Ride the Bear: Strategies for CPA Firms to Thrive, Survive, and Grow in a Down Economy

• Part 1: May You Live in Interesting Times
  • Current Economic Conditions
    • A Deep Recession With a Prolonged Effect
    • The Credit Crisis
    • Unemployment
    • Implications for CPA Firms
  • The Federal Government's Response to the Economic Crisis
    • The Stimulus Bill
    • The Budget
    • The Bank Bailout Plan
    • Regulatory Reform
    • Other Federal Government Actions
    • Other Developments in the Profession
• Part 2: Your Firm's First Response
  • Priority 1: Get Your Financial House in Order
    • Bill and Collect
    • Adjusting Your Client Mix
    • Tune Up Your Key Performance Indicators
  • Position Your Firm for the Subsequent Recovery
    • Align Costs and Service Offerings
  • The Unique Qualities of an Accounting Firm
    • The Professional Services Firm
    • The Accounting Firm
  • Analyze Your Firm's Service Offerings
    • Compliance Oriented Service Offerings
      • Selling Position
      • Organizational Infrastructure
      • The Project Team
      • Challenges for Compliance Oriented Practices
  • Problem Solving Engagements
    • Selling Position
    • Organizational Infrastructure
    • The Project Team
    • Challenges for Problem Solving Practices
  • Solution Based Engagements
    • Selling Position
    • Organizational Infrastructure
    • The Project Team
    • Challenges for Solution Based Practices
    • Summarizing the Three Types of Engagements
  • Map the Shape of Your Firm
    • Changes in the Shape of Your Service Offering Curve
    • Planning for External Forces
  • Deciding Where to Invest and Where to Cut
    • Staffing and Compensation
    • Other Expenses
  • What it All Means for CPAs
    • Follow the Money
    • It's All How You Look at It
• Appendix: Where Does Your Firm Stand?
  • The 2008 PCPS/TSCPA National MAP Survey
• Additional Resources
• About the Author

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Part 1: May You Live in Interesting Times

The Chinese say "May you live in interesting times." This is neither a proverb nor a saying, but a curse said to one you don't particularly care for. It's easy to see why. Interesting times are characterized by upheaval, as long-established customs and conditions abruptly cease to exist. Uncertainty about what will come next breeds anxiety and fear. You wouldn't want to live in interesting times.

Or would you?

After all, what is the opposite of "interesting?" Dull? Wouldn't it be worse to live in dull and boring times, where nothing ever changes, and you have no chance to do anything different or improve your lot in life? To live in interesting times is to be engaged and presented with unique opportunities that didn't exist before.

In a famous speech given at the University of Cape Town, South Africa in 1966, Bobby Kennedy spoke of the great social unrest of his times and referenced the Chinese curse. He then added, "Like it or not, we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind."

Like it or not, we now live in interesting times, though our great challenges are economic, not social. The status quo is rapidly crumbling, much of it unlikely to return. Stability, when it does return, will usher in a brave new world. CPA firms now have choices to make, not only about how to deal with current economic conditions, but also how to position themselves for the new business environment that will emerge when the current crisis gives way to that to be defined set of conditions that will shape our new norm.

Current Economic Conditions

A Deep Recession With a Prolonged Effect

Over the past few months, CPA firms have seen their clients report losses and weaker balance sheets. They have watched clients struggle through liquidity issues, employee layoffs, and severe cost cutting measures. Some of their clients have declared bankruptcy. Others are seriously at risk of it, for the first time ever.

You don't need to be an economist to know there has been a severe downturn in the economy. It doesn't matter whether we call it a recession, a depression, or something else. What does matter is how bad it will get, and how long before it gets better.

The global recession that began in December 2007 is now nearly a year and a half in duration with no clear ending in sight. In the United States alone, the gap between what we are capable of producing and the country's actual output is more than $1 trillion. If the recession ended tomorrow, and the U.S. economy began to expand at historically typical rates (around 2.5 percent) it would take 3 years to return to its prerecession size. Only once since the Great Depression has there been such a large drop in economic output-the recession of 1981--82. It took the economy 7 years to recover from that recession.¹

Ride the Bear

In the second quarter of 2009, a few leading economic indicators began to show signs of life. Stocks are up; interest rates are down; and a leading bank reported a healthy first quarter profit. Promising signs to be sure; but this recession is deep, and it will be with us for some time. CPAs who look to the first positive indicators and presume that the worst is over and things will be back to normal soon are likely to be disappointed.

The decrease in demand is broad based. An economic analysis in the New York Times notes that "Lawyers are booking fewer hours. Retail space goes begging. Tourism is down. So is cell phone use, airline bookings, freight traffic and household borrowing, which is less than half what it was on the eve of the recession."² Manufacturing has been especially hard hit. Excess manufacturing capacity is at its highest level since records were first kept in 1948. It would be surprising to find a CPA that does not have at least some clients affected by the recession.

To help you navigate the current economy, the following pages summarize background and some of the salient features of the recession and the federal government's efforts to mitigate the damage.

¹ Louis Uchitelle, "After Recession, Recovery Will Take Years," New York Times, April 7, 2009.
² Ibid.