Many accounting firms have realized surprising levels of profitability since the pandemic hit. Our entire profession should be applauded for quickly pivoting to working and communicating remotely while successfully helping clients weather this storm.
However, we need to be honest with ourselves and understand that the significant issues and concerns facing nearly all firms prior to the pandemic have not gone away. In fact, they probably have gotten worse due to the additional pandemic-related stress. These issues and concerns still lurking in the room are:
- Attracting and retaining better talent while managing succession;
- Building and integrating more valued expertise and services;
- Spending more quality time with better clients having “the right” conversations; and,
- Becoming better “general contractors” of client relationships.
Most firm leaders agree with this list of issues; however, they also are struggling with how to refocus on them, especially knowing that their people are physically and mentally spent, having dealt with the pandemic for the past 17 months. In addition, coming off a year of surprising profitability does not create the sense of urgency needed to address the magnitude of these issues. This was the exact conversation I recently had with a managing partner, who simply asked me in a tone of frustration, “What should I do?”
Here is what I suggested to help reset the stage for getting back to work on the significant change so desperately needed on the issues and concerns stated above.
1. Explain why those profits aren’t permanent
Begin by explaining to your people why being profitable during the pandemic does not mean that everything’s just fine.
Yes, the pandemic created additional stress and strain, but it also created situations overnight that put many accounting firms in a position to make more money … and for many, lots of it! Quite simply, the pandemic was the perfect storm for generating short-term profitability. Here’s why.
- It “froze” those considering a career change to wait until the storm passed. Whenever something happens that slows down the job market for migrating public accountants, turnover rates drop, and firms make more money. With the pandemic, it literally stopped everyone … from those just beginning to consider a move to those ready to walk out the door … dead in their tracks. And since so much of our work today is of an annual repetitive nature, having the same staff on the same job for even just one more year was priceless!
- It resulted in federal economic stimulus and relief programs equivalent to a major tax law change on steroids. We pretty much know our tax practices prosper when Congress passes major sweeping tax law changes. The economic stimulus and relief programs resulting from the pandemic did just that… and at a level and speed never experienced before. One managing partner recently told me that the money they made helping clients digest these programs was “actually embarrassing.” So, why did these programs generate such profitable work? First, the level of significance to just about every closely held business was big. Second, our federal government did not have the time to provide much, if any, detail on the application of these programs, resulting in a significant amount of billable time helping clients figure things out. And finally, because of how fast organizations could receive stimulus and relief money once a request was filed, clients were simply asking to get their work done as fast as possible and not questioning fees.
- Finally, it put on hold nearly all discretionary marketing and business development spending that immediately fell to the bottom line. As the pandemic hit and created significant uncertainty, firms immediately put on hold any discretionary spending, not knowing how long the lock-down would last and what it’s impact would be. Then as work ramped up from the stimulus and relief programs and face-to-face contact continued to be discouraged, there was no time or reason to resume marketing and business development efforts. On average, this hold on growth-related discretionary expenditures increased firm profitability anywhere from 5% to 10% of net revenue.
I honestly believe the strong majority of the partners in our firms are good businesspeople who should understand the real reasons why last year’s surprising levels of profitability were a “gift” from the pandemic gods. So, if you hear otherwise, remind them of this and that the elephants in the room are still lurking about and getting bigger by the day!
2. Create urgency around staffing
Next, rekindle the necessary real sense of urgency around attracting and retaining better talent.
John Kotter, one of the world’s foremost authorities on leadership and change, strongly believes that without the proper level of sustained urgency, ground-level change in any organization is near impossible. I strongly believe we, collectively as a profession, have never had the proper level of sustained urgency needed to generate enough inertia to make ground-level changes. As soon as we get close, the “complacency devil” shows up again … a.k.a., the pandemic … and needed change grinds to a halt. We came close with Enron, but even that was not enough.
Many of us sincerely believe we are at the most critical turning point in the modern-day history of our profession. (Yes, even more critical than the post-Enron years.) So why do we believe this? It all comes down to the deep concerns we have over our profession’s ability to attract and retain the better talent that is needed to bring more desperately needed valued services to our profession. Without different and better talent, we could be toast!
This concern was even recently confirmed in a conversation I had with the chair of one of the best college accounting programs in the country. He said that more and more students considering a career in public accounting believe “the day in the life” of a public accountant is not as exciting, rewarding and life friendly as many other professions today. He then went on to say that the firms attracting today’s best talent are the ones that truly live their life-friendly cultures, have multiple career paths, and allow people to build advisory skills and expertise early on in their careers. He closed by saying, “And as you know Greg, there are not many firms today that honestly fit this profile”.
Excuses can no longer be made as to why “the day in the life” of the practitioners in most firms has not evolved to the level needed to attract and retain the best, both in terms of people and clients. If more firms do not jump on this very real issue immediately, they — and eventually everyone in our profession— will have seen better days!
