CPA Trendlines

Top 7 Reasons for Accounting Firms to Outsource

Xpitax president Glen Keenan ticks off the reasons accounting firms can benefit from outsourcing.

Via CAmagazine:

1. The profession is aging. That ticking in the background may be the clock on the wall or it could be the countdown to the exodus of thousands of boomer-aged CAs now contemplating retirement. “There isn’t a new, fresh set of people to address the demands that are being put on the profession,” says Keenan. Worse, those boomers will be leaving with decades of hard-earned experience and knowledge.

2. Outsource the boring, less profitable stuff. Firms can hand off the low-yield, compliance work to focus on the value-added (and higher-profit) services such as consulting work, “the services that your clients notice, with the higher billing rates and the most interesting work,” says Keenan.

3. Staff for 12 months, not two. Keenan calls it just-in-time staffing, but the reality is many firms hire staff during tax time they wouldn’t hire any other time of the year and also overwork their key staff during this period, which can lead to burnout and turnover. Rather than hiring for a short-term surge, outsourcing to a place like India lets someone else worry about staffing. (In fact, firms such as Xpitax typically hire people in India a few months before tax time, train them and then redeploy them or let them go over the summer.) “Once they sell you to do personal tax, next they try to sell you other work because they have created the same problem of having a seasonal business,” notes one accountant, whose firm offshores data-intensive work year round.

4. Forced standardization. Because the outsourcing process is entirely digital, beginning to outsource often forces firms to examine processes that will get rolled out throughout the practice. “That ends up being one of those hidden benefits that many firms don’t think of,” says Keenan.

5. Virtual, not physical growth. Firms can take on more clients, but do not necessarily have to move to new facilities, add computers and staff or worry about client poaching. “It ends up being more of an advantage with our bookkeeping clients,” notes Keenan.

6. Faster turnaround time. With India 10 hours ahead of the East Coast of North America, work sent overnight can be returned the next morning. “There’s tremendous value in having that happen across tax, bookkeeping, and financial services accounting.”

7. It’s cheaper. Xpitax states that outsourcing accounting functions costs roughly half what it does doing it at home (US$10 to US$12 an hour versus US$20 to US$25 an hour), plus firms avoid the hidden litany of payroll taxes, vacations, sick time, benefits, space and equipment costs

How Local CPAs Stand to Gain from the ARRA Economic Stimulus Package

The ARRA federal recovery program could add 1.6 million jobs to small businesses.

Local and regional accounting firms — the backbone of the profession — stand to reap a small windfall, if not a lifeline, from the federal spending plan. As we’ve been reporting, they are already outperforming the rest of the profession and all but a few economic sectors, like healthcare and education.

Mark Koziel at the AICPA reports today that smaller firms are expecting “marginal growth in the upcoming year and some are even expecting double digit growth.”

And now, a new research report underwritten by SAP software suggests why: The American Recovery and Reinvestment Act, a $787 billion initiative, is generally expected to create 3 to 4 million jobs over the next two years. One of the report’s authors, Steve King at Emergent Research says, “a significant share of jobs created or saved will be in sectors where growing businesses play a major role.” (Steve, by the way, blogs at SmallBizLabs.)

Emergent predicts particularly rapid growth in:

• Construction — 505,000 jobs in small and mid-sized business.
• Renewable and clean energy — 215,000 local jobs.
• Information technology — 114,000 jobs.

Other areas to watch:

• Transportation infrastructure
• Health care
• Education
• Workforce training
• Broadband internet

But CPAs need to move quickly. Most of the money will spent quickly.

“The government plans to have 75% of money committed to projects by September of 2010 and 91% committed by September of 2011. Stimulus spending has already started and will ramp up over the summer and into the fall of 2009,” he says. “Because of this, growing businesses need to be prepared now to act on opportunities created by stimulus spending.”

FREE DOWNLOAD: The report — “The Stimulus Package: What It Means for Growing Businesses” – is available here (PDF, 21 pages).

Recession Makes Training, Retooling Key Survival Tactics for CPAs

What’s YOUR personal economic stimulus plan? Join the survey; see the results.

by Rick Telberg

With recessionary pressures bearing down on accounting firms and finance departments, it’s almost understandable that one of the first budget items to get the red pencil treatment is training and education. But I said “almost.”

In fact, cutting back on continuing professional education (CPE) is probably the singularly worst strategy for CPAs in times like these. In a business based on an evolving body of knowledge and understanding, you can’t take the “learned” out of “learned profession” and still serve competently as a trusted professional.

In research with Capstone Marketing, we’re finding conclusive evidence that high-performing accounting offices hold life-and-death competitive advantages over organizations that fail to adhere to operational basics like regular, relevant CPE.

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Unemployment hits 8.9%; but accountant jobs bounce back

Accounting and bookkeeping services actually added 2,600 jobs in April…

… to a seasonally adjusted workforce of 927,900 people, up from 925,300 in March, for an increase of about 2.8%, according to today’s employment situation report from the U.S. Department of Labor.

Click to enlarge

The professional services sector was battered by big losses in administrative, support and temporary services.

For the nation as a whole, the Labor Dept. reported:

Nonfarm payroll employment continued to decline in April (-539,000), and the unemployment rate rose from 8.5 to 8.9 percent. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across most private-sector industries. Overall, private-sector employment fell by 611,000.

In April, employment in professional and business services dropped by 122,000. Temporary help services accounted for about half of the job loss. Since the start of the recession, temporary help employment has fallen by 825,000, nearly a third of its total.

To be sure, the data for April is still preliminary and subject to a couple upcoming monthly adjustments. But see for yourself… FREE DOWNLOAD: Click here to get the full Labor Department report (PDF, 29 pages).

Then, take a closeup look at the long-term trend for CPA firms: the early 1990′s were worse. Today, the trend looks relatively good for CPA firms. (Click to enlarge)

Why You Can’t Ignore XBRL Any Longer

Two thirds of finance execs may be running out of time.

By Rick Telberg

In a national survey of corporate finance executives at public companies, almost two-thirds said they have no plans to start using XBRL despite a new government mandate requiring the new financial data-tagging system as early as next June.

“Unfortunately, for those public companies that reported that they have no plans to use XBRL, this is no longer an option,” said Sean Denham, a partner in Grant Thornton’s Professional Standards Group and a member of the AICPA’s XBRL Task Force. Grant Thornton did the survey.

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VIDEO: Greg LaFollette on social media and accountants

What’s social media and why should CPAs care?

According to Greg LaFollette, CPA.CITP, executive editor of The Progressive Accountant: “Social media will change public accounting more in the next 10 years than email has.” I caught up with him at the 15th annual New Jersey Accounting, Business & Technology Show yesterday.

See you on Twitter or LinkedIn.

The future of the Big Four: Will Ernst & Young be next to fall?

It wouldn’t be so hard to think, except that Accountancy Age is asking.

The always interesting and provocative news source wonders, in an op-ed piece by two marketing strategists: So does E&Y have the right strategy and leadership to withstand the market forces?

In the light of the firm’s current strategy, the answer is that, in the long term, it probably won’t survive. Their current strategy perpetuates the mistakes made in early 2000 when the firm sold its management consultancy arm to CapGemini. At the time, they pushed hard to recover the fees gone with the consulting arm, by focusing on growing its global accounts. The strategy flopped to a large extent though, as it lacked a key motivational ingredient – profit sharing.

E&Y’s recently announced EMEIA merger will not resolve the above pr oblems. Although operational savings may be achieved, real growth will only arise when the right financial incentives and global client profit/loss sharing processes are put in place.

The firm will only withstand the economic climate and the dictates of the Rule of Three if it pursues an external merger campaign that will give it access to the audit client base it needs to regain market share.

What’s “the Rule of Three?”

This rule postulates that for a market to reach equilibrium point, the point at which customers get the best value for their money and where competition flows at levels that encourage innovation, a certain balance of power needs to be in place. The balance is achieved when three top players control around 70% of the market, sharing the rest with smaller firms…

If you apply the rule based on revenues then the answer is simple ­ number four, E&Y, is the weakest link and therefore the one to go.

You don’t need to look far to can see the Rule of Three at work. Think: Big Three auto makers. Wireless carriers. or, tax and accounting software vendors.

To be sure, the authors add…

The rule is not linear and needs to be applied in the light of the two factors – strategy and leadership.

The questions swirl and the answers, of course, remain murky.

Could two Big Four firms become one? Could the mid market, especially Grant Thornton and BDO, step up by assimilation as opposed to organically? Could we see a Big Four firm merging with a mid market firm to create a two stream operation, where the mid market ‘arm’ would use the processes and innovation applied to larger companies, in order to help build strong UK mid market companies that would eventually become either large corporates, or part of existing large corporates?

The worst scenario is where one of the Big Four is taken apart and sold to a range of firms interested in different specialisms.

There is no question that changes are brewing in the accountancy sector and that the dominance of the Big Four as we have known it for the past few years will come to an end.

Finally, the authors suggest, “The question is whether one person or one team is capable of captivating the imagination of their staff to lead them into a new era; whether one firm will have the vision to write history and its own chapter in it.”

But the situation of any firm as big as any of the Big Four could well exceed the capability of one person or one team.

IOMA: Partner compensation holds steady

This may be one of the worst recessions in a generation. But CPA firms should be uniquely positioned to ride it out.

New data from IOMA, a BNA company, shows strength in profits and compensation, even while billing rates slip:

• Partner compensation (excluding bonuses or perks) rose slightly to $347,071 for the highest-paid owner group in 2008.
• For owners in the middle or average compensation range, compensation declined 5.6 percent to $204,292.
• Average net income per partner increased slightly, from $280,009 in 2007 to $283,364 in 2008.
• Billing rates for CPA firm owners declined on average $4 per hour to $225 in 2008.
• Billing rates were also down for supervisors/managers, seniors, juniors, and non-CPA juniors.
• Paraprofessionals held steady at $81.
• Marketers were the exception, with a 24 percent increase to $152 per hour.

Subscribe to the Accounting Office Management & Administration Report here.

NEW SURVEY LAUNCHED: CPAs plot their own economic stimulus plans

Over the next 6 to 12 months, what’s your outlook for your firm, your clients, your family and yourself?

Leave a comment. Then click here to join the survey; get the results.

Meanwhile, some early comments are coming in…

• We have increased our business development efforts. Our IRAs and 401-Ks went to cash in August 2008 and remain there. We are meeting with a top Money Manager who is our client to determine what is a prudent way to proceed with an investment strategy.
• Save, save, save
• Better pre-qualification of new clients, offer greater resources for new and existing clients.
• Monitor costs
• We are beginning to actually do some marketing.
• Work more closely with our clients, offer consulting services, budgeting help, profit planning
• Hold the course as far as securties & real estate investments while building cash awaiting appropriate investment opportunities
• To stay with either Advisory/Consulting work for accounting or the Audit sector. I live in an area (Wash DC) that primarily supports the Fed. Govt. as a client.
• Tighten belt. Postpone Non-essential purchases.
• Try to get out of debt

Leave a comment. Then click here to join the survey; get the results.

Good News for CPAs from Surprising Places

Many CPAs and firms are thriving and growing despite bad business conditions. What’s your  personal economic plan?

by Rick Telberg

Accountants and accounting firms are struggling, like most business people, to get a clear reading on the state of the economy and the outlook for business conditions ahead. Unfortunately, very little is clear at the moment, except that caution is called for, an over-reaction could become a competitively fatal error and a little bit of optimism can’t hurt.

In listening to CPAs from around the nation, a few trends are clear:

1. Certain regions and business sectors are hard-hit, especially real estate, housing, construction and finance.
2. The businesses and firms tied to those ailing segments of the economy are feeling the most acute pain.
3. And, despite all the bad news, some firms and businesses are doing all right, even expanding through the economic contraction.

Good news is coming from surprising places.

In Clearwater, Fla., Wilber Van Scoik is expanding his small tax-and-accounting practice. He’s looking to add another part-time staffer to his existing two part-timers. “Clients are tightening their belts,” he says, “but they’re hanging on.”

In Lafayette, La., Chasity Hooks at Hooks & Associates says the local economy “is actually expanding somewhat.” Her firm is hiring and her customers “are holding on and prospering.”

Pam Gaines, at Gaines Financial Services in Nashville, says her business grew 10 percent last year in a contracting economy, and, “Clients need advice now more than ever to weather the storm.”

To be sure, many other accountants and firms are not so lucky.

At one large firm, a mid-level staffer is already one of the casualties. “The firm I worked for already fired 20 percent of staff and managers, and may expand that slightly in the coming months.” Another accountant tells me he got laid off at the height of busy season after his firm’s over-expansion combined with the economic downturn to create “a perfect storm” for layoffs.

A senior at a third firm says his region has been hard hit not just by the current economic crisis but by a changing global economy. “Our area has relied heavily on furniture manufacturing and textiles in the past. Those industries have begun and will continue to outsource to China and other countries. Our workforce needs to be retrained and re-educated, and some older workers will fall through the cracks. Our corporate clients will weather the storm, but many workers will not return to work in the same industries.”

Daniel Polachek, who owns his own practice in Northampton, Mass., sees a trend. First, he notes that small-business contractors are doing “extremely well” in his region. But “restaurants are dying” and “doctors are doing better than ever as self-employed.”

Polachek’s conclusion: “The larger the business, the more difficult time they are having.” He figures that large business failed to react to the slowdown that others saw coming in the last few years, and now, he says, they “have to make drastic changes to their expenses.”

Across the country, in Santa Rosa, Calif., Dave Dillwood, of Dillwood Burkel & Sully, expects more Chapter 11s among local businesses. “Collections will continue to be slower than in past years and will be a cause of concern.” Nevertheless, some clients are actually expanding and his firm is staying
the course.

CPA Henry Karpf in Morganville, N.J., sees the economy contracting around him. But, for now, his clients’ incomes are holding steady, even if their retirement portfolios and real estate values have dropped.

From Aurora, Ill., Ralph Mooney at Mooney & Thomas reports that the economic contraction seems to be slowing down – which is a good thing. And he’s still looking to hire a few good people.

From St. Louis, Joe Eckelkamp reports that economy seems to be coming to a halt, because it had been sliding downward. He’s “just starting to see light at the end of the tunnel.” His customers are hanging on and he’s holding staff levels at his firm steady.

In Winter Park, Fla., Gary Kane, of Kane & Associates, sees the economy “drifting slowly south,” which is something better than the crash of late last year. Although most of his clients are hurting, Kane is considering making a push for expansion in his firm.

“I feel like the economic bottom is around here somewhere,” says Steve Odem, owner of KATAX in Lakeland, Fla., “A year from now, looking back, it will be apparent. The bottom must be close, even if we don’t see it.”

Jim Curry, at Scanlan & Leo in Oak Brook, Ill., is counting on the economy recovering somewhat before the year is out, with his firm holding steady.

“We always run lean and mean,” Curry says. “It seems that we continually do more work with the same number of people, which is great for the owners, not so much for the employees.”

Still, it may be firms like Curry’s that can weather this economic storm
the best.