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Coming full circle in practice management; progressive CPA firms are really returning to the profession's roots.

2 Times are changing."

The practice of public accounting isn't fun anymore. " "This has become a very tough business."

These and many similar statements seem to be the repeated themes at gatherings of managing partners since the mid-1980s. For the most part, these concerns are valid-practice is different than it was between 1945 and 1980. But is our current condition really new or have we simply returned to normal times after enjoying nearly 40 years of good times?

Many aspects of what we think of as new and daunting conditions really are a return to the way the profession functioned before World War II. This article describes why the profession, rather than hurtling towards an uncertain future, is in many ways returning to its roots in the early part of this century. It examines what we can learn from those who practiced then and how to apply these lessons to our firms. CHANGE IN THE WIND There are three important differences in the way we practice now compared with practice in the 1950s through 1980:

* A more frantic busy season and even slower off-season thanks to Congress and the Tax Reform Act of 1986. Before that legislation, many practice units had made considerable strides in leveling their work years or at least keeping them to gentle hill-and-dale variations. Since the TRA, the staff in many firms produces chargeable hours only five months of the year. This was true before the 1950s and the tax deadline then was March 15.

* A relative scarcity of individuals with both the desire and ability to work the typical 2500-hour year of the owner-operated business. CPA firms are predominantly owner-operated efforts with entrepreneurial commitment the driving force behind business success. In the postwar years, there was a plentiful supply of committed, skilled individuals who aspired to ownership status. Today, many people seem to lack either the skills or the motivation to become owner-operators. In some cases, talented CPAs leave the profession temporarily due to the demands of parenthood and child rearing.

* A greater supply of professional accounting services and lower demand for them has helped eliminate inefficient providers. We can no longer expect clients to pay for our inefficiencies-or for services they really don't need and want. This has created extreme price pressures on type I services (compliance-based audits, reviews, compilations and tax compliance efforts). As a result, many practice units are working hard to develop a parallel stable of type II services (consulting and planning in many areas) and to provide products as well as services because of their potential for higher profitability through value billings.

In summary then, we find ourselves in a profession that has become extremely competitive, that must live with a skewed year because of congressional caprice and that faces a limited supply of individuals able to commit to achieving entrepreneurial ownership status. These conditions are very similar to those that prevailed before the 1950s. In examining how CPAs in past years addressed these same issues, we'll see that some supposedly new concepts of practice are really a return to the way things were once done.


Charles Worthrum, a family friend and CPA practitioner from the 1920s through 1940s, was very proud of two facets of his career. Foremost was the fact that he had to work only two years as a busy-seasononly employee for one of the national firms before he was accepted for full-time year-round employment. (Three to five years was the norm at that time.) The second was that later, as managing partner of the firm he founded, he was responsible for 32 people only seven of whom (his three partners plus one professional staff and three clerical staff) worked in his firm's offices. The remainder worked in their own homes. Some worked only during busy season and none were full-time employees. This flextime and flexspace staff was made up mostly of homemakers supplementing their family incomes, retirees seeking to keep busy and a few younger, aspiring CPAs trying to start their careers.

Progressive practice units today are attempting to do much the same things Mr. Worthrum did over a half century ago by

* Trying to use accounting specialists (paraprofessionals) to supplant some of their entry-level college hires. These specialists can be found in all areas of practice, including tax preparation, audit assistance and the more traditional write-up services. Many work less than full-time and some work only in the busy season.

Most firms find accounting specialists do especially well as "account executives" for small business clients. Their skills often are well above the write-up level. They commonly have two charateristics: They are not on track to CPA status and future ownership and they typically have a very mature attitude toward their work.

Accounting specialists are becoming an increasingly attractive option for firms and the supply of those trained at this level is slim in most cities. One West Coast firm advertised in the Thursday food section of the Los Angeles Times in an ad aimed specifically at "empty nest" homemakers. The firm asked for people who wanted a challenging second career, could supply maturity of outlook and were willing to learn. It found that those hired were fully on stream after four to six weeks of training and were then among their most productive employees at any level. Special arrangements allow some of these employees to work at home some of the time by extending the firm's local area network by dedicated lines to the in-home computer terminals supplied by the firm. Worthrum's firm had to waste valuable staff time dropping off source documents and picking up financial statements.

* Hiring people to work as many weekly hours as possible for the busy season only. Today, many larger cities have an available work force of qualified individuals quite willing to work only during the three or four winter months.

A significant portion of this work force consists of women CPAs who drop out for several years to raise children. With the children in school full-time, many of these women are willing to work 30- to 50-hour weeks during busy season because it allows them to be home with the family during the summer vacation months and early fall.

Some firms are hiring these women as hourly rate employees or subcontractors. In either case, firms typically provide 40 hours of continuing professional education at their expense during the fall months to ensure current expertise. Some firms have found that, as their children become more self-sufficient, these women often return full-time at the management levels most needed by firms to ensure the continuity of the business.

CPA firms today have an advantage over those of the 1920s and 1930s because there is a supply of talent that can help fill firms' needs in the decades ahead. Fifty and sixty years ago, women CPAs were extremely rare.

Other sources of effective busy-seasononly help are co-op and internship programs sponsored by local colleges and universities. Many Sun Belt firms use retired practitioners; demographers expect the number of active older people to increase dramatically in the coming years. FAILURE TO COMMIT

I've mentioned Charles Worthrum's firm, which had three partners besides himself. In no way were they equal partners. In fact, they had little if any equity in the firm. That is because the firm was a two-tier partnership much like those being developed today. What exactly is a two-tiered partnership (or its corporate equivalent)? Why is it once again popular? And what advantages does it hold for firms and their owners, as well as their staffs and clients?

First a little background. From the late 1950s to the mid-1980s, the majority of CPA firms enjoyed a plentiful supply of entry level talent of above-average quality. This fostered a talent-management system known as "up or out." In most firms, the partnership ranks were refilled with individuals who possessed the talent and personal drive to warrant equity ownership in their respective firms. Those that didn't make it were shown the door.

Admission to the partnership (or its professional corporation equivalent, equity shareholder status) implied the individual was technically competent, possessed executive presence, was influential in the community and could help the firm's client base grow in both volume and profitability. It also meant the candidate was willing and able to devote 2,500 to 3,000 (or more) hours to the business every year.

In recent years, there has been a limited supply of people with all of the potential for equity ownership and the desire to invest the many years of long hours that go with an owner-operated business. The result has been a partner shortage at many firms, which has caused excessive work loads for existing partners and occasional client dissatisfaction.

One possible solution is a return to the two-tiered partnership-the same system that was very common before the 1950s. The equity-ownership tier comprises people who meet the requirements for partnership common in the last few decades. The second tier is available to those with more specialized talents or those unable to make the annual commitment of time that CPA firms generally require from those with equity ownership status.

Differences in effort and contribution between the two tiers are reflected in compensation levels. In most firms there are also differences in governance participation between the two tiers. For example, second-tier partners usually have limited voting rights and may not serve in certain elected or appointed positions within the partnership.

Two-tier partnerships can offer significant benefits. Those who qualify for second tier partner status take pride in the title "partner" as opposed to career manager or the equivalent. Clients prefer being served by a partner and understand that not all partners are created equal.

Staff members in two-tiered firms also are relieved to know there is a career alternative for them should their talents or the time they are prepared to invest in the firm be limited. In many firms full equity partnership is open to second-tier partners if their personal commitment or capabilities expand. On the other hand, there is a satisfying future available to those whose capabilities remain steady.

Some firms have expanded the concept to include a two-track system for staff levels. For example, a talented, full-time employee might rise to the in-charge level on track A and then seek to work fewer hours due to parenting responsibilities. The employee could then switch to track B and work as a part-time in-charge accountant. The total time commitment might be between 1,500 to 2,000 hours-not the 2,500 hours expected on track A. Most of the time would be chargeable-the employee would not be given responsibility for marketing efforts or internal management tasks such as recruiting, conducting in-house CPE and the like. This person could later choose to resume full duties and responsibilities.


In highly competitive markets, the successful seller must sooner or later create market uniqueness for his or her product or service. A current approach to this problem is called niche marketing and CPA firms across the country are striving hard to use niches to differentiate themselves. This method is not unique to the 1980s and 1990s but was very much thE! vogue early in the century, even though overt marketing, such as advertising and direct solicitation, was not then permitted by the rules of conduct. How were CPAS able to accomplish the task? And what carl we learn from their efforts?

The answer lies in the approach many earlier firms took to industry specialization. A case well in point i,, that of a local firm in Cleveland, Ohio, that was very successful in the 1930s and early 1940s. Its niche was restaurants, although it served other clients as well. Its successful penetration and capture of the restaurant niche resulted from a three-step strategy-one that might be even more effeCtiVE! today.

Here's how the strategy worked:

* Participate in clients' trade association activities. The managing partner and his partners made a point of attending local chapter meetings and even state conventions of the National Restaurant Association with their clients. It was only natural for this to lead to introductions to prospective clients and to future association program chairpeople.

* Speak at trade association meetings. This was done with enthusiasm at every opportunity. The theme of the presentations was what any good CPA can do to help a restaurateur rather than a discussion of the firm itself. But the talks raised interest in the firm among audience members and opportunities for proposal meetings increased as a result.

* Get articles in trade journals. The managing partner of this Cleveland firm said one such article in the Ohio regional quarterly generated over a dozen leads within eight months of publication. The article required virtually no effort from the firm-it actually was pieced together by the journal's editor from notes made during a firm partner's presentation at a state convention. If speeches don't receive coverage, CPAs can use their own notes as the basis for articles to submit to trade journals.

Although this firm was denied many of the sophisticated marketing vehicles available to today's CPAS, its approach worked then and would be just as effective today. The bottom line is, if you have something special, position yourself to tell people about it. CPAs can integrate this three-step strategy into marketing plans that include sales techniques unheard of or prohibited earlier in the century. They can use them in industry and generic niches, such as litigation support, business valuations and tax specialties. Marketing is not a new effort for CPAS; it's always been a part of good business practice.


One of the secrets of Charlie Worthrum's success as an accounting practitioner was his executive ability-to find, motivate, train and manage his colleagues, whether they were full-time, part-time, on-site, off-site, professional staff or accounting specialists. Coincidentally, he was also a very good accountant and business adviser.

It appears the profession's return to earlier practice techniques requires the same executive talent and skill. The question is, are firms training partners and future partners to become executives who can manage different kinds of employees in a variety of settings? If not, why not? A look at the past indicates that executive skills will be just as if not more important than accounting and consulting skills in firms' success. CPAs should consider the past in order to get a close look at their futures. n
COPYRIGHT 1991 American Institute of CPA's
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Isfvan, Donald F.
Publication:Journal of Accountancy
Date:May 1, 1991
Previous Article:A taxing matter: when is a worker an independent contractor?
Next Article:Retaining women CPAs; firms can benefit through programs that help keep talented female professionals.

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