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Should firms share financial information with staff? Yes.

How much should staff members know about a firm's financial status? Does openness boost morale and productivity or cause confusion and resentment? Partners' answers to these questions tell a lot about how they run their practices and work with their clients. But which approach makes for a more successful firm? Two practitioners describe their own management styles and how they have benefited their firms.

YES says Ron W. Stewart

RON W. STEWART, CPA, is a partner of Stewart & Company, Monroe, Louisiana. A member of the American Institute of CPAs management of an accounting practice committee, he was the moderator of the 1990 AICPA National Small Firm Conference. His firm has four CPAs and three associates and performs tax and financial planning services for individuals and closely held businesses.

Why won't our staff members think and act like owners or partners? Perhaps if we want them to do so, we have to give them the same financial information that partners get. Instead, many of us have practiced mushroom management: Keep staff in the dark and feed them small bits of financial information.

I propose that we end mushroom management and begin sharing important firm operating data with staff. If we do, I believe we'll create healthier firms and better professionals.


We spend enormous amounts of money on continuing professional education to expose staff to the technical aspects of accounting, yet we hide the business side from them. We take pride in hiring and developing the best staff to help clients solve their business problems. Why aren't we using their skills to help solve our business problems?

One possibility is that we hide this information from staff because we don't understand it either-or at least what it means to our firms. Although CPAs are experts in advising clients, many don't apply their expertise to their own businesses. They are blind to the problems-and opportunities in their own firms. Among the benefits they miss are those gained by sharing financial information with staff, which are similar to those in teaching: The teacher learns rapidly to try to stay ahead of the students.

Sharing financial information forces us to take a fresh look at ourselves. Managers often miss something obvious but staff can see things immediately in ways we do not. This sharing creates a synergism that benefits staff and owners.

Each time I attend a management of an accounting practice conference I come away amazed at the new information I obtain. The most valuable insights usually are picked up in roundtable discussions of how other practitioners run their firms. The conference atmosphere allows participants to meet on an equal footing and share their insights in a relaxed environment.

Opening up such a forum to our staffs will accomplish similar results. I advocate periodic presentations to staff, similar to the stockholder meetings that public corporations hold. This sort of openness creates a partnership between staff and owners and makes staff feel more connected to the firm. Sharing financial information also helps prevent misinformation and rumors. There is always a mystique about something kept secret; once it is revealed it becomes more routine in nature.


Firms that adopt this policy ensure themselves a sophisticated and knowledgeable pool of future firm leaders. Management skills will be the secret weapon of the more successful firms in the future; our clients as well as our staff will demand them. If we don't create the environment in which management skills can be developed, clients and staff will leave. It doesn't make sense that we allow our staff to study the clients'books and make recommendations about how to run their businesses, but we don't trust them to play this role in our own firms.

Sharing financial information forces staff and owners to be accountable to themselves and to each other. As part of this accountability, firms must develop a cost accounting system capable of measuring results, plus a clear vision of where the firm is headed and why. In addition, the regular distribution of financial information provides an incentive for the collection of operating data. I know of firms that don't keep time records, don't prepare monthly financial statements and don't bill at least monthly. These are the same firms that don't make much money, don't take time off and don't have much fun.


Financial openness also fosters an entrepreneurial atmosphere without the risk. This atmosphere is vital to the future of the profession because the up-or-out philosophy and pyramid organizational shape are obsolete in today's business climate, while profit-sharing nonowners are the wave of the future. This change has come about in part because of the attitude of the generation now at or near management age-the baby boomers, those workers born between 1946 and 1964, who today are between the ages of 27 and 45. Six major values drive baby boomer behavior, according to Claire Raines, author of The Big Chill Generation at Work:

* Involvement. They grew up as activists and generally distrust authority. They believe in the significance of what they are doing and want their actions to have an impact on the world.

* Pursuit of self. After looking for their identities, they now spend a fortune on self improvement.

* Equality. They came of age with racial integration and have a deep belief in equality.

* Health and environment. They are concerned about their own well-being and that of the environment.

* Nonviolence. They believe in collaboration and compromise rather than confrontation.

* Creative life-styles. They value mobility and control of their schedules and place much less emphasis on the security of longterm employment.

Raines identifies five issues that will be important in working with these adults in this decade.

* Relationships' are key. They are happiest working with those they believe care about them as people.

* They demand attention and reinforcement. They expect personal relationships with their employers.

* They don't respond to external motivation. They want to make their own decisions and will not react favorably if they feel pressured.

* Their choices reinforce their personal value systems. They don't care about a benefit unless it will help support their values and life-styles.

* Their objections should be acknowledged. They consider themselves well-informed-and usually are-and they seek and respond best to harmony and agreement with others.

This generation has a different attitude toward work, authority and personal life than those of earlier generations. If we don't acknowledge this difference, it will be hard to retain the highly educated and creative leaders emerging from this group. WHAT FINANCIAL INFORMATION TO SHARE How can this theory be applied in practice? The starting place is daily time reporting. Our firm demands that time records be turned in daily, although the information is input into the computer only weekly. Daily time reporting precludes the need for "creative recall." Weekly time reports compare budget to actual in hours and dollars by both employee and the firm. We use a graphic presentation in addition to the raw data. This weekly report is circulated to everyone in the firm.

All firm members also receive a weekly work-in-process report which shows the build-up of fees by client, with detailed descriptions of work completed, by whom, the number of hours and extensions. Billing is based on this report. We also produce a weekly report showing nonbillable time by person and by the firm. Managing nonbillable time automatically boosts billable time.

We assign staff the bill preparation responsibility and send out detailed bills monthly. Staff must recommend and defend their billing. Markdowns must be explained and approved. Markups are expected. Making staff responsible for bill preparation and justification is a great practice management secret. It demonstrates to staff the importance of client selection, timekeeping and work efficiency. It truly teaches them about the business of accounting.

We believe in value billing. Standard fees are the starting place in determining the final bill, but the ability to judge client perception of value is the billing skill that separates some CPAs from financially successful CPAS. In order to judge a firm's worth to clients, staff must have a thorough knowledge of how the firm itself works and what its services cost and produce.

Our firm's monthly financial statement is prepared by staff. Our belief is that the firm is one of the firm's clients. The financial statement is a full disclosure compilation that must pass the firm's quality control procedures. The staff makes deposits, pays bills and prepares payroll. This is the kind of work that staff does for clients, so it is appropriate that they also do it for the firm.

SHARING FINANCIAL REWARDS It's important to realize that, if firms are going to share financial information with staff, they also will have to share the financial rewards. The whole philosophy is based on the concept of the firm as a partnership that starts at ground level.

I know of a relatively small firm that is planning to initiate a very different revenue-sharing system. Effective January 1, 199 1, all collections in excess of $750, 000 are being shared with staff on an 800/C-20% basis. Staff gets the 80%.

Why would the partners choose to do such a thing? The $750,000 pays the bills, funds the retirement plan, provides the partners' standard of living and return on investment. Usually, all collections over that amount go straight to the bottom line. The partners believe that sharing 80% of what's left will create an entrepreneurial environment that will benefit the firm and them. After all, if profit sharing motivates staff and encourages growth, then 20% of something is better than 100% of nothing.

Will this system work? This firm is going to find out in the most reliable laboratory in existence-the real world. I believe it will work, because sharing the responsibility and the rewards are almost guaranteed methods of creating and managing a healthy, prosperous firm. n


says Stanley Person

STANLEY PERSON, CPA, is managing partner of Person & Company, New York City. The chairman of the American Institute of CPAs continuing proffessional education standards subcommittee, he is also editor of the Journal's Practitioners Forum department. His firm, which provides accounting, tax and consulting services to closely held businesses and their owners, has two associate partners, 11 professionals and six support staff.

The issue of whether a small to medium-sized CPA firm (or any other type of small, closely held business) should open its books or share operating results with associates and staff has been a hot subject among practitioners in recent years. The decision not to share these data runs counter to the current belief held by many consultants and psychologists that "openness" can help eliminate problems caused by lack of communication.

A while ago, I attended an American Institute of CPAs management of an accounting practice conference at which a panel discussed the question. My initial concerns were

h information and put it into proper prospective?

* Do sharing financial results and the inevitable emphasis on the bottom line give the wrong message to staff and associates, especially to new members of the firm?

* Will sharing data really make a difference in the firm's operations and results?

As I thought about the issue, I came to the conclusion that disclosure of financial operations was not a good idea in small to medium-sized firms.


A major problem in disclosing financial results lies in the recipients' ability to understand fully what the figures mean and how they affect them. Financial information alone will not answer all of a young staff member's questions-and it may even create some misunderstandings. For example,

* Will a new staff person understand the results reflect not only this year's work but also management's efforts over many years to build a thriving practice?

* Will bad results create concern about the firm's stability and undermine staff productivity?

* Will good results produce a rash of unreasonable requests for increases in compensation?

* Will very good results without accompanying financial rewards to associates and staff cause morale and retention problems?

* Will individual initiative suffer if staff members perceive themselves as just a small part of the whole firm?

* Will management have to explain financial decisions to staff and associates and justify the near- and long-term consequences?

* Will there be resentment of management and other employees' compensation and benefits?

* Will the staff put sufficient emphasis on containing costs if the firm seems to be doing well?

In addition, if management is disclosing financial data as part of a plan to offer monetary rewards for improved profits, there may be difficulties in maintaining consistent incentive programs.


CPAs must maintain a balance between being good professionals and earning profits, but it may be more difficult for younger staff members to separate these goals. More experienced practitioners have learned we can be excellent, ethical and objective professionals serving the public interest and still conduct our practices as business people. We have to be sure this principle is demonstrated to new staff and not watered down by other actions. Don't we tamper with the idealism and objectivity of newcomers to the profession when we disclose financial results and emphasize the bottom line as being as or more important than our service in the public interest? Couldn't we be giving the wrong messages to people within the firm, which could result in less satisfactory performance? What would happen, for example, if the staff reacted to operating results by attempting to save time by doing less than is necessary?

Those of us who entered the profession 20 to 30 years ago were likely to believe the firm's success was as or more important than our own. I don't think this is as often true for those entering the profession today. This is not a "generation gap" judgment but is based, instead, on the influences of our society over the past 25 years. Today there is a free-agent, quick-success mentality fostered by huge sports contracts and the wheeling and dealing of the last decade. As a result, individual interests frequently are put ahead of firm interests.

The positive side is that today's new accountants generally have more initiative and are more concerned about their own progress. They will make useful contributions to a firm as long as they are obtaining job satisfaction and enjoying a good quality of life-something people today don't measure in dollars alone. They will not derive satisfaction from firm achievements unless they are realizing their own personal successes. Disclosing a firm's operating data will probably cause them to focus only on what's important to them and not necessarily on what's important to the firm. This also may give rise to unnecessary resentment in the firm.

Our firm operating philosophy is based on avoiding that kind of resentment. We have concentrated on handling each individual's needs-financial, education, image building, job satisfaction, quality of life-on a case-by-case basis. I don't believe sharing financial data would have improved the results we've realized. DOES IT IMPROVE THE FIRM? To determine whether sharing financial information can make a difference in a firm's operations, consider the general points expressed by those who favor this practice. Proponents believe it helps to

* Set and achieve firm goals.

* Promote morale by making staff aware of the firm's growth and stability.

* Improve the firm's image.

* Make the firm's mission more meaningful to associates and employees.

* Control costs through staff awareness.

My experience leads me to believe that setting and achieving goals, elevating and maintaining morale and accomplishing a firm's mission have nothing to do with who sees financial operating data. Rather, achieving these aims depends on management's ability to create a professional work atmosphere that provides challenges and rewards for all firm members. Once this is done, it is the responsibility of each individual to make the firm successful-the firm's overall success does not make each individual successful.


Many practitioners have tried sharing financial data with their staffs and later regretted this decision. Here are some of the situations CPAs I know have confronted:

* A small firm established a bonus plan in which the staff shared in a pool determined by a percentage of the firm's profits. Management determined the split of the pool based on measures such as years of service. The firm decided to release its operating data as part of this new program. Staff members, seeking to increase the size of the pool, began raising questions about expenses, salaries, etc. The firm principals had a very uncomfortable time explaining what they considered to be reasonable operating results. They subsequently dropped the plan and suffered their worst turnover in the next year.

* A firm that reviewed full operating results with its staff found the most pressing questions were always about compensation and principals' draws.

* Another firm that reported a mediocre year and asked for cooperation in controlling costs did not believe its request was honored. Staff members were confused by the numbers and what they were supposed to do to change them. Some believed they were expected to work extra time for no added compensation; others took it on themselves to cut costs using strategies such as making fewer telephone calls.

* A practitioner lost a key staff person who felt the profession had little to offer because he was disappointed with the firm's profit level.

* One firm had constant problems with staff regarding working conditions when financial results made it clear the firm could afford more spacious quarters. At the time, management had a long-term lease and had just renovated the office and invested in new equipment.

Although I am opposed to sharing operating data, I believe it is necessary to present more general firm information at staff meetings. It is very important that the staff and associates be aware of

* Time budgets and individual client profitability.

* Billing and collections data.

* Certain cost items, such as medical expenses, that could have a direct effect on staff members' compensation. IF IT AIN'T BROKE . . . Does this nonsharing, individual-based concept work? While we have encountered the same problems and frustrations as all small to medium-sized firms, we have had the following benefits:

* Achievement of a high percentage of firm objectives and goals.

* An excellent long-term client base with a good rate of growth due mainly to referrals.

* Good staff retention. The current average is 7.5 years; the range is from 1 to 20 years.

* Successful employees. Over 90% staff we have ever employed who had accounting degrees have become CPAs and stayed in the profession. On our current staff, 80% of those who have accounting degrees are CPAS.

Will disclosing financial operating data and results produce staff and associates who are more firm-oriented and motivated and who perform better and stay longer in small to medium-sized CPA firms? No. Management must provide the leadership and techniques to accomplish those goals. I believe that sharing firm operating data is not a proper factor in the achievement of these objectives. n
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Author:Stewart, Ron W.
Publication:Journal of Accountancy
Date:Feb 1, 1991
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