact information, staff can easily record and see all contact notes. When selecting a CRM system select one that will directly interface with your other software applications; such as document management, practice management, and Outlook.  Your integration setup will determine whether you can view tax files, correspondence, emails, invoices, historical information, etc. for a contact/lead with a single click.  Labels, envelopes, custom letters, and email blasts can be created in one location too. Way easier than opening up multiple Excel spreadsheets, plus data entry is reduced!

In addition to efficiency, having the data sources in one central place makes it easier to gain insightful information from customer/prospect data.  For example, should the audit department promote additional services for a tax client who took 11 months to pay? Identifying a client’s referral source can lead to cross-selling opportunities.  If you have attorney clients that are estate and probate specialists, have you communicated to them how you can ensure that trusts are funded?  Your collections’ staff will be fully informed when talking to the customer, with all transaction and contact history available.  Such information allows you to efficiently send customized collection letters as shown in the example.

Manage client collections more effectively with CRM tools.

Manage client collections more effectively with CRM tools.

Enforce accounts receivable credit and work in process limits to preventing staff from wasting company resources by working on accounts that have exceeded established limits.  These are just a few examples of the benefits of having all your information in a centralized location.

CRM helps deliver better customer support.  Recording client preferences, personal data, past interactions and invoicing history to one location ensures staff that they have access to the same information, allowing anyone to help a client at any time.  You also alert staff of difficult or special situations. This will have a positive impact on client retention and referrals.  Remember it costs a CPA firm more to get a new client than to keep an old one!

CPA firms have a tendency to overlook the importance of client relationship.  If a month goes by without reaching out to current clients you are not doing a good job of client retention.  CRM makes it easy and fast to email blast general information to all your clients.  However, the information stored in a CRM will allow you to send targeted marketing communications that specifically address client needs.  In addition to sending a newsletter with general information send a more focused newsletter with in-depth information to a specific group; i.e. notify all medical practices/doctors of IRS changes in determining when to capitalize or expense supplies, instruments, equipment and repairs.

Client Relationship Management - Click to enlarge.

Client Relationship Management – Click to enlarge.

Direct an e-mail blast about upcoming tax and investment planning seminars to clients showing increased business profitability on their tax returns.  Using targeted communications shows that you are invested in their business and they’ll feel that you are giving them information at no extra cost.  Staying in touch with your clients helps ensure that your new client acquisitions are a true gain and not just a replacement for lost clients.

Reaching out to contacts lets you target market your services to specific groups, i.e. chamber of commerce contacts, etc. and ensures that your firm continues to grow and expand. You can quickly develop a specialty by marketing to a specific business or profession, i.e. doctors, etc.

It makes sense in an increasingly competitive environment to implement a CRM that is easy to learn and to use.  Test a demo of ImagineTime software to get a feel for how CRM works and whether it fits your needs.  Also be sure your application is mobile-device friendly so that you can access the CRM while out of the office.

Due Date Monitoring Software – the basics

Many years ago I worked for a small local firm that prepared several hundred 1040’s during tax season. At the time, spreadsheet software was just coming into its own with Lotus 123© having most of the market share. Our firm still managed deadlines on a thirteen column manual spreadsheet that was redone each year.

Individual tax forms not completed by the April due date would be extended on IRS Form 4868. Extensions along with any outstanding taxes were sent certified mail, return receipt requested to ensure that no issues would arise with regard to timely submission. Once the extension was mailed, the client’s 1040 task was marked as extended on the manual spreadsheet.

It was always a concern that an important client from a previous year would not be carried over to the manual spreadsheet for the next year. In this particular year – the early 1980’s – one of the partner’s important clients missed the extension deadline because of an oversight of the kind just described.

As you no doubt are aware, the penalties for late filing are stiff and in cases like these become the responsibility of the preparer.  Occasionally, the CPA can plead for mercy and the IRS abates the penalty. Nevertheless, the client becomes aware of the situation and confidence is lost.

Several days after the deadline on my way to lunch, I observed the responsible person take the late extension and walk it to the mailbox outside our office building. Before opening the mailbox, the extension was dropped in the mud. The responsible person then began stepping on the letter, picked it up and twisted it until the address was barely visible. After this unusual procedure, the letter was dropped in the mailbox.  Several weeks later, the extension came back approved!

Before considering unscrupulous and extreme steps such as these, I recommend you implement a simple and reliable due date management system. This system should, at the very least, have the ability to automatically rollover deadlines from one year to the next for any active client. Also, a basic report should ensure that active clients have an in-process or completed task in the system. To minimize time spent during setup, similar client types should be able to be setup as a group through a simple cloning procedure.

Each task in the due date system should have a start and due date, as well as extension and completion dates. The task should also be capable of being assigned to a principal preparer and reviewer. Due dates should auto-calculate based on the characteristics established for the master task. In unusual circumstances, you should be able to override calculated due dates – for example, in the situation where several years 1040’s are prepared well after the original due date but in accordance with an agreed deadline with the IRS.

Tasks should store notes about the status and progress of the work and these notes should be available for review when a fee change is considered or before preparation of next year’s work.

The frequency of tasks should be flexible. Many tasks fall due on weekly, monthly, semi-monthly, quarterly or specific dates, such as an IRS notice response. There should also be some permission mechanism that prevents active tasks from being deleted or reassigned to inactive staff. The ability to break down tasks into several simple stages is also helpful. Shown below is a due date report for 1040’s not competed and waiting to be put on extension.

Due Date Extension Report

Due Date Report - Click to enlarge

Due Date Report – Click to enlarge

The following screenshot displays the split form where the filtered 1040 items are updated and notes made once extensions are completed.

Deadline Management Screen

Due Date Monitor - Click to enlarge

Due Date Monitor – Click to enlarge

The due date system should also be capable of generating reports of tasks assigned to staff for a specific date range as well as tasks assigned to particular client groups.

Staff Performance Accountability – Who’s Responsible?

While there may be many ways to “successfully” manage your firm, managing your firm for optimal performance is not easy.  One of the most fundamental steps toward optimal performance is to establish a culture of honesty and transparency in your firm.  In such a culture you can establish performance goals for your staff and see those goals taken to heart because your staff understands what is expected and trusts that performance assessments will be fact based and objective.

Performance is usually assessed on some very basic metrics such as:

  1. Quantity of work hours, both chargeable and non-chargeable
  2. Efficiency of work
  3. Ability to generate clients
  4. Ability to work as a team member

It is important to have reporting mechanisms that quantify these goals and allow you to objectively measure performance at periodic intervals. At the same time, you must also evaluate these reports in the context of the firm culture and dynamic using common sense, honesty and realistic expectations: things not necessarily taught in college or tested for on the CPA exam but derived from your native instincts and the school of hard knocks.

In the early days – before computers – our CPA firm spent hours tabulating staff productivity on thirteen column spreadsheets like the example shown below for 1984:

Manual Compilation of Staff Productivity - Click to enlarge

Manual Compilation of Staff Productivity – Click to enlarge

Computer software has made it possible for many firms today to measure staff efficiency by comparing chargeable time to billed realization – a next to impossible task if performed manually.  If you click to enlarge the sample report below, you will see the areas where this employee works most efficiently, with the highest hourly rate and lowest fee adjustments and accordingly, the best realization.  You will also see the amount of time spent on non-chargeable activities.

staff performance

Staff time and realization by work code

Popular time and billing software products have reports similar to this one.  Most also have reports that breakdown the metrics by client and show staff contribution to firm gross revenues by year along with information about staff salary and costs.  This allows firms to develop cost multipliers, 2, 3, 4 times cost, etc. and also determine whether that ratio is improving or deteriorating over time.

Reports like this are essential and should be implemented and relied upon. But as mentioned previously, it is also essential to evaluate performance reports in the context of the firm’s management dynamic and culture.

One of my first jobs out of college was working for a “Big 8” accounting firm. Staff were expected to generate at least 2,000 chargeable hours a year, as well as continue professional education and assist in practice development.  I was given responsibility as a “semi-senior” during the annual audit of a local governmental port authority. Enterprise fund accounting was new to me at the time, and I was excited about implementing the fund accounting methods learned while attending school.

During the audit, however, it became increasingly clear to me that the financial statement presentation of fund accounting was significantly incorrect for prior years. It also became clear that the amount of time needed to properly research and correct the issue was not allocated in the budget. This was a fixed fee job.

I received little support when I informed the manager and partner about the problems with the financial presentation in prior years. The manager was not excited about supervising a job that wouldn’t be brought in under budget.  The partner was not forthcoming and seemed irritated. In hindsight, I can see that he was probably embarrassed that the presentation was botched the prior year, but because I was proud to be a CPA and felt that it meant something, I corrected the statements on my own time – unpaid overtime – and didn’t record all the time I spent doing this, even though I was told I should. Staff that ran over budget didn’t last long.  That was the clear message. The firm’s culture of fear trumped any attempt at transparency and honesty.

Truth is, this client either should have been let go or should have been paying for the resources they consumed.  But, the firm was unwilling to confront that reality, and my own fear of retaliation kept my time reports from revealing the true cost of servicing this client.  Performance assessments and reporting tools can only reflect the quality of the data provided, and that input depends on the culture of the firm.

I would like to encourage those of you that are young without experience or others that may have had setbacks and a harder start to never give up. Speaking from a challenging personal background, I spent most of my high school years surfing and absent from school.  My dismal grades at graduation suggested anything but a career as a CPA. However, with my father’s help, I was able to get accepted to a small liberal arts college in Wisconsin under the condition that I earn good grades in the first year of study. I helped to pay for my education by building log cabins with my Dad during breaks and in the summer months. While attending college in Wisconsin, two professors – one accounting and the other philosophy – inspired me and literally changed my thinking and my life. I am so grateful for their help.

I transferred at the beginning of my third year and graduated from Stetson University in 1972 with a Bachelors in Business Administration and respectable grades. However, I had no clue as to what type of work I should seek and was not prepared for reality.

My family wouldn’t support me, so I needed a job right away. My father had been in sales, so I tried to secure a position selling life insurance. The insurance company personnel tests suggested the accounting profession – too introspective for sales they said. Feeling rebuffed, I knuckled down and accepted a straight commission job selling pots and pans door-to-door – no pride in that. Not surprisingly, a few years later this single experience gave me the courage to start my own accounting firm.

I ditched the sales job several months later and moved to Florida. In trying to figure out what to do with my life, I remembered enjoying the accounting courses taken in college. After spending the better part of a day at the state employment agency, I followed up on a lead for a bookkeeping job and secured a position as an entry level bookkeeper.  Over the next twelve month period, I learned the basics of monthly bookkeeping, tax preparation, general ledger accounting and financial statement presentation. I also learned to efficiently use an adding machine. During my first week I was instructed to add the phone book – a humiliating, finger strengthening exercise. I also learned to survive in an office where everyone chain smoked all day – myself included. Times have certainly changed. Kicking the habit eight years later was more difficult for me than passing the CPA exam.

I started looking in the paper and found a better paying, albeit, short-term position working for a construction company as the assistant to the controller. During this time, I began attending night school to get the additional courses necessary for a major in accounting. Several months after starting work, the construction company controller suggested I consider public accounting and offered to set me up with an interview that led to employment at a large CPA firm in Miami. This was a big break and I was very grateful for his advice and connections. I commuted over 100 miles a day to my new position as entry level auditor without the benefit of an air conditioned car.  It was quite a trick to arrive in a suit each morning looking “neat and pressed” during the summer months of South Florida.

I received a hailstorm of derogatory comments from my peers during my first months at the CPA firm when they realized I had not completed my accounting degree. Why was I allowed to work there? In fact, I had only completed 4 of the 10 or so required courses. This continuous and palpable air of resentment vaporized when I passed the accounting exam one year later at my first sitting in November 1974 – a full three day affair at the time.

I accepted my dream position soon after as a staff accountant working for one of the Big 8 accounting firms. They would not have taken me on except that I achieved a 4.0 grade point average in my accounting major while working a full time job.

At the time, the Big 8 (now Big 4) preferred to hire students directly from school with no prior work experience. However, I had successfully sold pots and pans for several months – door-to-door – and knew that creativity and persistence could make a difference in what people think of you. I wouldn’t give up and kept calling until ultimately the HR person gave up and offered me the position – $13,000 a year seemed like a lot of money at the time.

Step 1 – Become technically proficient

This is the first and most important step in starting your own practice. I was fortunate to acquire some great educational benefits and experience before I went on my own. You must have something great to offer and be excited about it in order to succeed in a profession.  Mediocrity is the first step towards failure.

It goes without saying, short and sweet, you must become technically proficient and confident in your physical and mental skills before even thinking about starting your own firm. Study, engage your skills, and expose yourself to as many situations as possible before going out on your own. Take extra college courses and develop a specialty. Read technical literature and become a “library of information” that colleagues can draw from. Proficiency with the numeric keypad and learning to accurately type at least 30 words a minute is also essential….and much more common today than when I started.

Mentors are very important. Look for a mentor and associate with individuals that are equally smart, or better yet, smarter than you.

I was most fortunate to have several mentors take me under their wing. Respecting their anonymity, no names will be mentioned. However, one particular CPA – call her “Sandy Bell” – taught me about organization and “to do” lists. Until then, I had unsuccessfully tried to remember long lists of important tasks by memory. Sandy instilled in me the need to be very thorough in my work approach and strive for excellence. I really admired and respected her.

There were many others, each with their own special gift that left lasting impressions on me. For example, observing the care other senior auditors took when preparing work papers encouraged me to improve my penmanship and structure my thoughts before writing them down. During that period, personal computers did not exist, so good penmanship was very important.

Step 2 – How to attract new clients

Gratitude for the knowledge and experience gained was not enough. Working ridiculous, 80 plus hour weeks for several years, getting mono, and making the partners lots of money gave me the motivation to start my own practice. But I had no clients or contacts – except for the ones I worked on at the firm.

My only previous experience in getting business was an attempt to moonlight when working as a bookkeeper. I tried soliciting my own clients by handing out business cards and flyers to local strip mall businesses – “Mr. Balance Sheet” – Accounting advice at a modest price” – was the tagline. This effort proved unsuccessful. I wonder why?

It was unethical to solicit the clients of my employer, but I had a suspicion that some of them might join me later if I went out on my own. Outside of that there were a few family friends that were willing to take us on. At this point, I had decided that a partner was necessary to launch the firm. I didn’t have the extra $1,000 in funds necessary to lease the copier – a necessity at the time.

After pooling our funds, vacation, severance pay and the few clients, we signed an inexpensive one-room lease for one year in a four story building in downtown Fort Lauderdale, Florida. Initially, the building tenants became my canvassing ground. I looked for opportunity everywhere and spoke with anyone that would listen.

Business trickled in, some from the phonebook, some from elevator conversations. In the first year, we grossed a little over $40,000 and each netted about a $15,000 salary…..we also played a lot of tennis.

Today, social media is so much more helpful in getting started, but it doesn’t replace the handshake, or the smile. Getting a face-to-face encounter with your prospect is the best way to create a memory. Join the chamber of commerce, or a group in your area where you can get together with other people that are interested in the same thing as you.

Believe it or not, many people are actively searching for a good accountant and can’t find one! Hone your talents and skills and show up for meetings. Listen and ask questions – that’s right “LISTEN”. Then, offer intelligent comments that are on topic. Don’t drone on about your skills and qualifications; instead, focus on your prospects interests and needs. Get them talking. The topic doesn’t need to have any connection with taxes or accounting. Just express an intelligent opinion and be friendly. The appropriate time to disclose your occupation is when you introduce yourself, but keep it short.

This attitude of “offering up” with joy attracts people to you, and before you know it they will ask you if you are taking on work – but, most likely, not at the first or second meeting. You may want to begin part of this process before you leave your current employment.

Step 3 – How to fire your clients

When you first start out, the tendency is strong to take on any client that comes your way. We did this and ended up with some good and some undesirable clients. Just like people everywhere, there is the dishonest client, non-paying client, sloppy client, generous and appreciative client, demanding client that pays and the demanding client that doesn’t pay.

Motivated by fear of being unable to pay our bills, we wasted quite a bit of time and energy on undesirable clients.  Frankly, the fees made from this type of client was more than offset by the stress created and extra time wasted working in a dysfunctional relationship. Do you really want to represent a dishonest client during an IRS audit? If so, you will have to repeatedly practice the phrase “I’ll get back to you on that”.

Don’t get me wrong, it’s impossible not to have some irritating and questionable clients. It’s unrealistic to think that you can avoid basic human nature – some folks have very successful “cloaking devices”. However, establish a profile of the type of client you want and the ones you won’t accept. When a client reveals undesirable traits, remove yourself from the relationship as quickly as possible….whether it costs you some money or not.

It is also very helpful to develop a close relationship with a good lawyer. It can be someone you meet on the tennis court, golf course or any venue for that matter. When you’re in a spot, you need someone to check your thinking and help you determine the proper course of action.

Step 4 – Where do I go from here?

Now that you are skilled and proficient, have attracted and weeded out certain clients, you have achieved “lift off” and started your accounting practice. You’re in the saddle now and riding the horse, but you may not know how to reign him in or point him in the right direction. This is where developing successful practice management skills become so important…more about this in future publications. But for now, good luck in your endeavors.