keep the right kpis and the right clients, and you’ll keep the right staff.
by alan anderson, cpa
transforming audit for the future
audit in the future will be much different than in the past. it’s going to require different skill sets. in the future, we need to teach more thinking and interpretive skills. the ticking and tying can be automated, but we’ll need people to interpret the anomalies that the bots and automation tools kick out. they’ll need to develop a deeper understanding of the industry, the client, and general business sense to discern whether an anomaly is just a mistake or a sign of something more profound.
more: can a service center model solve audit staffing shortages? | don’t take on audits in an industry you don’t understand | how ‘business expert cpas’ get their own business wrong | exceptional audit client service demands effective communication | five ways to prevent audit bottlenecks | how do we drive relevance in audit? | lack of relevance drives audit commoditization | four basic understandings every auditor must master | wanted: great audit mentors | closing the audit expectations gap
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as the owner of a business myself, i understand the need to ensure there is enough cash coming in to keep the lights on and everyone paid. but sometimes, firms take on work just to keep people busy all year round. a prime example of this is ebp audits, which seem quick and easy but have their own risk factors. doing only one or two a year can be especially risky for your firm.
firm profitability is generally considered an “outcome measure,” which means that over the long term, profitability results from successfully and effectively managing engagement risk and providing superior client service. the profitability goal, however, should not overtake the other firm goals but should be balanced with them.
profitability is just one side of an equilateral triangle that balances quality and customer service. if you focus too much on one area, you throw the others out of balance. if you put too much emphasis on profitability by billing your clients for every nanosecond that something gets done, then quality and customer service might get squeezed. if you put too much effort into quality so that you’re providing “120 percent quality,” then you can disrupt profitability and client service. too much emphasis on client service could lead to compromising your ethics and making decisions to keep the client happy. when you keep these factors balanced, you’ll have quality, you’ll serve the client well and you’ll also have profitability if you do everything else right.
it’s not enough to narrow down your client list to the industries in which your firm specializes. another aspect of business-mindedness from the firm side is ensuring you’re taking on and keeping the right clients. keeping the right clients usually means getting rid of the bad ones, as ron baker’s law states: “bad customers drive out good customers.”
we’ve all taken on clients just to fill up the schedule and to keep staff busy. but if you talk to the staff accountants, they’ll tell you how much they hate working with some clients. these are the clients who aren’t responsive, they don’t care and they complain about the fee. yet the firm still keeps these clients on.
think about all the time you spend with demanding clients and how that takes away from the time you could spend with your best clients. plus, those f clients are not likely to be interested in the value-add from forming a deep relationship with the auditor, and are not likely to be interested in any additional services.
business-mindedness also means creating a work environment that attracts and retains the best talent you can find. focusing on volume demoralizes staff when a firm hangs on to those f clients because they bring in revenue.
now, many firms sort of pay lip service to client quality by ranking them as a, b, c or d. however, because partner compensation is typically based on volume, they’re reticent about weeding out the bad clients. what these firms don’t know is that they’re weeding out the good auditors because they don’t want to work at the firms that keep all these bad clients.
working with low-quality clients has a powerful impact on morale. the more d and f clients a firm has, the higher the turnover rate. people are worried about billings and building a book of business, but that can be at the expense of losing your best people. the cost of replacing staff far exceeds the revenue that a firm could earn.
some of these difficult clients can be salvageable. working with your team, maybe you can come up with some plans to improve the relationship. but if you constantly put up with those bad clients – which most firms do – that causes staff to leave. with unemployment for accountants hovering around 1 percent, your best people know they can walk out of your firm on monday and work at another firm by friday. why risk losing those good people?