NewsAccount Colorado Society of CPAs
January/February 2015
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Contents Features
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Corder and Solomon Tapped for COCPA Leadership Positions The new officers, directors, and Educational Foundation trustees have been named for 2015-2016.
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Foundation
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Nets $40,000+
Accounting students will reap the awards thanks to five matching donors and generous CPAs.
Merger or Acquisition on the Horizon? Check out these five tips for closing a deal successfully.
10 Why Women Make Great Leaders
When women and men work together, they create a balanced leadership that benefits the entire organization.
13 Will Hourly Billing Ever Die?
The CPA profession has been billing by the hour for almost a century. Is it time to change?
18 Become Indispensable to Your
Clients and Grow Your Business The landscape is now right for you to become your clients' primary financial advisor if you aren't already.
Departments
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2 Chair Column 17 Movers & Shakers 17 Classifieds Jan/Feb 2015 • www.cocpa.org •
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Chair Column
NewsAccount A bi-monthly publication of the Colorado Society of Certified Public Accountants Vol. 60, No. 5 January | February 2015 Board of Directors Sheila M. Balzer Chair Steven R. Corder, Vice Chair Tawnya R. Ramirez, Treasurer Marc C. Hendrikson, Immediate Past Chair Mary E. Medley, Secretary Directors Victor A. Amaya, Craig A. Arfsten, Christine Benero, Kelly G. Boggs, Sharon S. Lassar, Mark J. Smith Editorial Board Jack Allgood, Kay R. Dragon, Patrick A. Lytle, Georgia Z. Phillips, Laura J. Theiss, Barbara J. Tedesko, R. Stephen Van Meter, Michael D. West Mary E. Medley, President/CEO Elizabeth M. Julin, Deputy Director Krista Flynt, Editor/Publisher Natalie G. Rooney, Contributing Writer NewsAccount (ISSN #10899952) is published bimonthly by the Colorado Society of Certified Public Accountants, 7887 E. Belleview Ave., Suite 200, Englewood, CO 80111. NewsAccount is published in January, March, May, July, September, and November and reports information, news, and trends in the accounting profession. The Colorado Society of CPAs assumes no liability for readers’ business decisions in reference to advertisements or other information included in this publication. Membership dues include a $9.90 one-year subscription to NewsAccount. Periodical postage paid in Denver, CO, and additional mailing offices. POSTMASTER: Send address changes to NewsAccount, Colorado Society of Certified Public Accountants 7887 E. Belleview Ave., Suite 200 Englewood, CO 80111 Net press run = 8,550 copies; sales through dealers and carriers, street vendors, and counter sales = 0; paid or requested mail subscription = 8,450; free distribution by mail = 50; free distribution outside the mail = 0; total free distribution = 50; total distribution = 8,500; office use, leftovers, spoiled = 350; returns from news agents = 0; total sum = 8,850; percent paid and/or requested circulation = 99%.
303-773-2877 • 800-523-9082 Fax: 303-773-6344 • cpa-staff@cocpa.org
NewsAccount is available online at www.cocpa.org.
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• NewsAccount • Jan/Feb 2015
Working Together to Enhance Audit Quality BY SHEILA M. BALZER, CPA
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he CPA profession is facing a challenging issue: audit quality. The AICPA published a discussion paper on the subject last summer, and we spent a considerable amount of time discussing this important topic at the AICPA Fall Council meeting last October. Your Board of Directors has spent time on it, too — including offering comments to the AICPA. Whether you’ve heard about the importance of enhancing audit quality and the potential transformation of the Peer Review Program or not, consider yourself forewarned. Change is coming. A little background: Problems have arisen in recent years with audit quality, especially in the specialized area of audits of employee benefit plans subject to the Employee Retirement Income Security Act (ERISA). The Peer Review Program has noted firms’ quality issues related to these engagements. In addition, every so often, the U.S. Department of Labor (DOL) studies the audit reports it receives. Its next report is due in 2015. Similar to the Peer Review Program’s findings, previous DOL reports found quality issues. That’s why the AICPA Council authorized establishment of the Employee Benefit Plan Audit Quality Center (EBPAQC) in fall, 2003, to help CPAs meet the challenges of performing quality audits in this unique and complex area. The EBPAQC is a firm-based, voluntary membership center for firms that perform or are interested in performing ERISA employee benefit plan audits.
Subsequently, in 2004, the AICPA established the Governmental Audit Quality Center for CPAs and CPA firms working in the governmental audit arena. Yet, even with these valuable resources available to us for a decade, the rapid pace of change and ever-increasing complexity make it ever more challenging to perform high quality financial statement audits of private entities. In the current environment, “private entities” refers to all non-SEC registrants, including but not limited to not-for-profit organizations, employee benefit plans, and governmental entities. Of course, audit quality is important for publicly held companies, too. The Center for Audit Quality (the CAQ, founded in 2007) focuses on serving investors, public company auditors, and the markets, and is “dedicated to enhancing investor confidence and public trust…by fostering high quality performance by public
company auditors,” among its key initiatives. Back to the major concern before us in the audit process of private entities. Our profession prides itself on self-regulation. And we’d like to stay that way. What has to change? The AICPA is taking aggressive steps to address audit quality issues through a two-phase approach. In the near term, the AICPA is working to: • Strengthen the peer review process • Revisit standards • Create additional guidance and tools • Reinforce the Code Professional Ethics
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In the long term, the AICPA is working to transform the current peer review program into a practice monitoring process that “marries technology with human oversight and makes a closer, more real-time connection among a firm’s accounting and auditing engagements, the AICPA, and those performing the practice monitoring” (Enhancing Audit Quality: Plans and Perspectives for the U.S. CPA Profession). The result: earlier detection of quality issues instead of once every three years and after the fact. Some of the solutions being discussed are controversial. Some CPAs lean toward remedial action. Others lean toward total disciplinary action — something very different from what our profession has done before. The bottom line in the employee benefit plan audit area is this: It is a high risk, compliance-specific area, and CPAs who aren’t well-versed in conducting these audits are more likely to have engagement quality issues. Many CPAs do
these audits right. But all CPAs need to do them right. Part of the solution lies in getting back to the basics — knowing that when we begin work with a client we have the expertise to do so. Quality control systems need to be in place all the time — not just every three years when peer review rolls around. Other ideas in the AICPA discussion paper include enhancing the skills of peer reviewers, changing the frequency of peer review — especially in high risk areas of practice — and requiring certification to practice in high risk areas. At the 2014 AICPA Fall Council meeting, the Ohio Society of CPAs brought forth a resolution in support of the AICPA’s efforts and urging greater transparency by requiring peer review reports to be made public. At our October 2014 COCPA Board of Directors meeting, we supported the Ohio resolution and communicated that stance to the AICPA. We know public access to peer review reports is a sensitive subject. And, those of us who conscientiously follow the standards may ultimately be subject to stricter regulations because of low-volume auditors working in an area where they should not. We don’t, of course, know how this will all shake out, but there are some exciting juxtapositions in the road ahead as the AICPA reviews the comments on its discussion paper and looks for solutions. Our profession is already subject to so much compliance — I get that. I do these audits myself. However, this issue isn’t going to go quietly by the wayside. And, issues are occurring in all audit areas which must be addressed. Let me know what you think. I welcome your comments at sbalzer@hhlbcpas.com. s
NOMINATIONS SOUGHT
Deadline March 20, 2015 Emerging Leaders
Women CPAs who — while still on the path to the highest levels of advancement — have made significant contributions to the profession and their communities, demonstrated leadership, been involved with their alma maters or other local colleges and universities, and/or created and implemented unique initiatives.
Leaders of Note
Women CPAs who have attained leadership positions within their organizations, made major or unique contributions to the profession, participated in public and community service, been published, and not only help to improve their workplaces but also mentor others.
To request a nomination form, contact Terry Cervi at tcervi@cocpa.org.
SAVE THE DATE May 21, 2015 4:30 to 6:30 p.m.
Kevin Taylor's at the Opera House 14th and Curtis St., Denver Jan/Feb 2015 • www.cocpa.org •
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Leadership News
Corder To Become Chair Solomon Tapped For Vice Chair The Nominating Committee, chaired by COCPA immediate past chair Marc C. Hendrikson, presents the following slate for COCPA leadership positions beginning May 1, 2015. The chair and vice chair serve for one year, and the treasurer and directors serve for two years. Watch for the March/April issue of NewsAccount in which you’ll find the biographical information on these nominees. Congratulations to the following officer nominees: Chair Steven R. Corder, Kundinger Corder and Engle PC, Denver, and Vice Chair/Chair-elect Mark T. Solomon, SM Energy Company, Denver. Tawnya R. Ramirez, Charter School Growth Fund, Broomfield, continues as Treasurer. Sheila M. Balzer, Holben Hay Lake Balzer CPAs LLC, Denver, continues on the Board as immediate past chair. COCPA CEO Mary E. Medley is the Board secretary. Directors to begin a two-year term are: Ann E. Hinkins, EKS&H LLLP, Denver, and Dan W. Soukup, Soukup Bush & Associates CPAs PC, Fort Collins. Continuing on the Board are directors Victor A. Amaya, ClearPath Accountants LLC, Littleton; Craig A. Arfsten, Prosperion Financial Advisors, Greenwood Village; Kelly G. Boggs, Reese Henry & Co., Inc., Aspen; and public member Christine Benero, Mile High United Way, Denver. The Board of Directors thanks for their service the following directors who will complete their terms on April 30, 2015: Sharon S. Lassar, University of Denver School of Accountancy, Denver, and Mark J. Smith, M.J. Smith & Associates, Greenwood Village. The Nominating Committee presents the following nominees for
Steven R. Corder
Mark T. Solomon
the Educational Foundation Board of Trustees for a three-year term: Sharon S. Lassar, University of Denver School of Accountancy, Denver; Gina Suzanne Lay, Colorado Mesa University, Grand Junction; and Matthew O. Rolland, Hein & Associates LLP, Denver. Currently serving on the Foundation Board are William C. Sanden, SSA, PC, Colorado Springs (President); Mark T. Solomon, SM Energy Company, Denver (Vice President); Stephanie E. Hernandez, KPMG LLP, Denver (Secretary/Treasurer); David M. Dirks, Metropolitan State University of Denver, Denver (Immediate Past President); Brenda M. Clarke, Seigneur Gustafson LLP, Lakewood; Alicia J. Sweeney, Consultant, Aurora; Geri B. Wink, CSU-Pueblo, Pueblo; Kristine Brands, Regis University, Denver; Amy E. King, The Business Manager, Greenwood Village; Allen W. McConnell, University of Northern Colorado Monfort College of Business, Greeley; and Mary E. Medley. Susan M. Vachereau serves as executive director of the Foundation. s
AICPA News Concept Paper on Practice Monitoring 2025 Released The paper, "Evolving the CPA Profession’s Peer Review Program for the Future: A provocative vision of what practice monitoring could become," explains how practice monitoring could advance quality in accounting, audit, and attest engagements. View the paper at http://community.aicpa.org/futurepractice-monitoring/m/mediagallery/600/ download.aspx. The long-term component of the AICPA’s Enhancing Audit Quality initiative, the concept outlined articulates a process that could deter and prevent quality issues even before an engagement is com-
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• NewsAccount • Jan/Feb 2015
pleted and represents a critical strengthening of the CPA profession’s commitment to quality and the public interest. Exposure drafts will be released when specific proposals or changes to standards are planned. The comment period for the concept paper ends June 15, 2015. Institute Appeals Decision in IRS Lawsuit The AICPA has filed a notice of appeal, seeking review of the U.S. District Court for the District of Columbia’s order dismissing its lawsuit challenging the Internal Revenue Service’s new rule for tax return
preparers. See details at http://tinyurl.com/ AICPA-lawsuit. Revised Code of Conduct Now Effective The AICPA Code of Professional Conduct has been completely updated to allow for quick, easy navigation and now lives on a dynamic online platform. The revised Code is divided into sections specific to the areas in which CPAs work: public practice, business, and other (for CPAs who are retired or unemployed). Visit http://pub. aicpa.org/codeofconduct/Ethics.aspx to explore the new Code.
Educational Foundation of the COCPA
Accounting Students Reap Rewards on Colo. Gives Day BY CAROL CAMERON, CPA, CGMA
When midnight struck, Dec. 9, 2014, over $40,000 had been contributed to the Educational Foundation of the COCPA through Colorado Gives Day — a result with far-reaching benefits to accounting students. The story behind this remarkable success is worth telling, and the people behind it are remarkable, too.
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ometimes you can do a job too well. The Educational Foundation of the COCPA confronted this truth when it came up short of scholarships for nearly half of its highly qualified applicants in 2014. The applicant pool had exploded from 38 the year before to 83, thanks to a concerted effort to reach out across the state and tell accounting students about the scholarship program designed just for them. “The goal of the Foundation was to get the word out to students and faculty that funds were available and encourage additional applications,” recalls William C. “Bill” Sanden, CPA, Foundation Board President, Colorado Springs. Representatives visited Colorado college and university classrooms, Beta Alpha Psi meetings, and Student Nights and enlisted faculty to deliver this message: The CPA profession supports you in your goals, and if you demonstrate that you can do the work, there’s a scholarship waiting for you. In some years, every eligible applicant received a scholarship. But in 2014, the applications came pouring in, and the demand for scholarships far exceeded supply. It was time to focus on raising more scholarship dollars.
Colorado Gives Day The timing was right for a campaign in connection with Colorado Gives Day, an initiative to increase philanthropy in Colorado through online giving on a single day in December each year. The Foundation participated in Colorado Gives Day for the first time in 2013 and experienced modest success with $3,500 in donations from 25 donors. It was time to do more. The first step was to seek a donor willing to energize the cam-
paign with a matching grant. Longtime supporter and Foundation Past President Mark J. Smith, CPA, Greenwood Village, came forward with a very generous offer: The Mark J. Smith Family Foundation would match the first $5,000 raised on Colorado Gives Day but only if there were two additional donors willing to do the same.
12.09.14 Out went the appeals. At the 2014 CPAs Make a Difference Celebration, CEO Mary Medley invited others to meet Smith’s challenge. Not just two but four additional donors stepped up, each offering a $5,000 match: EKS&H LLLP, RubinBrown Charitable Foundation, Holben Hay Lake Balzer CPAs LLC, and Michael Weatherwax, CPA. Now there was an unprecedented $25,000 on the table, the equivalent of 10 scholarships. But it couldn’t be claimed unless the Foundation raised enough on Colorado Gives Day. The Foundation put out the word about the great work it does for accounting students and the 5-for-1 match opportunity in every medium available: websites, emails, flyers, posters, tweets, Facebook posts, public announcements, and individual contacts.
CPAs Respond On Colorado Gives Day, donation reports for participating nonprofits are updated online every ten minutes. COCPA staff monitored the website and watched in amazement as the Foundation’s contribution total kept growing, the balance increasing nearly every ten minutes. By the end of the day, 109 donors had given just over $40,000 to the Educational Foundation.
Considering that the Foundation grants about $85,000 in scholarships annually, the $40,000 raised on Colorado Gives Day represents the ability to grant almost half again as many scholarships to worthy students. A success by any measure. “I am so impressed with the generosity of our community. It's exciting to see established professionals and firms giving back by supporting the next generation of CPAs,” exults Foundation Treasurer Stephanie Hernandez, CPA, Manager, University Relations and Recruiting for KPMG LLP, Denver. “It is such a gift to be able to provide so many scholarships to future Colorado CPAs!” Hernandez cites a finding in the AICPA’s 2013 Trends Report that demand for hiring newly graduated CPA candidates is at an all-time high. She adds, “It is critical that students interested in pursuing accounting as a profession are able to obtain the necessary education despite the rising costs.” Why do donors choose to give to the Foundation? William R. “Bill” Ruesch, CPA, Greeley, says he was “…giving back for the scholarship I received from the Foundation 50 years ago. It gave me a big head start to fulfill my ambition to be a CPA. It seems to be more difficult for students today to fund their college education because of the tremendous increase in costs. The scholarships are probably even more important today, and I couldn’t pass up the opportunity to cash in on the 5-for-1 match.” Summing up the experience, Sanden notes, “It was rewarding to see many more members contributing this year. We especially are thankful to the challenge donors for priming the pump and making Colorado Gives Day a huge success for the Foundation. We look forward to doing it again next year!" You don't have to wait though. Donations can be made year round at www.coloradogives.org/EFColoradoSocietyCPAs/ overview.s Jan/Feb 2015 • www.cocpa.org •
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CPAS MAKE A DIFFERENCE Nov. 6, 2014, 1) New CPAs walked the line to be recognized; 2) Gaylen R. Hansen, CPA/ABV, received the Distinguished Service Award; 3) four Everyday Heroes and a Heroine were honored for their community service; 4) COCPA Chair Sheila M. Balzer, CPA, CGMA, shared the evening with her CPA husband, Chris, and 350 guests; 5) Trevor Jessup, CPA, helped keynote speaker Craig Zablocki deliver his message of choosing joy; and 6) William M. Holben, CPA, and friends played along. It was a night to remember.
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Colorado General Assembly
CPA/PAC Support Hits the Mark Every two years, the CPA Political Action Committee (CPA/ PAC) supports Colorado state legislative candidates through campaign contributions. This election cycle, which culminated with the November 2014 general election, the CPA/ PAC Board contributed $7,500 to 26 Colorado House and Senate races, supporting both Republicans and Democrats. Of the candidates who received contributions, 22 won for a success rate of 85% overall, with a 50% success rate in the Senate and a 95% success rate in the House. On the Senate side, CPA/PAC supported six candidates, three of whom won: Republican David Balmer, along with Democrats Cheri Jahn (former public member of the COCPA Board of Directors) and Andy Kerr. On the House side, CPA/PAC supported 20 candidates, 19 of whom won: Republicans Dan Nordberg, Jon Keyser, Jack Tate, Kathleen Conti, Polly Lawrence, Patrick Neville, Clarice
Navarro-Ratzlaff, J. Paul Brown, and Timothy Dore, along with Democrats Dickey Lee Hullinghorst, Dan Pabon, Angela Williams, Beth McCann, Paul Rosenthal, Pete Lee, Tracy Kraft-Tharp, Su Ryden, Max Tyler, and Dave Young. In selecting those it supported financially, the CPA/PAC Board considered each candidate’s support of business issues; prior involvement with and understanding of the accounting profession’s issues; leadership position; member, chair, or vice chair of the House Business, Labor, Economic, and Workforce Development and Finance committees or Senate Business, Labor, and Technology and Finance committees (which typically consider proposed legislation affecting CPAs); and relationship with CPAs. For more information, contact Mary E. Medley, mmedley@cocpa.org, 303-741-8601, or 800-523-9082, ext. 101. s
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Buying and Selling
Merger or Acquisition on the Horizon? Tips for a Successful Outcome BY NATALIE ROONEY
Sometimes you have a lot of time to plan out a business deal. And sometimes you don’t, as one COCPA member found out when she helped close a deal in less than a month...
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ast Oct. 31, Lora L. Finley, CPA, CGMA, and a CFO, finalized the documents which helped her company close a deal for sale of the company’s assets — a deal that was inked on Sept. 24, a mere 38 days prior. Finley, who works out of the company’s Highlands Ranch office, says she went into overdrive to get the deal done on time. Her team of two — herself and her controller, who mostly focused on the company’s day-to-day operations — learned a lot during the short, accelerated process. Finley’s company provides commercial real estate advisory services, helping property developers and investors access capital for the purchase and development of commercial real estate. Established in
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• NewsAccount • Jan/Feb 2015
1987, the firm at its peak had over 20 offices across the U.S. and 100 employees. The acquiring company had originally begun its due diligence in August 2013 but chose not to proceed as it was in the process of going public. After a successful public offering, the company was looking again to grow by adding businesses that complemented its services. Finley’s company was such a business, and talks began again in August 2014. The two restarted the due diligence process, but this time at a rapid pace. The sale consisted of a portfolio of 80 FHA loans, 60 employees, and three leases (out of 11). Finley met with the acquiring company’s team of people from legal, HR, IT, accounting, and finance. “On our side, I was it.” The president was also involved, however he focused on the production side, making sure the employees were content, and that they signed their new employment agreements. Finley handled the review of the purchase agreement and the creation of all the accompanying disclosure schedules that went along with it, which turned out to be a 75-page document in and of itself, and was continuously updated until the day before closing. The company as an entity is still intact. With leases to sublet, a final audit to prepare for, and tax returns to be completed, Finley estimates it will take her into February 2015 to wind down the entity. In addition, Finley and her controller continue to assist during the transition period to make sure all offices transition properly to the acquiring company and expenses continue to be paid until the acquiring company gets all the expenses and services in order and under its control. The process for all these steps is handled through the transition service agreement which states which services the acquiring company will assume and by when. Finley says this type of document needs to be created and completed prior to closing. Having undergone this fast-track process, Finley offers these tips for a corporate merger or acquisition: Communicate. Meet with your management team, and let everyone know what’s happening from the beginning. Keeping people up to speed will help you keep them on board and on track. Also, communicate the sale early to your tax and financial accountant as well as your attorney. Focus. Don’t do too much at once. Focus on getting the schedules for the sale completed. After the close, you can focus on the issues that will need your attention such as subleasing any offices not being acquired or terminating current services. Some of these issues will be covered in the transition services agreement. “Try to do both at once, and you’ll go crazy,” Finley says. Organize. As soon as you know you’re facing a merger or acquisition, start a data room. Contract with a company, and upload as
many of the organization’s files, tax returns, leases, services agreements, etc., as possible. The acquiring company is going to want to see all organizational documents with all amendments. Finley’s situation was complex because originally the company was four separate entities with mixed ownership that eventually simplified to one owner of three entities. “We had to provide the progress of those documents being updated, revised, and amended,” she says. If you don’t have all your leases scanned and saved online, do the work now so they are easy to upload to the data room, she advises. Scan and plan to include major employment agreements if the acquiring company is looking to hire your employees. “In our situation, the company wanted to see all the service agreements for all the services that were provided to determine if it would assume those services or not.” Also, make sure all of your Certificates of Good Standing are updated within 30 days of the sale for all the states in which you do business. Loosen up on the purse strings. “When you’re a small business, you’re always conscious of money, and try to spend as little as you can,” Finley says. “In this process, that goes out the window.” Hire attorneys, and don’t wait too long before bringing them on board. In addition, bring on additional finance help when necessary. She hired an accounting consultant at her level to help get things done. “Use your attorney to help you prepare the schedules as much as possible,”
she advises. “There were many late nights with me providing information and her updating in the proper format. Don’t worry about what you are spending at that point, or you’ll miss your deadline by running too lean.” Have a good relationship with an investment banker. Having an investment banker to turn to for help is vital. Whether assisting in creating schedules, bouncing ideas, helping you understand LORA L. FINLEY terms, or working through negotiations between you and the buyer, “the investment banker has been through this before. Leverage that knowledge,” Finley says. “Such a person can help clarify any questions you have, sort things out, and get answers while you continue working. It’s much easier if you have a good working relationship.” Stay on track. Work off your checklist, and don’t worry about what needs to be done post-closing. Finley says the 30-day timeframe she faced was extremely short. “It usually takes longer than 30 days, and you usually have a team working for you while you manage the process. If you don’t have this luxury, stay focused and positive.” s
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Business Strategy
Why Women Make Great Leaders Leadership isn’t about men versus women. And this article isn’t about why women are great leaders and men are not. Rather, it’s about taking a look at what women bring to the leadership table — and why they should be there. BY NATALIE ROONEY
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ore women are in the workforce and in leadership positions than ever before. But statistically, only five percent of Fortune 500 companies are currently led by women. While the success of some women at the top — Facebook’s Cheryl Sandberg, GM’s Mary Barra, and HP’s Meg Whitman to name a few — is creating new role models, women are still underrepresented in leadership roles. Christine Benero, president and CEO of Mile High United Way and COCPA Board of Directors public member, says that although men and women manage and lead very differently, both are capable of being excellent leaders. Yet when you look at the demographics of boards and CEOs, “Women just aren’t represented,” Benero says. Lorrie B. Tietze, founder and owner of Interface Consulting, Castle Pines, and facilitator of the COCPA’s LeadFit program, says she still sees a questioning of female leaders that doesn’t happen with male leaders. “I still hear, ‘she’s too emotional, or will she be able to do this with her family commitments?’” Tietze says, “Women have to overcome the unconscious sexism because it still rents space in people’s minds when doing promotions.” What’s the answer? Appreciating what makes women different and great additions to any leadership team.
Tietze describes this collaborative style as the sustainability concept. She describes a female client as committed to building capability within her team and taking a long view of the results. “She believes investing in her team from a human skills standpoint will benefit her in both the short and long term. It’s that concept of ‘We’re all in the boat together, but I’m the only one rowing. What capability do I need to build in the team so that we all row?’ Women have a deep appreciation for what relationships can really drive and bring in terms of results.”
Natural Collaborators
Excellent Listeners
Women are natural collaborators who have an inherent nurturing instinct. Traditionally, people think of nurturing as relating to children and family, but it's necessary in business, especially when working in teams. Women tend to lead versus command and are concerned with helping everyone feel important. They manage by embracing teamwork and building solid professional relationships. “Leadership must be collaborative, collective, and based in service,” says Benero. “With this, you can go so far — and it has nothing to do with giving up authority or voice. The traditional hierarchical model doesn’t work for the complexities we face now.”
Listening is just as important as talking to communicate with and influence others. When you’re building a culture or team, or taking on a new business challenge, you need the ability to truly listen, understand, and then engage in a conversation to build a collaborative response. “These characteristics aren’t unique to women,” says Benero, “but they tend to be hallmarks of women leaders. Today, we tend not to hear people with different opinions. It’s OK to disagree, but we need to respect and value others even though we have different opinions. If we can’t engage in a dialogue, communities, businesses, and the whole country are in trouble.”
Strong Communicators Women tend to communicate with employees at all levels of an organization, regardless of their title or pay grade. This behavior helps employees feel included and less isolated. Tietze says to her, communication has to do with how the brain is structured and information is processed. Women tend to be external processors, while men process internally. “Many men want to go away and think about the situation — and there’s nothing wrong with that,” she says. “Many women want to give the context and background information. It isn’t good or bad; it’s just different.”
Knowing It All Mistakes happen. Studies show that women are more likely to admit when they’ve made a mistake. By being straightforward and forthcoming about accepting responsibility where it rightfully belongs, they earn the trust and loyalty of their employees and/or board. Benero says a culture based on hierarchy isn’t going to cut it in today’s business environment, which is all about collective collaboration and shared accountability versus sole accountability. “It’s about a culture that in no way gives up authority and responsibility, but both can be truly shared,” she explains. “Having a title after your name doesn’t necessarily connote a leader. A leader advances the common good.” Benero says that can mean admitting to not knowing all of the answers, knowing enough to surround yourself with the people who do, and not feeling threatened. “I think the greatest leaders recognize these things,” she says. “I’m proud to be a CEO and president. What makes me good is my team of people surrounding me. I listen, and they make me better. That makes me more successful.”
Flexible Men tend to think linearly, and women tend to think contextually. This means that women have the ability to consider multiple options to problem-solve and arrive at a broadly analyzed solution. Tietze tries to avoid stereotypes, but she acknowledges that women generally tend to behave one way, while men tend to behave another. “Women tend to be more concerned about how the work gets done, not just that it gets done,” she explains. “Women are generally more committed to finding a solution to the problem, not just to the symptom.”
Changing Perceptions The third annual Ketchum Leadership Communication Monitor tracked responses from more than 6,500 individuals around
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Business Strategy
Leadership | Continued from 11 the world, examining perceptions of leaders in business, politics, community, non-profit, and union or organized labor organizations. In a decided directional shift, female leaders around the world bested their male counterparts in most of the areas measured. The research focused on seven key traits of effective leadership, with women in leadership pulling ahead in five of those areas. In the top four—“leading by example,” “communicating in an open and transparent way,” “admitting mistakes,” and “bringing out the best in others,”—more than half of respondents said that women leaders performed better than men. A fifth metric—“handling controversial issues or crises calmly and confidently”—placed males and females at 48% and 52% respectively. “Communication, collaboration, and true transparency all rated much higher for women leaders. That’s different from what worked in the past,” noted Barri Rafferty,
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Ketchum CEO, North America. Both Benero and Tietze emphasize that leadership styles are about addressing differences, not choosing what style is right or wrong, better or worse. Women’s skills are different from men’s, and when they work together, they create a balanced leadership that benefits the entire organization. Ultimately, what’s important is for women to have a place at the table, which can be hard to achieve. “There are unique challenges around the perception of women
in leadership roles, and those challenges can be good, bad, or indifferent,” Benero says. “The ‘Oh great, she’s a woman. Everything will be fixed’ is as bad as ‘She won’t get anything done.’” “The world is a complex place, and so is our business environment. No single leadership style is the answer for all people,” Benero says. “We are so far beyond that. Women bring great value. This isn’t saying women are better than men. It’s just saying, let us join you at the table.” s
Practice Management
Will Hourly Billing Ever Die? BY NATALIE ROONEY
In 1919, the legal profession began billing clients by the hour, and accounting soon followed suit. Certainly, the world has changed a little since 1919 — handheld calculators, credit cards, computers, the moon landing, and cell phones…You get the idea. So why, ask some, are we still pricing professional services as if it were 1919?
Last Century’s Model Ron Baker, CPA, founder of VeraSage Institute, says the question, “Has the world changed since 1919?” is one of his favorites. “We’re running a business model that’s coming up on its one hundred year anniversary,” he notes. Baker, an author and expert speaker on the topic of value pricing, says he learned quickly when he started his own firm that clients didn’t like hourly billing. It was all about the uncertainty. “We want to know the price of something before we buy. Period. It’s that simple. There is nothing we purchase that we don’t know the price of ahead of time. The only exception is professions that charge by the hour.” After studying the business models of customer service giants like Nordstrom, Disney, Amazon, and the Ritz-Carlton, Baker says he realized the billable hour is “a terrible customer experience. Forget the
arguments about why you need to bill by the hour. Insurance actuaries price risk. Why can’t CPAs do that?” In 1989, Baker began experimenting with fixed price agreements. He discovered his clients loved the approach. “They said, ‘It’s about time. I hate it that every time I call you the clock runs, or that when I meet with you, I don’t know how much I’m going to pay,’” Baker recalls. “I started structuring my payment terms around their cash flow, not my work flow, and they loved that. They have budgets, and they have certainty about what something is going to cost. We fail as professionals if we can’t give them certainty.”
Changing Your Mindset Baker talks about the difference between hiring someone to do a task versus hiring someone to produce an outcome. A professional has to take responsibility for produc-
ing an outcome, not completing a series of tasks. “I can hire a day laborer to do tasks,” he says. “But I pay a professional — a doctor, a lawyer, a CPA — to bring me an outcome. It might not be a rosy outcome, but the professional is supposed to be there to get me to the best outcome humanly possible.” Baker says his own transition to fixed pricing wasn’t always smooth. In fact, he almost went back to hourly billing. In the end, he stuck with it and says his firm became more profitable in the long run because he was looking at the outcome, which was adding value for his clients. Ultimately, his efforts with fixed pricing were so successful that in 1995, he started teaching courses on it for the California Society of CPAs. In 1998, he wrote his first book on the topic which went through six editions, sold 40,000 copies, and is now out of print. His most up-to-date title, Implementing Value Pricing: A Radical Business Model for Professional Firms, is available on Amazon.
Getting the Terminology Right Baker says people often use the terms fixed or value pricing and value billing interchangeably, but this is incorrect. Billing takes place in arrears. Pricing takes place up front, before the work is started, and because we know the price before we buy. In fact, Baker actually prefers the terminology ‘fixed price agreement’ because everyone’s definition of value could be different. Fixed price agreement implies certainty in price, and “...the customer will never be surprised,” Baker says. People told Baker he was nuts — they still do, in fact — when he switched to the fixed pricing model. He also got rid of timesheets, which he says “keeps us mired in the mentality that we sell time. Timesheets also keep us mired in the task mentality —
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Practice Management
Pricing | Continued from 13 six minute tasks versus the outcome.” He points out that no other private sector company keeps timesheets. “Their employees are responsible and accountable for producing results. We’re the anomaly,” he says. Baker has a term for the concept that the billable hour should stick around just because that’s the way it has always been done: satisficing — the combination of ‘‘satisfy’ and ‘‘suffice’ that leads to an acceptable solution. Not the best solution, just an acceptable one. “The billable hour has been around, people understand it, and they think it’s good enough,” he says. “Unlearning is harder than learning, and people are lethargic about trying something new. How long will it take us?” he ponders. “I don’t think this change will happen in my lifetime. Changing a paradigm for a profession is very, very slow, and accountants are like lawyers. They’re precedent-based. They watch to see if it’s safe.”
The firm needed to raise its rates, but Warden and her team were reluctant to do so in the post-recession economy. Instead, they decided to focus on reducing expenses. The whole billing process had become burdensome, as well. The firm administrator was spending six days a month on billing and chasing down payments. In addition, credit card fees were eating into revenue. Warden and her team looked at their work on an annualized basis before talking to their clients about moving to a fixed rate.
Testing the Water
In the end, the fixed rate, prepaid by ACH pull, was their choice. “Instead of creating an hourly bill which detailed everything and had to be proofread to make sure everything was documented correctly and showed value, we replaced the bill with the line, ‘monthly services per agreement.’ It simplified our billing tremendously,” Warden says.
It’s clear there’s a lot of interest in the fixed pricing concept, even though studies show 86 percent of firms still bill by the hour. Debbi C. Warden, CPA, CGMA, founder of The Business Manager in Greenwood Village, decided to make the switch to fixed pricing several years ago. Now her video, Saying Goodbye to the Billable Hour, is one of the most popular video clips on the Journal of Accountancy’s website. View it at http:// bcove.me/a487mbgj. “This topic is so hot,” Warden says. “It says a lot about the profession and where it is right now.” Warden’s firm was billing bi-weekly prior to the switch in pricing structure. “It felt like every other week we were putting dollar signs in front of our clients,” she says. “Accounting is a relationship business. We’re deep into clients’ financial information. We didn’t want dollar signs interfering with those relationships.”
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Client-Driven Changes For Brian Amann, CPA, CGMA, founder and CEO of TaxOps, the switch to fixed pricing came about because a client demanded it. Having attended one of Ron Baker’s seminars, Amann had some insight into the concept. Because this client was significant to the practice, Amann says the firm was forced to look at the project in a different way and ask what the real client objectives were. What did the client want to achieve?
“The client buys results,” he says. “This process made us focus more on innovation, being more efficient, and spending a lot more time on planning and project management. Those are all good behaviors that bring better results for the client and the firm.” The success with that client meant the fixed pricing concept was an easier sell to the rest of the firm, and implementation began for other projects. Amann says they still get pushback, emphasizing that it’s easy to get new ideas in, but difficult to get old ideas out. “It’s hard to get practitioners out of the cost-based mindset,” he says. “When you have a number in mind, it taints your thought process as to what the price should be.” Amann recommends evaluating the pricing decision independent of the “cost to serve.” The benefits Amann has seen at TaxOps have been huge. The firm has grown six-fold in a four-year period, and Amann says a lot of that was driven by the pricing strategy. “We saw existing client fees go up by bundling value-added services into our offering. And, those clients are happier with what they’re getting.” In addition, he says there are increased efficiencies. “When you have an incentive to be more efficient, there is more focus on innovation, use of technology, and project management. In an hourly world, chaos is rewarded. Not so in a fixed fee world,” he observes. After the transition, Amann surveyed clients who said one of the best parts about their arrangement with TaxOps was the pricing. “Fee negotiations are difficult,” Amann says. “No one likes surprises. You put that behind you and focus on results. Amann believes that fixed pricing significantly enhances communication, too. “If clients are expecting an invoice every time they call, eventually the calls stop or they second guess if they need you. I’d rather have them pick up the phone.”
Warden also saw client relationships improve when the firm stopped focusing on payment due. “Anytime a professional services firm has to ask a client to pay what’s due, you’re not enhancing that relationship,” she says. “It’s time to change how we do this. Just because we’ve done it a certain way, always billing after the fact, doesn’t mean we can’t educate our clients to prepay.” That education process is where Warden says the firm experienced a few bumps in the road. Now, new clients are told up front how pricing works. “It’s a no brainer,” she says. “We talk about the fees, how they’re calculated, and the flat rate. When you have a good discussion at the beginning and explain there will be no surprises, there’s a comfort level for people. They sign on, and off we go.” Warden experienced a few challenges with existing clients who were suspicious that the change hid a price increase. But overall, she is thrilled with the results. “It’s a great relationship driver as long as you communicate well with your clients,” she says. “There is more value when you pay and then get the product versus getting it and then paying.”
Making the Transition Baker says there’s no set timeframe for transitioning to a fixed pricing model and recommends moving at a pace that’s comfortable for you. “This is a customercentric, not service-centric, transition,” he says. “Do it one client at a time. You should have conversations with each client, which takes time.” He suggests having each partner speak with a set number of clients over a set timeframe to successfully transition. Warden says when her firm began discussing the concept internally, everyone was on board from the start. “It just made sense,”
she says. “You roll your eyes, and ask yourself, ‘Why did it take me so long to have this thought?’” After trying to implement the new approach with all clients simultaneously, Warden echoes Baker’s sentiments about making the switch gradually. She recently spoke with a tax CPA who was thinking about moving to fixed pricing for this tax season. She advised him to look at his client base, identify those who would be easier to
move, and do that group this year. Next year he could focus on implementing the changes with remaining clients. “For those who fall away, you’re okay because you know you’ve seen the benefit to you and the relationship,” she says. Amann says while his firm’s experience went well, the process isn’t easy. “Billing by the hour is the easy answer,” he says. “Fixed pricing is a constant thought process. Figuring out the fee comes down to really understanding your clients’ needs and expectations. And sometimes they don’t know. Communication skills are critical to that process. As partners or a group of people involved with business development and pricing, you have to be constantly challenging each other to do things differently.” “Anyone who says customers don’t like this isn’t communicating it right,” Baker asserts. “You need to convey what’s in it for them.” What’s in it for them is a fixed price, no surprises, unlimited access, and the
offer to call or meet at any time. There are change orders for something out of scope. “Clients love it. It’s like having their lawyer on retainer. The clock isn’t constantly ticking,” Baker says. Baker also strongly suggests offering a value guarantee: If you’re not satisfied, only pay what you think it’s worth. “An extraordinary guarantee, like FedEx’s, reduces the uncertainty,” he says. The AICPA Management of an Accounting Practice survey shows that 35 percent of CPA firms say they “value price.” Baker takes issue with that number. “They’re really just fixing an hourly rate,” he says. “Value pricing starts with the value to the customer and working backwards to price, then costs. It’s set in terms of value to the customer.” Baker estimates only 7 to 10 percent of firms do true value pricing. His real measure of firms who implement value pricing correctly is whether or not they eliminate timesheets as well as the billable hour. “If you still have timesheets, you’re not a firm of the future,” he says. “Knowledge workers don’t fill out timesheets. The only place time matters is in prison. It’s insulting and not worthy of a proud profession.” TaxOps is a perfect example of finding success after ditching the timesheet. The firm has been one of Accounting Today’s best firms to work for three years in a row, twice taking the number one spot. “We don’t do timesheets, and we don’t hold people to the metrics that are typical in the profession. We hold them accountable to the results they’re achieving,” Amann says. “The world has changed dramatically just in the last ten years, and we’re stuck in this nineteenth century mindset that CPAs sell time,” Baker adds. “You buy the results created. That’s what value pricing allows firms to do — focus on results, not the hours it takes to accomplish those results.” s Jan/Feb 2015 • www.cocpa.org •
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Accounting Standards
Revenue Recognition: The Resources You Need
O
n May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 201409, Revenue from Contracts with Customers. The new standard eliminates the transaction- and industry-specific revenue recognition guidance in current U.S. GAAP and replaces it with a principlebased approach for determining revenue recognition. It applies to all entities. And, it has the potential to affect every entity’s day-today accounting and, possibly, the way business is executed through contracts with customers. The core principle of the new standard is to “recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” Public entities are required to adopt the new standard for annual and interim periods beginning after Dec. 15, 2016 — an effective date of Jan. 1, 2017 for companies with a Dec. 31 year-end. Nonpublic entities are required to adopt the new standard for annual and interim periods beginning after Dec. 15, 2017 — an effective date of Jan. 1, 2018 for companies with a Dec. 31 year-end. Alternatively, nonpublic companies may choose accelerated adoption, with the same timing as public companies. Note that the new standard is required to be applied retrospectively, or an entity may elect an alternative transition option as outlined in the standard. For example, if a public company elects full retrospective adoption, revenue for all contracts must be restated for 2015 and 2016 to show comparative financial statements with a cumulative adjustment as of Jan. 1, 2015. This means dual reporting would need to start this year. The AICPA has developed the following resources for understanding and implementing the new ASU. To access these resources, go to www.aicpa.org/revenuerecognition. Financial Reporting Brief: Tax Effects of ASU 2014-09: This brief examines the tax consequences that could result from the new standard’s impact on almost every company — public, private, and not-for-profit. Financial Reporting Brief: Roadmap to Understanding the New Revenue Recognition Standards: This brief reorganizes the guidance contained in FASB ASC 606 (revenue recognition standard) to follow the five-step revenue recognition model along with other guidance affected by this standard. Additionally, it highlights differences between FASB ASC 606 and IFRS 15, and provides reference to applicable examples in the implementation guidance. New Revenue Recognition Accounting Standard — Learning and Implementation Plan: Use this roadmap to ensure that your company as well as management and staff do the following: • Understand the changes to current GAAP based on FASB ASU 2014-09, Revenue from Contracts with Customers. • Understand transition and retrospective adoption of the revenue recognition standard, and determine how your company will adopt the new guidance.
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• Find resources to help train your professional staff to ensure effective and efficient implementation of the revenue recognition standard. • Educate users about the changes they can expect in your company’s financial statements. Revenue Recognition Primer for Audit Committees: Because the revenue recognition standard will eliminate the transaction- and industry-specific revenue recognition guidance included in current GAAP and replace it with a principle-based approach, audit committees need to understand the standard and how it may impact the entity’s revenue recognition. This document will assist audit committees in ensuring the entity is prepared to adopt the standard. The AICPA has formed the following 16 industry task forces to help develop a new Accounting Guide on Revenue Recognition that will provide helpful hints and illustrative examples for how to apply the new standard: Aerospace and Defense, Airlines, Asset Management, Broker-Dealers, Construction Contractors, Depository Institutions, Gaming, Health Care, Hospitality, Insurance, Not-for-Profit, Oil and Gas, Power and Utility, Software, Telecommunications, and Timeshare. s
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Wine Tasting & Networking The Member Connections Committee invites you to an evening of networking and wine sampling accompanied by gourmet appetizers. You pick 5 of the Wild Women Winery's personal wines to taste and also receive a full glass of your favorite. Wine tours will be conducted throughout the evening. Friends and coworkers are welcome. Reserve your spot at www.cocpa.org.
Thursday, Jan. 22, 2015 5:30 - 7:30 pm D'Vine Wine Denver Home Of Wild Women Wines 1660 Champa St, Denver
Movers & Shakers Marc C. Hendrikson, CPA, CGMA, CCIFP, joined Centennial Bank, Denver, as Senior Vice President–Downtown Denver, 720-873-3754. Ron L. Seigneur, MBA, CPA/ABV, Seigneur Gustafson LLP, Lakewood, was admitted as a charter member of the American Academy of Matrimonial Lawyers (AAML) Foundations's Forensic and Business Valuation Division. Eleanor Williams, CPA, joined the Denver office of Grant Thornton LLP. Richey May & Co. promoted Kalen Richey, CPA, to tax manager; Kathryn Martz to audit supervisor; Quan Le, CPA, to audit supervisor; and Kurt Blohm, CPA, to senior manager of advisory services. Mark W. Plantz, Dalby, Wendland & Co., P.C., Montrose, passed the CPA examination. Suzanne Clark, CPA, P.C., Glendale, is changing its name to Clark & Stelloh, CPAs, P.C. Julia M. Stelloh, CPA, has joined Suzanne Clark, CPA/PFS, in practice.
Classifieds Opportunities Available Tax Accountant. CPA firm in Boulder, Colorado, seeking experienced tax accountant to prepare income tax returns for individuals, corporations, and partnerships. Candidate must have at least 7 years experience with all aspects of tax preparation. Must be comfortable with QuickBooks, Excel, and Word. CPA, MT, or EA preferred. This is a full-time position and includes health benefits and a retirement plan with a company match. We are a growing firm with 10 professionals and a long-time presence in the Boulder-Denver community. Please send resume, references, and tax software experience to BoulderCPAResumes@gmail.com Office Space Available Offices for Rent. 16 Inverness Place East, Englewood. 2,000 SF Suite with conference room at $13.50/SF Gross. OR 5 Individual Offices at $450/mo. each Gross. Call Steve Letman, 303-961-2958. steve@consultus.biz. Practices for Sale, Purchase, or Merger Fred Mehring, Select Business Group, Inc., specializes in the sale, merger, and acquisition of accounting and tax practices. Over 25 years of experience. Confidentiality stressed! Call Fred Mehring at 303-771-3100, fax 303-477-6010, or fmehring@selectbg.com.
Jan/Feb 2015 • www.cocpa.org •
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Advisory Services
Become Indispensable to Your Clients and Grow Your Business CPAs are considered to be among the most trusted financial advisors to both businesses and individuals. A recent CCHGroup study shows that 81% of individual clients perceive their CPA as a valued advisor. But even with these strong indicators, when it comes to advising on personal financial matters, CPAs typically relinquish some or all of this role to non-CPAs. BY CRAIG A. ARFSTEN, CFP
C
PAs have generally been reluctant to offer comprehensive personal financial advice, electing to focus on the more traditional areas of tax, business valuation, audit, etc. The personal financial advice industry has and will continue to experience explosive growth — in fact, this area of the profession is expected to grow by 41 percent by 2016. But CPAs haven’t fully embraced this emerging market opportunity. The good news is that’s been the right decision up to now. The bad news is unless CPAs recognize the changes taking place they will miss out on a tremendous opportunity to expand and continue in their role as the primary financial advisor in their client’s lives. A November 2014 AICPA Personal Financial Planning Section blog post advises, “Avoid becoming a one trick pony advisor. Clients are outgrowing the services of mono-line advisors. If you are simply a specialist in tax or investments, your clients will grow beyond your services.” In addition, the AICPA encourages CPAs to break out of their mold. “Advisors who are willing to address the wide range of issues that come into play and work with their clients and other specialists to serve their needs will be in a great position to be a strong, key resource.”
The Time is Right The saying, “Good things happen to those who wait,” applies to CPAs today. With the help of maturing technologies and a mindset of collaboration, the landscape is now right for CPAs to reassert
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themselves in the role of primary financial advisor while continuing to adhere to the principles of professional conduct that earned them the reputation of most trusted financial advisor. CPAs are the railroads of the financial services industry. In the mid-1800s, the railroad industry gave up its “right of way” to the telegraph companies in exchange for discounted or free service. The telephone companies followed the telegraph companies, which were followed by the cable companies. Imagine if the railroads had known the value of those “rights of way,” they could possibly control the communications industry as we know it today. CPAs have a similar decision to make. When someone acquires or is in the process of growing wealth, the first person contacted is a CPA — not an investment advisor or an estate attorney but a CPA. If the CPA allows these other non-CPAs to assume the role of providing personal financial advice, the CPA gives up that “right of way.” The CPA must choose to become the quarterback or remain just another one of the client’s advisors (a “silo” amidst the other silo advisors). To be fair, this has not been a practical option until now. Until recently, the capability to effectively coordinate a client’s entire financial life was not in place to take on this added responsibility. To move into the primary advisor role requires thinking collaboration instead of in silos and leveraging technology as an enabler of collaboration. And, advises the AICPA, communication is key. Know your strengths. Position yourself as the advisor of choice. You have an
excellent professional reputation, offer high quality professional advice, and possess transferable skills that are diverse and applicable to various client situations. It’s all about the relationship. Deepen and enhance the relationships you have with existing clients who already understand your role as their advisor of choice. You may even need to reposition yourself with existing clients, particularly CFOs or controllers who retain you just for audit work or corporate compliance. Listen to your clients. Competent advisors do their best work when they help their clients voice their concerns about the current financial world they live in. Listen for issues you can help understand and solve.
From Silos to Teams Today silo advisors dominate the personal financial services industry. Examples include business advisors, tax accountants, financial planners, insurance agents, wealth advisors, estate attorneys, etc. Clients don’t like thinking about silos; it makes managing personal finances complicated. When things are complicated, they are hard to understand. Larger firms recognize this need and hire in-house expertise to be shared with their clients. You see this in large accounting firms that create separate departments for wealth management and large wealth management firms which bring on board in-house tax advisors. Until now these capabilities have been exclusive to larger firms with significant resources. While bringing silos in-house has been the logical progression as firms grow, it is
most likely not the long-term solution. Technology has flattened the playing field, allowing smaller firms to compete with larger firms, and giving smaller firms the impression of size by automating functions historically requiring more staff. If you want to be the financial quarterback, you’ll need a team. So how do you put a team together? Today, if you’re a big firm, you hire the team. Otherwise, you limit what you offer or create a referral network. The forward-thinking CPA recognizes that technology now makes it possible to build a multi-disciplined team of financial advisors working collaboratively for the benefit of the client on the client’s financial data stored in the cloud. Since CPAs have the advantage of being the first financial advisor a client connects with, the CPA is also the one most likely to take the lead role and help the cli-
ent build that team of advisors working collaboratively. Technology allows CPAs to be the gatekeeper and the advisor who possesses the entire picture, allowing others to have access to their slice of the client situation. Only the CPA would have the complete picture of their clients’ financial lives. The benefit to the client: The client’s financial life has now been simplified, made understandable, and looked after by a team of experts.
Technology — The Missing Link Today, technology allows several advisors to work collaboratively, using the same client information. That same technology provides the transparency to allow CPAs to watch out for their clients who have assets elsewhere while the client can easily monitor his or her financial affairs
through a personal financial website. Imagine having all of your accounts in one place, updated in real time — with all spending and budget information laid out in a way that is easily understood and all financial documents available 24/7 anywhere, anytime. The CPA is the logical person to bring this new approach to managing personal finances. Those who do not embrace technology for what it can provide run the risk of being the victim of it by those who do. See the March/April NewsAccount for Part Two: How to become the primary financial advisor. s Craig A. Arfsten, CFP, is a financial advisor with Prosperion, located in Greenwood Village, Colo. Contact him at craig.arfsten@lpl.com.
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Management Accounting
Six Tips for Using Data More Wisely BY BRETT KNOWLES
Organizations are collecting more data than ever before and processing it in new ways in an effort to improve their businesses. But often they are not using the data in the right way — if they are using it at all. Eighty-seven per cent of finance professionals say Big Data holds the potential to change the way business is done, according to the CGMA report, From Insight to Impact: Unlocking Opportunities in Big Data. But 86% of those surveyed say their businesses struggle to get valuable information from the data they have. Hurdles to maximizing data’s value include organizational silos, challenges related to data quality, and an inability to work with unfamiliar, non-financial data. Here are six ways to make sure you are collecting the right data and making the most of the data you already possess:
doesn’t try to explain what’s wrong in your organization. In this case, absenteeism is like the “check engine” warning light on your car dashboard. It doesn’t tell you exactly what’s wrong, but it tells you that something is wrong and that you should have it checked. High absenteeism is a good starting-point indicator — one that might prompt an organization to more deeply examine salaries, culture, managers, and so on by doing focus group work and surveys. The best part: Absenteeism data is free.
Consider the broad indicator over the precise measurement.
Many indicators show us general trends happening in our organizations. But often, we spend time and money drilling down too deeply into a problem when it isn’t really necessary. Ask yourself: Do you really need to measure to the fifth decimal? Or will a more general indicator suffice? Take employee satisfaction, for example. Does your company need detailed measurements of pay and benefits compared with those of the competition? Does it need to deeply analyze promotion opportunities offered, or the culture inside the organization, or how good the boss is at motivating and inspiring people — or even the office and business environment itself? You can measure and analyze each of those things, but that could be very expensive. Instead, you could use a broad indicator such as absenteeism. Generally, if a company sees abnormal spikes in absenteeism, it’s a sign of dissatisfaction. From there, you can dig deeper. It may not be because of any one of the factors listed here; it may, in fact, be something as small as a lack of parking. The benefit of that indicator is that it
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The data you gather often needs to be received more quickly than the impacts and the stresses facing your organization.
Data often is more valuable to you if received faster than if precisely accurate. Consider the fast-food drive-through. The cycle time through the drive-through is about three minutes, which means information has to be replenished faster than once every three minutes to be useful to the operations people in that part of the business. On the other hand, the supply chain might work on, say, a one-week cycle. Therefore, the data doesn’t have to be as fast. Supplychain managers don’t need to know what’s happening every minute, but they certainly need to know what’s happening every day or every couple of days, whereas setting up a new store location might take a year. So, even inside the same organization, you may have different needs for how fast the data must be. The point: Data needs to be arriving ahead of the stresses and the risks your organization faces.
Make sure leadership is aligned with strategic priorities and sees the same activities the same way.
You need a way to establish the most important things to be looking for and score your performance accordingly. Imagine, for example, your strategy is focused on growth by entering new markets. When you take a look at performance of activities — such as sales into new market areas or the number of new customers you’ve been able to attract outside of your existing areas — the data should have more value than measures that would be important under a different strategy. Determine your focus based on your organization’s strategy; this will determine whether you look at measures such as the number of customers buying multiple products or the number of repeat customers. Depending on the strategy, consider different measures to ensure alignment on how you look at your organization’s performance. In a multi-location business, this can be a challenge because you might have one newly established business unit that is growing into the market and another unit that has been there for a long time. In that business unit, you’re looking for share of wallet. So, you can even have different strategies inside the same corporate entity. You should have visual triggers when leadership is looking at the data, so they know when they’re stepping over the line from a penetration strategy to a share-of-wallet strategy. Once you’ve determined what the right measures are, be prepared for them to change as your organization changes.
Measures can’t remain the same over time. Think of a new product development cycle. In the early part of that cycle — the product idea creation — you might be looking at things like the number of product ideas. During the next phase, you’ll look for product development indicators such as the time from idea to first prototype. The next phase might be product testing, where the measure needs to change to, say, an approval
rating from a beta test audience. Finally, during product launch, you might look at sales per month. In most cases, the organization already is collecting the data you need; you just need to know how to use it.
You should always be able to find data within your organization that indicate how a process is running, whether you’re looking at the inputs, the transformation activities, or the outputs. The main benefit of using available data is that it doesn’t add costs to your organization. You don’t need more people to gather the information because you’re already gathering it. You don’t need more people to process the information because you’re already processing it. Secondly, it allows you to get your scorecard and dashboard set up quickly. You’re not held ransom for data. In some cases, the signal strength of the data might not be as strong as you would like. The quality of data you need depends on the type of decision at issue. You do not need Six Sigma accuracy for all decisions. For instance, the data you need to extend a marketing program for a month can be less accurate than the data required to terminate an employee or close an office. Using information that already exists creates higher ownership faster. You’ll gain much more acceptance when you begin using indicators that people in the organization already know and respect rather than those you have imposed on them. And because you’re using existing data, your net training cost is significantly lower. It’s often faster, cheaper, and better to start with broad indicators. From there, you can determine whether to investigate further, and, if so, where — and how deeply — to probe next.
it at various heights — from 30,000 feet to ground level. Each altitude level needs its own form of information presentation. Senior management wants to cruise along at that 30,000-foot information altitude, mostly seeing Big Data landscape features: the information equivalent of a mountain range, an ocean, or a city. However, the data should be comprehensive enough for management to spot any digital puffs of smoke coming from fires that need to be put out. A Balanced Scorecard with performance indicators, trends, and information on the data’s strategic importance would be the best tool here. If any one indicator is performing below expectations, management needs to dive into it to understand what’s causing the problem. Once a problem is identified, data presenters and their software must be nimble enough to zoom in to provide a closer look for the appropriate managers. When a problem is spotted, management will want to drop down to 20,000 feet. At this point, the data presenters need to narrow the scope of information and begin providing some operational tools, such as flow charts, to gain an understanding of what’s happening.
Next, data presenters must be able to descend to 10,000 feet and provide diagnostic tools so managers can become more directional in their behavior. This isn’t meant to be eye candy. It should be a detailed, data-intensive dashboard that provides comprehensive information designed to help managers at a tactical level. Finally, at ground level, organizations need analytic tools so management can become prescriptive. These are the spreadsheets and grids that display all forms of detailed data used to assess how the organization is performing individual tasks. There’s a parallel among the levels of the organization. In a good organization, the leadership team should be able to pass this information to the next level down and so forth. s Brett Knowles is the executive partner of pm2, a performance management consulting company based in Canada. Contact him at brett@pm2.ca. Copyright © 2011-2014 American Institute of CPAs. Copyright © 20112014 Chartered Institute of Management Accountants. All rights reserved.
Present the right data in the right way to the right people.
Think of an organization as an airplane that needs to see the business world around Jan/Feb 2015 • www.cocpa.org •
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