six secrets of high-performing firms

sam allred says accounting firms that achieve above-average results can be measured by six key performance indicators.

by rick telberg

after almost two decades of uninterrupted growth, the great recession has created a time of reckoning for many accounting firms.

battered by the economy, staffing problems and a mounting succession crisis, partners at many accounting firms are asking each other some tough questions. how do we reach our goals? get the best out of each partner? hold them accountable? and get better every year?

the firms that get it right are destined to break out of average and become high-performing firms, according to cpa sam allred of anderson zurmuehlen (az), the storied accounting firm based in helena, mont., which has sent not one, but two partners to the chairman’s seat of the aicpa over the years. he is also leader of the upstream academy — az’s firm-to-firm management consulting practice — and the new emerging leaders academy for partners in training.

“partners are struggling,” allred says. “they’ve had 18 great years when everyone looked like a winner.” that’s all changed with the new normal. but, allred adds, “the wonderful thing about tough times is that it exposes your weaknesses so you have an opportunity to improve.”

in evaluating cpa firm partner groups, allred applies six key performance indicators (kpis). consider your firm’s partner group, and rate it by each of allred’s basic kpis.

1. financial performance — partners naturally focus on their incomes, which is a good enough measure. but it’s a mistake to compare partner incomes from firm to firm, allred says. for one thing, broad-based map surveys provide only averages. and who wants to be average. for another, incomes necessarily vary widely, by region, by specialty, niche, tenure, etc. so firms need to develop their own goals, based on a sustainable balance between work and life. for instance, partners at some firms may average as much as 2,600 billable hours per year; at another firm, it’s 2,200 hours. the difference? a life. partner income goals can be a very personal choice. but together, partners’ personal choices must add up to sustainable business strategy.
2. client management — the best single measure of client management may be growth in revenue per client. sure, gaining new clients is essential. but the bottom line on whether you’re serving clients effectively, year after year, isn’t just revenue, it’s in embracing a client’s full list of needs and objectives. and that’s best measured by year-over-year revenue change.
3. business development — it’s not just sales; it’s developing the right book of business. allred’s kpi here is a question: does the firm celebrate acquiring grade a clients, or every client? you know who your grade a clients are — growing, profitable, reliable, low-risk and pay on time. and you know your b, c and d clients — the kind that make you want to scream. high-performance firms categorize their clients, pursue and cater to the best and create a culture that rewards only the best new clients. and a client that’s “best” for one firm, may not be for another. so every firm must define grade a clients for itself. focusing on grade a clients pays off in a number of ways, including increased revenue, but also improved effectiveness, says allred. “the more your work with those clients, the better you get at working with them,” he says.
4. team development — the best benchmark for a partner’s team development skills are the number of people he supervises who possess the potential to someday become partners themselves. try this exercise: at your next partner meeting have each partner make a list of their managers with partner-potential. if you don’t come up with a list that’s at least twice the size of the current partner group, you’re probably not yet a high-performing firm.
5. partner effectiveness — the biggest problem in most accounting firms is that partners are not giving or getting open and honest evaluations. but that often stems from a lack of a common vision for the firm and the failure to set goals. “goal setting is a joke in way too many firms,” says allred bluntly. it’s just human nature to shy from big goals and real accountability, allred concedes. but a business can be greater that the mere sum of its parts by setting goals, assessing performance and making sure that the evaluation process actually produces change. in the end, partner effectiveness must be tied to the compensation plan.
6. leadership — real leadership begins with sharing a vision and developing the strategy to achieve it. and that begins with making sure each partner is doing what only he or she can do and that each is doing what he or she does best.

if you’ve rated your firm “great” in at least four areas and “good” in the other two, then yours may already a high-performing firm. if not, you may have some work to do.

copyright 2010 aicpa.

posted on may 3, 2010