The economic downturn, aging demographics in the profession and raging advances in technology are combining to create a “perfect storm” of change that may require a new management philosophy for many accounting firms.

Up until the Great Recession, the partners and owners of CPA firms enjoyed several years of rising incomes, fueled by increased leverage and reductions in overhead costs.

But the 2010 reality is much different, with fear and uncertainty, layoffs, new fee pressure, reduced discretionary transactional work and mounting succession issues.

“These are life changing times,” according to Steve Erickson, an Albuquerque, N.M.-based practice management consultant. “When will things go back to the way they were? Never.”

The time has come, Erickson is telling everyone who will listen, for a new management approach, one he calls “active management.” In contrast to the “passive management” philosophy under which most CPA firms operate, “active management” requires a hands-on, goal-oriented approach with almost ruthless follow-up and accountability.

He’s right, of course, when he says that too many CPA firms operate through the rear-view mirror. Those are the firms that find out weeks too late that they’ve been losing money, wasting valuable billable time or missing major opportunities. “You have partners and employees asking each other ‘What happened?’ And by then it’s too late.”

“You need to get on the front edge of management,” he says. In his vocabulary, “active management” begins with each partner and professional. Every person in a position of responsibility needs to focus first on self-management and accountability. Only then can change begin in the rest of the firm.

And it’s not too late to start this tax season. Here’s how:

1. Build a plan.
   • Each partner should write a plan for 2010 that breaks down monthly fees, hours managed and a personal time budget.
   • Add up each partner’s plan, and you get the firm’s revenue and production budget for the year.
   • Each staffer should assemble a similar plan for the year — charge hours, marketing hours, administrative hours and personal time.
   • Now, with a firm-wide budget in hand, make it a rolling 12-month budget by adding another month each month.

2. Make your mantra: Cash is king.
   • Focus on cash by adopting a firm-wide credit policy.
   • Collect faster by instituting a billing schedule with each client that schedules payment in advance of the work rather than after the fact.
   • And then make sure you are using “stop work” clauses in your engagement letters to limit losses for those clients who can’t pay.
   • Enforce your change-order process. Erickson warns that “’Scope creep’” is rampant in auditing and you must manage the process and your clients’ expectations.”

3. Get hands-on.
• Prepare budgets for all jobs.
• Make sure that everyone in your firm understands what is expected of them.
• Schedule weekly follow-ups and make sure everyone has something to do.

Don’t fool yourself by thinking you have a choice in the matter. In this new hyper-competitive market, the firms that execute on the business basics will survive and thrive. And those that don’t, won’t.

Finally, Erickson urges: “Schedule! Schedule! Schedule!”  Resource management has never been more important. On average the loss of 20 minutes per day per person represents over five percent of your net revenue, according to Erickson’s estimates.

It’s the little things that count. And it adds up fast.

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Copyright © 2010 CPA Trendlines/BSG LLC. All Rights Reserved. Used by Permission. First published by the AICPA.