HOW CPA FIRMS WORK - The Rosenberg Associates · virtually nothing about how CPA firms work, how to advance their careers and what makes firms successful. Since internships are now

HOW CPA FIRMS WORK: THE BUSINESS OF

PUBLIC ACCOUNTING

Marc Rosenberg, CPA

©The Rosenberg Associates - All Rights Reserved

MONOGRAPHS BY MARC ROSENBERG

CPA Firm Management & Governance

CPA Firm Succession Planning: A Perfect Storm

How to Bring In New Partners

How to Negotiate a CPA Firm Merger

Strategic Planning & Goal Setting for Results

How to Operate a Compensation Committee

What Really Makes CPA Firms Profitable?

Guide to Planning the Firm Retreat

Effective Partner Relations and Communications

For more information or to purchase additional titles visit: www.rosenbergassoc.com + click on “Monographs by Marc Rosenberg”

Connect with Marc: [email protected] blog.rosenbergassoc.com


HOW CPA FIRMS WORK: THE BUSINESS OF

PUBLIC ACCOUNTING

Marc Rosenberg, CPA

All rights reserved. These materials may not be reproduced or distributed to any other person without written permission from The Rosenberg Associates LTD. This publication is intended to provide general information in regard to the subject matter covered. Although prepared by a professional, this publication should not be used as a substitute for professional services in specific situations. If expert assistance is required, the services of a professional should be sought.

Copyright ©2019 The Rosenberg Associates Ltd. 1000 Skokie Boulevard, Suite 450-C Wilmette, IL 6009


TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION ............................................................... 1

CHAPTER 2: POP QUIZ ........................................................................... 5 Staff Quiz ........................................................................................... 6 Partner Quiz ...................................................................................... 7

CHAPTER 3: WHAT EXACTLY IS A CPA? ……………………………………………. 9

CHAPTER 4: WHY IT’S GREAT TO WORK AT A CPA FIRM .................. 27

CHAPTER 5: FACTS ABOUT THE CPA PROFESSION............................ 35 Primary Services – Niche Practice Areas ............................................ 36 Common Position Titles at CPA Firms ................................................ 39 CPA Firm Market Demographics ........................................................ 41

CHAPTER 6: CPA FIRM ECONOMICS 101 ............................................. 49 Key Definitions .................................................................................... 53 4 Most Important Profit Metrics ......................................................... CPA Firm Profitability Illustrations ......................................................

55 56

CHAPTER 7: HOW CPA FIRMS GET CLIENTS ........................................ 71 Marketing ............................................................................................ 76 Rainmaking .......................................................................................... 80

CHAPTER 8: HOW CPA FIRMS ARE MANAGED .................................... What Needs to be Managed? .............................................................

Organization Charts ............................................................................

87 90 91


TABLE OF CONTENTS

CHAPTER 9: HOW STAFF CAN HAVE A GREAT CAREER IN PUBLIC ACCOUNTING .............................................................................................

Primary Staff Positions: What it Takes to Advance ..................... 93 97

CHAPTER 10: HOW CPA FIRMS ATTRACT AND RETAIN STAFF ......... 103

CHAPTER 11: 100 YEARS OF GAME-CHANGING MILESTONES AND EYE-OPENING INNOVATIONS .................................................................. 109

CPA Firms Lacking Innovation? Think Again ......................................... 112 15 Impressive CPA Firm Innovations .................................................... 113

CHAPTER 12: TRENDS IN THE CPA PROFESSION ................................. 119 AICPA Poll: Top 5 Issues in CPA Firm Managements ........................... 121

CHAPTER 13: ETHICAL ISSUES ................................................................ 123

CHAPTER 14: THE IMAGE OF CPAs AND CPA FIRMS .........................

CHAPTER 15: ACCOUNTANTS IN THE MOVIES ....................................

CHAPTER 16: 20 REASONS CLIENTS LOVE THEIR CPA FIRMS ............

APPENDIX: ANSWERS TO POP QUIZZES ..............................................

131

139

147

151



1

Introduction

“Engaging your employees -- involving them in the business -- can drive revenue growth. An educated workforce can also make better decisions, work more efficiently, and seize opportunities faster. Teaching your employees to be smart businesspeople can be a big investment, but it's one that can have a significant return.”

Keith Lamb, Inc. Magazine

Personnel in any organization, from widget manufacturers to hospitals to baseball teams to charities, work with more enthusiasm and commitment when they genuinely feel part of the organization. When people understand how they fit in the overall scheme and grasp the essentials of how the organization operates, they produce higher quality work and are more energized. CPA firms are no exception.

Throughout over 20 years of consulting to CPA firms, I have observed hundreds of CPA firm training programs and new employee orientations. But there is one major subject that is consistently missing: staff training in the business of running a CPA firm.


Who will benefit from reading this monograph?

Primary group: New staff joining your firm. The primary use of this monograph is to teach staff, especially those going through the

firm’s new employee orientation process, about the business of public accounting.

Interns. The curriculum at university accounting programs focuses 99% on technical accounting and tax subjects. Students learn virtually nothing about how CPA firms work, how to advance their careers and what makes firms successful. Since internships are now the number one method used by firms to recruit college graduates, this monograph is a great opportunity to expose your future employees, relatively early in their accounting careers, to the CPA firm industry.

Experienced staff. Making sure that your existing staff understands the basics of the CPA industry and the firm itself will help reinforce what they have been exposed to throughout their tenure with the firm.

Partners. We are quite sure that partners – yes, partners - who read this monograph will learn a lot about the CPA industry and even about their own firm that they didn’t know.

Administrative staff. Countless surveys and interviews of administrative staff have revealed that their biggest gripe is being made to feel like “second-class citizens.” This usually isn’t intentional. It’s just that CPA firms are very busy places and are very client-centric. As a result, client service personnel often don’t take the time to explain to admin staff why their work is so important and how it fits in to the overall scheme of things. Their occasional rudeness to admin staff may further the problem.

This monograph will provide your admin team with a new perspective on the business of CPA firms - i.e., how their functions contribute to the firm’s success and profitability.

2©The Rosenberg Associates - All Rights Reserved

What you will learn from reading this monograph

1. Current trends in the CPA profession.2. Demographics of the industry.3. What CPA firms do.4. How CPA firms measure their performance.5. How CPA firms are managed and organized.6. How CPA firms get clients and keep them.7. The tremendously impressive list of innovations that have taken

place in CPA firms over the past 20 years.8. What attracts staff to firms and what it takes to retain them.9. What it takes to be a successful staff person at a CPA firm.10. How staff advance at a CPA firm.11. Reputation of CPAs compared to other professions.12. CPA firm economics: what makes firms profitable…and what

holds back the bottom line.13. The 25 Best Practices of well-managed firms.14. Computer software commonly used by CPA firms.



2

Pop Quiz It would be interesting to hear how people would answer a number of very basic questions about the CPA firm industry before they read this book.

If, for the fun of it, you give this quiz to a group of people, I strongly suggest that you do it in this manner:

Give each person 5 blank pieces of paper. Review the answers to each question one by one. For questions #2-6, ask them to write down on a blank sheet their answer and hold them up, just like on a television quiz show. The session leader should take a few moments to tally the responses.

Another alternative is to have the people complete this quiz and turn them in to the session leader before the answers are discussed.

Either approach avoids simply reading off the questions and asking for a show of hands. This causes people to respond to peer pressure and makes it impossible to get an honest polling.

The following quizzes address basic, fundamental information. It’s important to gauge the group’s knowledge or perception of these issues before a new employee orientation program begins.

Two Pop Quizzes follow: • For staff.• For partners.

See the Appendix for the correct answers.


POP QUIZ FOR STAFF CPA INDUSTRY ISSUES

1. For over 30 years, the Gallup organization has conducted pollsof the public’s perception of the honesty and ethics of variousprofessions. How do accountants compare to otherprofessions? (Check one box in each row)

Public’s Perception of Accountants vs. Other Professions*

Accountants Are Higher

Accountants About the Same

Accountants Are Lower

Bankers Senators Medical doctors Lawyers Business execs

*Here’s how the measure works. Gallop gave people five choices to rate each profession’s honesty and ethical standards: Very high, high, average, low andvery low. The measure that we use is the percentage that rates the profession either very high or high.

2. What are the top organization issues that CPA firms strugglewith today?

3. How many total work hours (includes overtime, non-billabletime, sick, vacation and holiday time) does the average staffperson at a CPA firm work in a typical year?

4. How many total work hours (includes overtime, non-billabletime, sick, vacation and holiday time) does the average partnerat a CPA firm work in a typical year?

5. What is the average annual income of a typical equity partner ata local CPA firm?

6. What is the single most important skill, talent or attribute that ittakes to become a partner at a CPA firm?


POP QUIZ FOR PARTNERS CPA INDUSTRY ISSUES

1. For over 30 years, the Gallup organization has conducted pollsof the public’s perception of the honesty & ethics of variousprofessions. How do accountants compare to otherprofessions? (Check one box in each row)

Public’s Perception of Accountants vs. Other Professions*

Accountants Are Higher

Accountants About the Same

Accountants Are Lower

Bankers Senators Medical doctors Lawyers Business execs

*Here’s how the measure works. Gallop gave people five choices to rate each profession’s honesty and ethical standards: Very high, high, average, low andvery low. The measure that we use is the percentage that rates the profession either very high or high.

2. Name 3 “game-changing” management innovations in the CPAfirm industry during the past 30 years besides technology:______________________________________________________________________________________________________________________________________________________

3. Name 3 critical trends in the CPA firm industry today. Only listmanagement issues, not technical accounting and tax issues.______________________________________________________________________________________________________________________________________________________


4. The best and easiest opportunity to increase revenues for mostlocal multi-partner firms is (check only one):[ ] Referral sources[ ] Advertising, PR and branding[ ] Existing clients

5. The metric that correlates the strongest with firm profitabilityis (check only one):[ ] Overhead spending [ ] Partner charge hours[ ] Staff charge hours [ ] Revenue per partner

6. Which of the following are among the most important factors inretaining staff at a CPA firm (check all that are most important):[ ] Firm reputation & prestige[ ] Salary and benefits[ ] Telecommuting & work from home options[ ] Flexibility[ ] Career growth opportunities[ ] Challenging projects


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HOW CPA FIRMS WORK - The Rosenberg Associates · virtually nothing about how CPA firms work, how to advance their careers and what makes firms successful. Since internships are now