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How practice philosophy affects a firm's finances.

Every CPA firm has a practice philosophy, although not all are in writing. Such philosophies embrace firm members' goals, values and beliefs. Each practice's philosphy serves as both map and compass, guiding client engagements, practice development and billings and collection.

This article focuses on the last aspect--billing and collection. firms that understand how members' attitudes affect their approaches to billing and collection will have better control over their finances.

By examining their philosophies, firms can begin to understand the impact members' values and individual styles have on firm finances. Firms then can decide if they're happy with their chosen styles--and the consequences--or if it's time for a change.

PROFESSIONAL ELEMENTS

Some of the factors that affect a firm are a result of practitioners' attitudes toward their profession or careers.

Work ethic. Traditionally, CPAs have worked long hours--often well over 60 hours a week during tax season. Many CPAs, however, don't believe in 60-hour weeks, though they do believe in earning money. Their time is of greater value to them, so they charge higher fees. CPAs who believe it's necessary to work long hours may as a result place less value on their time.

Professional image. A self-confident, assertive and professional image merits premium fees and prompt payment. Self-doubt, passivity or uncertainty about one's own competence will lead to less confidence in setting fees and pursuing collections.

Services. A firm's service specialties dictate its level of billings and collections. A one-person firm that does mostly bookkeeping and individual income tax preparation can't charge as much as a full-service firm offering tax, audit, computer and management advisory services. Similarly, a full-service firm can't charge as much as one specializing in litigation support.

Office location and decor. A sole practitioner may enjoy working out of a spare bedroom, but he or she won't be able to charge as much as a CPA in an atrium building with a well-decorated office. Clients equate surroundings with level of competence and degree of success. Clients believe they should get what they pay for.

Ambition. Some CPAs set a high priority on expanding their revenues or client lists while others are satisfied with the status quo. The strength of a CPA's ambitions can help overcome any reluctance to raise or collect fees and can lead to higher revenues.

Professional involvement. Joining professional organizations and associations helps CPA understand that others have similar problems and solutions may be available. This saves practitioners from having to reinvent the wheel and boosts their self-confidence.

Profits. Many practitioners have mixed feelings about profits. It's important to remember that CPAs have a right to make profits. Those who think profit-making is objectionable will be less likely to develop a successful practice. CPAs also have the right to raise their billing rates when they see fit. There's no point in sending apologetic letters excusing fee hikes; they won't help to retain clients who balk at increases.

Growth. CPAs who want their firms to grow must set fees high enough to fund expansion. Those who prefer stability will target more moderate fees in order to maintain a steady size.

Staff. It is very difficult to earn $100,000 a year in a one-person shop. There are only 24 hours in a day, only so many hours one person can work and only so much time a sole practitioner can charge. Those willing to delegate and to develop the skills to manage, motivate and supervise people hire the extra staff necessary for higher revenues.

Partners. Taking in a partner allows a CPA to expand the practice, but it also forces him or her to read-just firm philosophy to accommodate new approaches. Unfortunately, CPAs who want to own 100% of their practices are limited in the services they can provide, the number of clients they can serve, the size of the staff they can supervise and the total fees they can generate.

Quality of services. The quality of a firm's work and the CPA's perception of its value has a direct effect on the fee structure. Errors, lateness or sloppy presentation will either drive clients away or may simply leave them less receptive to fee increases or new services.

Client mix. A firm's decision to specialize or diversify will affect its collections. It a firm's clients are all in one industry, the practice will suffer when that industry goes through a downturn or may have to drop its billing rates and accept extended payment plans in order to maintain its client base.

PERSONAL FACTORS

Personal factors also influence how CPAs approach billing and collecting procedures.

Self-worth. How do firm members feel about the work they perform? If they don't show pride in their skills or work, clients will sense this and may not value the services they receive.

Community involvement. Practices benefit when CPAs are involved in community services. The public will see CPAs as concerned citizens. The involvement will generate goodwill, enhance CPAs' image and produce referrals. Clients may even perceive the value of firm's services to beg greater than those of less civic-minded firms. A firm whose members don't participate in community activities may be perceived as uncaring, and its prestige may suffer.

Quality of life. CPAs who rank their families and personal lives above their clients must charge enough to provide for their families while leaving enough time to spend with them.

Age. People's values and goals change throughout their lives, and these changes will affect how a CPA bills and collects fees. Feelings of self-worth may increase as a CPA gains more experience, for example, but a desire for growth may taper off after a firm is well established and family demands increase.

Retirement. Some people work all of their lives with retirement as their ultimate goal, while others never want to stop. CPAs who envision a finite career and need a healthy pension fund may place greater emphasis on collections.

UNDERSTANDING

THE IMPACT

CPAs make choices every day that have a direct effect on their firms' financial health. If these are conscious choices made with specific goals in mind, the results should be satisfying. Sometimes, however, practitioners are unhappy with their firms' financial achievements and are unaware of how to make changes. A good first step in this situation is to examine firm members' philosophies and attitudes on a number of issues to see how they help or hinder financial results. This process can be an enlightening step on the road to greater satisfaction.
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Practitioners Forum
Author:Clanton, Donald M.
Publication:Journal of Accountancy
Article Type:Column
Date:Jan 1, 1992
Words:1073
Previous Article:How to develop consulting skills.
Next Article:Persuading reluctant clients.
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