Improve Processes & Profits

Posted By L. Gary Boomer, Boomer Bulletin

When you start to talk about processes, some may immediately think of Frederick Taylor and his time and motion studies. Resistance often follows and professionals say, “I don’t want to work in an assembly or production line.”

First, let’s define process. A process is an organized group of related activities that together create value to clients. No single task creates the desired value. Value is created by the entire process in which all tasks are merged in a systematic way for a clear purpose. Without processes, firms crumble in chaos and conflict. Every firm has processes; but are the processes as efficient as they should be? More importantly, have they changed over the years to reflect the changes in technology and client demands? I don’t believe key processes have changed significantly enough in most firms for a variety of reasons, with resistance to change being a primary reason. Some of the more inefficient processes in firms are:

  • Preparation and delivery of 1040s
  • Preparation and delivery of business tax returns
  • Auditing and preparation of financial statements
  • Time entry, billing and collection

Most people in a firm do not see or evaluate the entire process, therefore processes become inefficient and more importantly new employees are trained to utilize inefficient processes. Having seen diagrams of the above processes from several firms, I can safely say there is significant opportunity for improvement, efficiency and an improved client experience. Too much time is being wasted in the aggregation of client data, reconciliation, documentation, shuffling of paper, and delivery of the final product or service. Firms are still caught in the paper trap, loops in the process and long cycle times that result in poor cash flow, lesser profits and a less than optimal client experience.

Do you know your clients don’t care anything about your processes? They only care about results and processes are what create the results that you deliver to your clients. Some of you have perhaps already read enough. If the clients don’t care about our processes then why should we spend any time worrying about processes?

Clients, results and processes cannot be separated. They are like a triangle. There is a very good chance your firm is caught in a trap where no one is focusing on all of the steps it takes to create value. Instead, the work that creates results is broken into pieces and across various departments such as audit, tax, client services and administration. Staff and managers tend to focus on each of the steps that lead to value creation in their department, but no one focuses on all the steps together as a unit or a process. In fact, often processes are being duplicated between departments (e.g. work papers). When this happens, there is redundancy, inefficiency and personnel do not function consistently as a team. In fact they often compete and work against each other. Many firms are starting to figure out the value of processes and improving some of their basic processes such as tax return preparation, the preparation of financial states and most importantly billing and collecting.

Activities in a process are related and organized. Processes are designed to do the right things in the right order all of the time. Typically accountants like; no love, checklists. Processes are not done just to keep busy, but rather to create results that clients care about. Too often individuals are focused too narrowly on their tasks and are not aligned toward a common purpose. Therefore, the consistency necessary to reduce time, improve quality and client satisfaction is not present. This can all be done with process improvement, but I must caution you that it isn’t easy and you will probably experience resistance. Many individuals don’t want to give up their individual power in order to improve the entire firm. Others are just concerned about change and particularly changing the environment within the firm. Someone must be responsible for a process for it to succeed. Being responsible includes the design, installing, training and ensuring that the process is adhered to. You can also expect the process to be dynamic. It should continue to change with new technologies, regulations and client requirements. The principles of Six Sigma apply to firm processes: Define, Measure, Analyze, Improve and Control. Remember that process improvement is about progress and not perfection.

Ask yourself a couple of questions about your firm. Is your firm organized? Is it together? Being organized requires discipline. To be organized, you must have specific processes so that performance isn’t determined by improvisation or luck. Being together requires teamwork. It also means you must create the environment in which all staff are aligned around common goals and see themselves as team members rather than as adversaries. Most firms have some degree of organization and claim they work as a team. But, are they as disciplined as they will need to be for the future and do their teams have the right game plan? By now, some of you are thinking that you have been very successful operating the way you have and are asking, “Why do we need to change?” Simply stated, the answer is the past is the past and now is now. In the past, clients had fewer options. They didn’t have the Internet and frankly were not as informed as they are today. Compliance services are becoming a commodity and firm’s must differentiate themselves or be caught in a great price war. Those that differentiate and relate to their clients (improve the experience) will be rewarded nicely.

The good news is that remarkable improvements are typical. Firms that improve their processes see significant reductions in time, improved quality and reduction in costs that relate to increased profitability and cash flow. To date, most of the success stories have been in the tax and audit area. Recently we have seen significant opportunities in billing and collections. Those that have taken on the challenge and committed to the process have experienced significant improvements. They will also be the first to tell you that it hasn’t been easy. Too many firms have allowed their clients (even trained them) to utilize Work In Process and Accounts Receivable as financing vehicles.

It is possible to succeed, but most firms go about changing their processes in a way that is destined to fail. The tendency is to experiment rather than commit. While this may have been appropriate thinking twenty years ago, it doesn’t work today. A halfhearted attempt is not good enough. Changing compensation is generally necessary to change behavior. You should consider changing your compensation plan to a performance based plan. A plan based upon experience and charge hours probably isn’t representative of the behavior you are trying to foster in today’s process based firm. The compensation formula should measure three performance factors: process, personal and firm performance. The benefit of this type of system is that it rewards personnel for creating client value, not just keeping busy. It also fosters teamwork and reminds employees there are no winners on a losing team. Expect resistance to any change in the compensation system. Also expect the elimination of functional silos in the firm. Everyone must become more focused on the client an less on their department.

Another advantage of processes is they tend to reduce the need for management personnel as compared to traditional firms. Employees require less management and managements’ focus is on the process rather than the supervision of people and work flow. Most of the resistance will come from the partner/ manager ranks as their jobs are changing. They are now focused on enabling personnel to succeed rather than managing them so they don’t fail. Technology plays an important roll by allowing firms and their clients to succeed today as their systems become more client centric rather than application centric. Those clients who have installed ERP (Enterprise Resource Planning) systems are probably ahead of most accounting firms. An ERP system requires discipline and teamwork…organized and together. Those who have implemented an ERP system for a client know that the technology is the easy part. The culture and people problems are far more difficult to deal with.

The last and perhaps one of the most important advantages of process improvement is from the marketing perspective. Let me explain the concept by asking a few questions:

  • Do you and your employees have difficulty communicating your services to clients?
  • Do you agree that many services are becoming commodities?
  • Does your firm have fixed fee engagements?
  • Do you have clients who purchase multiple services?

The answer is probably “yes” to all of these questions. By defining processes you not only make them more efficient, but you can also make them easier to understand and sell. A unique name and a definitive statement that is consistently communicated by everyone in the firm will go a long way in improving communications as well as sales. Others in the financial services arena have been doing this for years. Every firm I know of has had a client tell them they didn’t know the firm provided a service and has purchased the service from someone else who did a better job of communicating and selling their services. A few quick steps to process success are:

  • Define the steps in your processes. Eliminate those that are redundant or don’t add value.
  • Name the process.
  • Develop a graphic for each process showing the major steps.
  • Prepare a definitive statement (concise and consistent) about your processes for use by everyone in your firm.
  • Train all personnel.

Processes require strong leadership, a change in thinking and perhaps a change in firm culture. Financial services and other service companies are followers compared to the manufacturing industry when it comes to processes. The cultural shifts associated with processes are:

  • From individual to team
  • From lack of responsibility to accountability
  • From boss to client
  • From improvisation to discipline
  • From conflict to sharing
  • From effort to results

These are difficult changes for some people to accept, but necessary for firms to continue to compete and provide clients with value. Remember client value comes from leadership (direction), relationships (confidence) and creativity (new capabilities). Improved processes will allow you and your firm to provide greater value in a reduced amount of time.

While most firms start their process improvement projects with tax and audit, don’t be afraid to start with time entry, billing and collections. There are definitely positive performance improvements in profitability and cash flow available in the majority of firms. You might ask how will this provide value to our clients? Good clients appreciate communication upfront about fees and expect to pay timely under reasonable terms.

Finally, one of the most important benefits, is the retention and attraction of quality people. Involve your current and future leaders in process improvement and you will see retention rates increase.


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