The Perils of Point Solutions

A data-driven approach to business decisions is key to accounting firm profitability and growth. And that makes tracking, crunching and integrating numbers across disparate firm functions mission-critical. But the tools available to accounting firms haven’t yet caught up with their needs.

Progressive CPA firms have devised a variety of solutions to boost the capabilities of their existing tools. Many firms rely on point solutions that have been cobbled together with a series of integrations. While these techno-Frankensteins are often truly impressive accomplishments of engineering, a closer examination reveals that this approach leaves firms at a competitive disadvantage.

  • Excessive costs — Each one-trick pony adds licensing costs as well as time and money for maintenance and training. When firms use a dozen or more point solutions, as is common, these costs become a significant and unnecessary drain on resources.
  • Platform incompatibility leads to brittle or nonexistent integrations — Each point solution is designed for a specific platform (e.g., Microsoft or Oracle) and space (cloud, on-site or mobile). Making these solutions work together requires either homegrown or third-party integration tools. Besides the added costs for consulting, development, maintenance and training end users on integration protocols, there’s the inescapable potential for failure. Carefully balanced integrations are sensitive to many factors, and productivity and profitability both take a hit when one element falls out of alignment. When a single user enters data in an unexpected way — or when a linked system is updated — the entire house of cards can collapse.
  • Inadequate visibility — Firm leaders need a holistic view of client and engagement status. Point solutions struggle hard in this area. Data taken from different sources makes it nearly impossible to generate powerful, high-quality business intelligence visuals.
  • Bad data — Working with multiple point solutions elevates the risk of relying on data that is inaccurate or incomplete. Which group is most profitable? How many hours really remain in the budget for an engagement team? Managing partners lack confidence in the numbers when they’re looking at multiple “versions” of the truth. Open systems like Excel are particularly vulnerable to user error that can throw unpleasant wrenches into the numbers leaders rely on.
  • Bottlenecks and inefficiencies — Managing data and replicating it across point solutions takes time that could be better spent on billables. This tedious work usually falls to just a few individuals. When the person responsible for a data manipulation task is unavailable, it can be impossible to proceed. Delayed dissemination of important information prevents timely decisions and encourages suboptimal decisions based on missing, incomplete or inaccurate data.

Ingenuity, spit and glue are valuable tools that can solve immediate problems. But in the long run, cobbled-together point solutions are no match for a cohesive practice management system that unifies all firm activity — from ideation to balance sheet.

To learn how PracticePro 365 supports visibility, real-time insights and an integrated approach to managing key data, request a demo today.

How Visionary CPA Firms Align Technology with Strategy

Accounting firms are transforming. The days of individual CPAs running their own fiefdoms under a single brand are gone. Over the past decade, visionary CPA firms have adopted a top-down approach to governance that mirrors the traditional corporate management style. This new practice management style allows for greater operational efficiency and profitability. But such improvements do not follow automatically.   The new accounting firm practice model demands a fresh approach for everything from cross-team collaboration to marketing, business development and billing. In the quest to build a single firm with high efficiency and standardized business processes, leaders must consider a number of key strategic needs:

  • Collaboration and cross-selling across practice disciplines
  • Professional marketing and business development, including social media outreach, event management and marketing campaign management
  • Visibility into billing, project status and client relationships
  • Secure, always available access for an expanding and remote workforce
  • Effective growth platform and culture

  The demands of the new practice model call for a different approach to practice management technology. The right solution can enable multidisciplinary firms to reap the efficiency and profitability benefits they envision. But matching the available tools to the firm’s specific needs often poses a complex and frustrating challenge. While individual firm’s goals vary, a number of features and capabilities appear consistently on the technology wish lists of growth-oriented firms of every size.  

PracticePro 365 was custom built to support the growth needs of visionary CPA Firms. Request a demo to learn how PracticePro 365 can enable your firm’s growth and profitability.

The Accounting Profession Demands a Better Solution

The accounting profession is undergoing rapid change, but many of its greatest challenges are issues that firms have been wrestling with for years — among them, fragmented software solutions that do more to obscure the state of the firm than illuminate it.

This year’s BDO Alliance USA Conference provided an excellent opportunity to hear from CPA firm leaders representing about 80 firms across the U.S. In our discussions with these leaders, we confirmed that most practice management systems — rather than solve firm management problems — create additional barriers to running a profitable practice.

Technology provides today’s firms with unprecedented access to critical business intelligence: clients, engagements, billing, and firm performance can each be tracked in detail to provide useful information. However, when that data exists in separate silos, its value for driving business decisions is significantly diminished.

Practice management systems are designed to reflect the real-world needs of accounting firms, yet what we heard at the conference confirms our belief that most leave users spending too much time in exchange for poorly integrated data. The predictable result is a widespread sense of disappointment and frustration that the software doesn’t deliver the increased efficiency, visibility, and profitability firms had hoped to gain.

Based on our interactions at the conference, these are the three biggest frustrations that accounting firms find with their practice management systems:

  • Multiple point solutions, each requiring “care and feeding.” Many of these single-function solutions do in fact perform their individual tasks well. The problem is that when relevant data is siloed and can’t be easily combined with the data in other systems, it’s impossible to make strategic decisions based on current information. The solution: Accounting firms need a client-centric, holistic ecosystem that provides a single source of the truth about their clients and their firm.
  • No real-time insight into how a project is progressing. This lack of visibility leads to understandable frustration. Worse, it creates the potential to leave huge amounts of money on the table due to inadequate communication. Without access to real-time numbers regarding engagement data (billables, deliverables, actual time spent on a job versus projected time), isolated reporting makes it impossible for firm leaders and project managers to determine and pursue an optimal path. The solution: A practice management system that truly meets user needs must provide anytime, anywhere access to real-time work-in-progress data to inform strategic decisions.
  • Lack of visibility into metrics that matter. Point solutions typically provide metrics relating to the function they perform. But they don’t begin to meet firm leaders’ need for performance measurement data. How is the engagement progressing in comparison to the original plan for it? Which types of engagements are the most profitable? Without being able to find answers to questions like these, isolated metrics have limited utility. The solution: A fully functional practice management system should include a dashboard with real-time, actionable business intelligence that integrates data from all sources, avoiding the need for error-prone and inefficient manual migrations.

Most practice management systems can yield answers to some of their users’ questions. But unfortunately the answers are too often incomplete, inaccurate or overly broad. Meaningful answers tend to require a granular approach along with access to data from multiple sources. To deliver full benefit, your PM system should be able to offer clear answers to questions such as:

  • Are my billers getting bills out the door on time?
  • Who owes the firm money?
  • How much business have we done in each industry?
  • What’s our work in process? By office? By business line? By responsible partner?
  • Could a current engagement become more profitable with more or different staff?
  • Are my operations as efficient as they appear at first glance?

Minimizing risk, knowing where the firm stands, and maximizing profitability aren’t new hurdles by any means. These are the frustrations, which we have experienced in our own CPA firm,  that led us to develop PracticePro 365.

If your current practice management system can’t give you the answers you need, think about the opportunities you could be missing. Is that lost potential an acceptable cost? To learn how PracticePro 365 supports visibility, real-time insights and an integrated approach to managing key data, request a demo today.

Wakeup Call to CPA Firms: Stop Writing Off Your Profits

How much money did you leave on the table last year? Based on industry averages, it was probably as much as 20% of gross fees.

Maybe it was higher this busy season, since this was the first tax season after the full implementation of the most significant tax reform in decades.

Most private companies and nonprofits are implementing the new revenue recognition standard this year, and then we have the new lease accounting standard in 2020. If yours is like most other mid-sized CPA firms, your clients are ill-prepared for these new standards. Are you prepared to bill them for all of the time you spend helping them get ready?

The truth is that running a profitable CPA firm is hard, and it’s only made worse by the fact that we seem to have this profession-wide delusion that writing off between 10% and 20% of our standard billings is totally acceptable.

We tell ourselves things like, “We put in too many hours on that job,” or “It’s too late to bill for those hours.” Also, “They are an important client, so it’s OK that we have a lower realization rate on audit and tax compliance work.” Why is this acceptable? After-the-fact rationalization does not replace upfront anticipation and communication. Unless you start doing things differently, you can’t expect things to get much better.

Clients want proactive service and a reasonable cost estimate for services before the work is undertaken by the firm. Partners are supposed to anticipate client needs and communicate the level of effort required and the related cost. When this gets out of order, client satisfaction rapidly declines.

I would argue that a main reason for underbilling is because until now, we have lacked the tools to monitor and manage engagement profitability, including adjustments to billing arrangements, when it really matters.

Think about your firm’s budgeting process. Chances are it consists of a spreadsheet that allows each project manager to input the number of hours each team member is expected to spend on each task. But what if that person discovers they need more time to complete a task? What if they finish in less time?

This manual, static process is part of the reason we usually don’t find out until after the engagement closes that the staff had to put in many more hours than budgeted because the client wasn’t ready, and the staff had to help with prep work that the client was supposed to have done. The result: Unbilled scope creep.

One of the great ironies of our profession is that we don’t know what our true profitability is until after an engagement closes and we scramble for additional billing opportunities.

According to the 2018 Rosenberg Survey, the average firm with at least $20 million net revenue had roughly 83% realization. This means that the assumed 10 partners in that average firm left more than $4 million — or $400,000 per partner — on the table. Put another way, if they hadn’t taken those write-offs, those partners could have increased total partner compensation by about two-thirds.

How do we stop this cycle of writing off our profits?

First, CPA firm leaders must commit to the necessity of continuously monitoring engagement status and profitability in real-time in order to make the necessary adjustments in staffing and client communication. And then we need the tools that allow us to make changes before it’s too late. It is imperative that firms put tools in the hands of the people who are closest to the engagements — our project managers.

With our latest release, PracticePro 365™ brings these tools to the market. We designed our new Profitability Forecaster to provide visibility into planned and ongoing engagements, giving you the power to make changes that will increase profitability.

The Profitability Forecaster adds a new dimension to CPA firm engagement planning and performance. Not only does it show you who will be doing what on each engagement and how many hours each person is expected to bill, but it also shows when they will perform these tasks. And it makes it easy for team members and project managers to record changes in those estimates, so when circumstances change, so does your estimate at completion.

Armed with this tool, CPA firm leaders have the power to:

  • Monitor and manage profitability of projects in process
  • Project accurate estimates-to-completion
  • Properly estimate engagement realization and create more accurate financial statements
  • Prioritize their best clients
  • Balance the supply of people with the supply of jobs, helping to smooth out peaks and valleys
  • Avoid scheduling conflicts
  • Identify and reward star performers, and identify team members who need coaching

The Profitability Forecaster is a tool — a powerful one that illuminates which jobs (and which people) are making money for the firm. But at the end of the day, it will only benefit those firms where the leaders have the courage, vision and energy to commit to act on the insights it surfaces and change the status quo.

Want to see how PracticePro 365 Profitability Forecaster can add a new dimension to your firm’s engagement planning? Schedule a demo today.


Drilling Down to Profitability

Chances are, you have a pretty good idea of how much revenue your firm generates from tax, audit and consulting. But do you know how profitable each service line is? Can you identify the partners who run the most profitable engagements?

What about industry-level profitability? Specialization continues to rank as one of the most popular growth strategies among Top 100 firms. But if you don’t have the numbers to illuminate the profit potential of each niche, then how do you know where to plant your flag?

The ability to drill down to departmental performance indicators provides firm leaders with the information they need to make decisions that drive profitability. When you have at your fingertips the relative profitability of each line of business, industry and partner-in-charge, you can zero in on what (or who) needs to be improved. And then you can make those changes before it’s too late.

By and large, accounting firms lack practice management systems that are capable of such granular analysis. Many of the most popular CPA firm practice management systems aggregate all of a client’s time and billings into a single account. Firms using those systems can’t easily see, for example, whether the audit work or the tax work for a particular client is more profitable.

What’s Masking Your Profit Problems?

This lack of visibility can obscure deficiencies. I used to audit a large homebuilder that appeared profitable because the owner had access to cheap tracts of land. However, those low land acquisition costs were masking inefficient building operations. When the cheap land ran out, so did the profits. Do you have the equivalent of cheap tracts of land in your firm that could be masking inefficient operations? If so, wouldn’t you want to know?

On the flip side, drilling down to understand the profitability of each service line can illuminate opportunities. Our CPA firm decided to double down on 401(k) audit engagements because we have the numbers to show that we perform those engagements efficiently and profitably. That opportunity would have flown under the radar if we didn’t have the metrics on each service line’s profitability.

Managing engagement profitability in CPA firms is largely a guessing game, since most firms lack the ability to assess in real time how engagements are progressing against the original plan. Some firms generate budget-to-actual reports by extracting data from multiple systems and dumping all of that data into a spreadsheet to run the calculations. However, manual migrations are typically inefficient, prone to errors, and the information is out-of-date almost from the time the report is produced.

From 10,000-foot View to Street-Level

What accounting firms really need is a tool that enables us to drill down from the 10,000-foot, firmwide view all the way to the “street level” of the individual engagement. This hierarchical view of the data would allow firm leaders to zoom in on what’s working and what’s not, and make changes that will either stop the blood loss or seize opportunities for more profitable work.

That tool is a practice management platform that unites all the silos of firm performance data into a single version of the truth. Firms that deploy such a tool find that they have the ability to not only make better decisions to drive profitability today, but they can look ahead and make decisions that maximize revenue and mitigate risk in the future.

Technology enhancements such as machine learning and advanced analytics are enabling such predictive exercises. The firms that have in place a single, unitized practice management platform are in the best position to harness the power of predictive analytics, because they have a treasure trove of current and historical data that make those predictions smarter. Does an engagement need more or different staff to maximize profitability? Is the project heading for an over-run of time? If the client signs off on those additional hours, will the engagement close with a higher realization rate than would have been possible if the client was surprised by a higher-than-expected bill?

The possibilities truly are endless when you understand profitability at a granular level. But to unlock those possibilities, firm leaders must commit to the importance of drilling down and the imperative of finding the right tool for the job.

Want to see how the next generation in practice management technology can move the needle for your firm? Discover PracticePro 365 today.


Accounting Today: What’s your firm’s fuel efficiency?

Utilization is like your firm’s fuel efficiency gauge; it gives insight into how your firm’s resources are being used.

But when you don’t have real-time reporting on firm management metrics, utilization can be tricky to gauge. You know that your people are busy — at least you think they are. But how busy? Are they actually too busy?

One scenario that is all too common in CPA firms is known as “ghosting” hours, when a staff member spends time on an engagement without charging the hours to the client.

This scenario commonly results in:

  • Underbillings to the client;
  • Inability to assess the true effort required to properly serve the client;
  • Inability to assess the efficiency or skill level of the staff member who “ghosted” the hours; and
  • Inaccurate evaluations of productivity for that staff member and the department.

Here is another scenario, which is considered intolerable in most firms: the staff member who charges hours to engagements but does not actually work those hours. For the firm that is armed with up-to-date productivity metrics, this fraudster is easy to spot. They are the ones who lead the group in hours charged but never seem to complete their assignments on time.

Are you watching your gauges?

Your firm can avoid these negative scenarios by keeping a close eye on utilization efficiency. Consider these two key questions:

  • Does each staff member and each division have a specific productivity goal?
  • Are you (and they) regularly monitoring progress compared to those targets?

First, let’s discuss goals. There’s a reason every road has a posted speed limit. While some see the “limit” as a mere suggestion or even a minimum threshold, we all agree to gauge our speed in the context of that posted sign. The same goes for utilization — and any other firm management metric. If your people don’t know what goal they should strive for, then they don’t know whether they should accelerate or ease up on the gas pedal.

In our firm, every billable person has a monthly budget they can monitor their progress against. Using their personal dashboard, they are empowered to hold themselves accountable rather than wait for their supervisors to tell them how they’re doing.

When someone comes into one of our employee-counseling sessions, they already know whether or not they are meeting expectations. In a busy accounting firm like ours, meeting productivity goals typically isn’t a problem. But we do have to watch for the opposite problem — working too much. When we see someone consistently putting in 200 hours a month, we encourage these zealous team members to slow down. And this analysis indicates that we might need to bring in other team members to even out the load.

The point here is that real-time data — at the individual, group, firm and client levels — enables better management decisions. A good performance management system should let you zoom out to see the performance of each division and the firm as a whole, and zoom in to the individual and the client level.

For example: Is your audit group exceeding productivity goals but falling far short in realization (i.e., dumping time into jobs)? Does the tax work for a certain client consistently require just 75 percent of the time of similar jobs but at nearly 100 percent realization?

These analyses are enabled by real-time, actionable metrics. And these analyses allow you to make critical decisions about the most profitable path for your firm — before that path is determined for you.

This article was published in Accounting Today on March 27, 2019.