Newsletters - Accounting Office Management & Administration Report

April 2005

EXCLUSIVE AOMAR SURVEY: Staffing Is the Top ‘Critical Issue’

Staffing is the leading issue for CPA firms now, according to AOMAR’s Critical Issues Survey. It should come as no surprise that respondents identified hiring, retaining, developing, managing, and more as their top priorities today, and we were very encouraged to see that firms are planning to tackle these issues. Moreover, some are developing creative solutions to what some observers are calling the "staffing crisis."

Succession planning as a subset of the staffing issue is at the forefront of many firms’ initiatives, and is intertwined with recruiting and retention efforts. The firms that are taking steps now to plan for future leadership, however, indicate a degree of uneasiness about having enough individuals, especially individuals of quality, to move into partnership positions.

Other difficult issues with which most CPA firm managing partners and firm administrators are grappling include rising health and liability insurance costs, technology concerns involved in going to a digital environment, and growing the firm, an issue that is affected by all of these others.

Staffing needs and some solutions. "Recruiting and employment retention are our biggest challenges," wrote the director of operations/partner at a firm with 40 FTEs (full-time equivalent employees, including owners) and $3.8 million in annual gross fees. "Our firm is growing, and finding staff is our biggest concern. We are expanding our internship program and becoming more involved at our local universities, as well as making efforts to communicate to our current staff the opportunities available to them, both in advancement and flexible work arrangements."

A concern is not just the lack of staff members to fill the firm’s needs, but the quality of those staff, as noted by the chief operating officer of a firm with $3.9 million in annual gross fees. "There is not much to choose from in our area, so sometimes we need to take what we can get. We know, however, that in order to grow we need adequate staffing. We also need [staff] for succession planning purposes."

A partner at a firm with 32 FTEs and $4 million in annual gross fees agreed: "Our biggest challenge is to attract/find mid-level staff and staff that desire to be a partner someday. We are concerned about succession planning and making sure we have qualified people who desire to work long-term and someday be owners. The rollout of our firm mission statement has been effective in keeping the entire firm moving in the same direction, and knowing and understanding what is expected of each of us."

But firms need more than high-quality technical skills. "Hiring professionals that have the ‘soft’ skills required for future growth" is key, noted the director of sales and marketing for a firm with 275 FTEs and $30 million in annual gross fees.

One way to cope may be to "overhire" whenever possible, explained the audit partner at a firm with 38 FTEs and $4.8 million in annual gross fees. While this firm is seeking staff at the two-to-five-year level, it plans to "overhire at entry-level positions and overpay them to retain them." Then, it will use a strategic plan to train employees to move into partnership roles.

Others find changing their recruiting methods helpful. "Better recruiting techniques: We’ve changed to younger interviewers, and we’ve started doing aptitude/proficiency testing on candidates who have been asked in for a second interview," wrote the firm administrator for a firm with 33 FTEs. "We have a mentoring program set up, which we feel has been very successful."

(Another survey by AOMAR’s parent company, IOMA, revealed additional hiring strategies, which we present in the sidebar "How CPA Firms Are Addressing the Hiring Issue.")

The lack of entry- and mid-level staff is not the only staff problem facing CPA firms. "[We are] top heavy in our staffing," wrote the firm administrator for a firm with 19.6 FTEs and $2.2 million in annual gross fees. "We are looking for ways to keep them happy when there’s no room to advance."

The staffing issue colors other issues for many firms, as this managing shareholder for a firm with three FTEs and $340,000 in annual gross fees explained: "Increasing workload. More people, more technology. Staffing: Find good people, allow them flexible hours, benefits, and good pay. Change management: Train staff, apply more technology, communicate with clients. Succession planning: Train new leaders, identify them early, help them move up. Plan for smooth transition."

Making changes to management structure is an important part of the succession process, noted the partner at a firm with 70 FTEs and $8 million in annual gross fees. While this firm rates growth and retention of staff as critical, it has also been working at "putting an effective management group in place for a multi-office firm. Switched from a management committee approach to a managing partner last year—not clear that this was a change for the better."

And firms that have adequate staff are now concerned about involving those individuals in growing the firm. "Our biggest challenge is to empower staff to have an even stronger impact on firm growth," said the firm administrator for a firm with 73 FTEs and $10 million in annual gross fees. "As our employees understand the direct impact of their efforts on our success, continuous improvement to our work environment and to the quality and efficiency of our client services will become second nature."

Keeping the good staff firms have on board is the "sister" issue to hiring, and is becoming an increasing challenge, respondents reported. "Retaining key staff has been a challenge," wrote the human resources manager for a firm with 38.3 FTEs and $5 million in annual gross fees. "We have begun creating an environment that is more conducive to relationship building, so that staff have a stronger sense of belonging/playing a vital role in the firm."

Fees and costs. Firms that rank staffing among their top five issues also have the previously mentioned concerns about billing rates, the rising costs involved in paying for health care and liability insurance, and funding technology improvements.

"[We are using] value-billing and getting the clients to see the reasoning behind added fees [by explaining] the new regulations in place that add time to jobs performed," said the firm administrator for a firm with 19.6 FTEs and $2.2 million in annual gross fees.

"Malpractice costs have increased dramatically, and compensation for professional employees is up double or triple inflation," said the partner/managing director for a national firm with 4,000 FTEs and $600 million in annual gross fees. "We are short on professional staff and managers. We are focusing attention on efficiency and pushing price increases to clients more aggressively. Growth will be restrained by availability of qualified personnel. We will resign from clients who are unwilling to pay the current rates required for a profitable relationship."

Technology and other issues. "Our firm’s biggest challenge will be changing to less paper and utilizing the technology," wrote the firm administrator of a firm with 19 FTEs and $1.5 million in annual gross fees. "My plan is to have a detailed step-by-step process and make sure everything has been thought through. I will get as much feedback as I can."

"The biggest challenge is the planning and development of the process to go paperless," agreed the HR specialist for a firm with 21 FTEs and $2.9 million in annual gross fees.

Marketing—as it relates to growing the firm—is also on the minds of CPA firm leaders. A firm with six FTEs and $600,000 in an-nual gross fees is working on growth and stra-tegic planning and intends to "focus more on networking opportunities. We have entered into an arrangement with a client-development company to supply us with leads."

The desire to diversify with new niches remains strong, although it is now being undertaken with greater care and with more emphasis on client needs, as this respondent notes: "Our local economy (manufacturing base) has been hit very hard," wrote the firm administrator of a firm with 16 FTEs and $1.8 million in annual gross fees. "New client niches are in the process of growing (investments, medical practices)."

For more information: Other stories containing results from this year’s Critical Issues survey appeared in AOMAR’s February and March issues.