Too many accounting firms keep too much information secret from their employees, according to past American Institute of CPAs' chair William Pirolli, and that both hurts retention and forces those who stay to make decisions in a vacuum.
"If you're not teaching them this, then they're learning it from the wrong people — from the person in the next cubicle over," he warned attendees at the AICPA's Engage 2023 conference, held last week in Las Vegas. "We train them in every other aspect of accounting; why not teach them how the firm works?"
"It's really important for your associates to understand how your CPA firm operates as a business," continued Pirolli, a retired partner from New England Regional Leader DiSanto Priest & Co., who recently became executive vice president of firm services at The Succession Institute, "They ask, 'Why are you paying me $60,000 but billing me out at $300 an hour? How do I get a taste of that?'"
Many younger accountants assume that partners pocket all the cash a firm generates, including all they revenue they bring in, but Pirolli pointed out that salaries and benefits can make up as much as 70% of the expenses of a firm.
"Most of the money we collect goes right back to you," he said. "If you show them how you spend your money, and where it goes, they'll see: We pour it back into the firm. We're not just taking it all out for us."
That lack of understanding leads to a lack of trust, one that goes back for generations in accounting firms.
"There was no transparency in the past," Pirolli explained, with both the Greatest Generation and the Silent Generation maintaining a strict "need to know" monopoly on firm information. "Baby boomers wanted more information, but are reluctant to share ourselves. We were reluctant to share because no one shared with us. When I was young, partners wouldn't let you go to state society meetings because they were afraid you'd be hired away. They were afraid someone else would tell you a better story."
Nowadays, staff don't even need to hear a better story to want to go elsewhere, so firms need to share what they can to create trust-building transparency.
"When a business is transparent, they earn trust — the more transparent you are, the more trust you earn," said Pirolli. "I'm not suggesting we tell interns how much the partners earn. Transparency comes at different levels within the firm — it's about providing the information people need to make the right decisions."
Talk about what matters
So, if you're not telling interns how much the partners earn, what, exactly, should you be educating staff about?
Pirolli offered a number of suggestions
- The metrics that matter to the firm. Accounting firms track all sorts of key performance indicators, from realization and utilization, to revenue per full-time equivalent, and many, many more, without necessarily explaining why. "Your staff hear these, but they don't know what they mean. We teach them why we track some of these measurements for them," Pirolli said. "Whatever you talk about most in your firm is what you should talk about with staff."
- Their career paths. Staff often have no idea what it takes to advance to the next job level above them, let alone what it takes to become a partner. "They want to know, 'What exactly do I have to do to become a partner?'" said Pirolli. "For some firms, knowing when a person is ready to become a partner has been like the Supreme Court justice's definition of pornography: 'We're not sure when you're going to be ready, but we'll know it when we see it — we'll know when you're ready.' Now we're advancing people into the role, rather than waiting." And part of advancing that top talent has to include providing a clear roadmap.
- Where do clients come from? "Staff don't know. It's just another file in their workpapers that just shows up at the door," he said. How firms find clients — through marketing, referrals, networking or otherwise — is critical information for young accountants, but it isn't all they need to know. "What's the lifetime revenue of a client? Why are they so precious to us? What makes a good client, and what makes a bad one? Why do we keep this jerk? Why is this person valuable to our firm?"
- The importance of time. While everyone hates tracking time, Pirolli acknowledged, "75% of revenue in the profession in still generated by the hour — so we talk a lot about realization and utilization because it matters. … Timesheets are not evil — though what we do with them sometimes is." What's more, staff often don't realize how it all adds up. "There's a huge disconnect between someone sitting at their desk posting a quarter of an hour of time, and what it means for the success of your firm," he said, and proposed a simple exercise: Assume the firm has 75 FTEs — if everyone found a single extra quarter hour per day to bill, what would that amount to? Over $700,000!
It's important to be careful with how you present your metrics, particularly ones that relate to individuals. The goal is to educate, not to create unhealthy competition or create misincentives.
"We post some information, but not for comparison purposes," said Pirolli. "We don't want to send the message that you're more valuable the harder you squeeze on utilization — 'I want to see all of your time' — what's going to happen to your realization? And if you squeeze really hard on your realization? 'I'm just not going to record all my time.'"
He also stressed that all this education will take different forms and come on different cadences, and will vary depending on who in your firm you're dealing with. It may be written or verbal, it may be in groups or individually, it may be tied in to long-term strategies, or related to specific short-term initiatives.
"What works in one firm will not work in another," he acknowledged, and more important, you may need to communicate what you're trying to get across multiple times and in multiple ways.
"If you do a survey, 'lack of communication' will be your employees' top complaint — but their second biggest complaint is too many meetings and emails," he said. "Often, it wasn't that we weren't communicating — it was that we weren't telling them what they needed to hear."
