I propose ideas to improve the experience of accounting.
Leverage might be the most critical lever in an accounting firm or department. It’s at the crux of the experience. And it has become a problem.
Leverage is defined as follows: use (something) to maximum advantage. In accounting, the “something” is a “someone” and are the front-line heroes of the work effort. Practically, it’s the ratio of staff to partners.
In Managing the Professional Service Firm, David Maister writes “The appropriate leverage for any practice is determined by one thing, and one thing alone: the nature of the services the practice is engaged in.” At the same time (and chapter), David identifies leverage as one of three main factors (along with margin and productivity, and together acronymically LUMBR) that drive the ultimate measure of profitability: partner compensation.
The accounting profession and “nature” of services have changed. Staff to partner ratios have increased in recent history to adjust, but we experienced one of the largest accelerator events in history with COVID.
My point: I believe leverage ratios are being strained to sustain historical profit levels while contributing to chronic workplace stress in this present culture. Old school vs. new school. Profit vs. quality of life. Payback vs. burnout.
I know. You’re trying to hire people and can’t find enough to at least maintain the existing proportions. Candidates and students are no longer interested in working their “maximum” for someone else’s “advantage”. Offering better compensation, time off, and more flexibility are reactions to symptoms (i.e., recruitment, turnover, burnout), but don’t address the issue.
I suggest that a leverage ratio MUST evidence a profitable partnership, but also reflect the culture of the firm or organization, for better or worse. If your firm promotes work-life balance or integration, the leverage ratio should offer capacity to accommodate. If profit is a core value, hold a ratio that Gordon Gecko or Michael Scott would be proud of. Advertise them uniquely for your “someone”. Work more makes more. Work less makes less.
Dissonance between culture (or at least what is being pitched) and the leverage ratio is the leverage problem. Address the problem, or the candidates you’re working so hard to hire won’t stay long…even while you had to endure hell yourself to get to the top.
If you want to change an experience in accounting, turn your attention to what your leverage model says about your firm, and ensure it is consistent with the culture you’re promoting. Fix the leverage problem.
Some other thoughts on leverage:
- Be Like Dave: There was once a man excellent at the work of being a partner in public accounting. His grandeur was evidenced by many of the hallmarks you might expect, but one stood out for me. He capped his earnings. He refused to take more than a certain amount of compensation for his efforts, even as he deserved them, or rather…earned them. Instead, he wanted that compensation to be put into the future of the firm. It went into the pockets of new partners, raises for staff, and hiring of more people.
- Stop Borrowing Leverage: Firms are borrowing leverage from different countries and mercenaries (contractors). It’s a reflection of a firm’s growth and unavailable leverage. If a firm can’t support its own work with its own people and borrows leverage, what effect will it have on our talent pool? We’re creating less supply for the very thing we’re demanding. If you can’t leverage work within your firm, consider managing growth or learn to say “No” to new work, clients, or rainmakers.
- Hire Outside the Leverage Model: Project managers, assistants, engineers, and other professionals can be hired to increase the efficiency and experience of those within the model. You can maintain the leverage model as it stands, lose some profits in the short term, but still grow and create a better experience for those within the firm with additional support (and retention). Hire people focused not on your external clients, but your internal ones.
- No Eating Time: There was another man excellent at the work of being a partner in public accounting. He was calm and collected and knew about as much as David Maister when it came to operating a public accounting firm. I had never seen him mad…until I ate time. He got PISSED. Not recording the time it takes to do your work has severe consequences beyond just the budget for your engagement. It impacts scheduling, hiring, business development, fees, and many of the facets of LUMBR. Be real and record your actual time for yours and leverage’s sake.
- Buy a Ski Pass: Read Parkinson’s Law by Cyril Parkinson. It won’t educate you about leverage but will provide a perspective of time that is unique. Why do I believe accountants work Saturdays, you ask? Because they’re available. “Work expands so as to fill the time available for its completion.” Stop relying on Saturdays and be as efficient in work during the week as you’re capable. There’s a chance you won’t need Saturday but had come to rely on it because it’s available.
HOMEWORK (that you didn’t ask for):
- Read Cyril Parkinson’s Parkinson’s Law.
- Try saying “No!” to new work until you have butts in seats and the ratio adjusted.
- Question for you: “What does your leverage ratio say about your firm?”
That’s it for now. Until you hear from me again, and you will, destroy my inbox. Send me your ideas, insights, thoughts, or experiences on how the game of accounting can be changed.
Douglas M. Slaybaugh, The CPA Coach