How Technology Affects Your Earnings

Source: CPA Practice Management Forum

Technology has made most firms more efficient, but it has not made them more profitable. To prove it, do the following: Calculate the revenue per FTE for the last three years. Compare the results with the increase in your billing rates. If the entire increase in revenue per FTE is the result of increased billing rates, then you may not be leveraging technology to increase earnings.

Most firms still bill for time. But if you spend less time performing a job, you have not necessarily provided less value. When you began using tax preparation software, your cost of preparing returns fell significantly, but you did not charge less for the tax return. You charged for the value of the tax return, not for the time it took to prepare it. You should do the same for other engagements.

In any engagement, the fact that the time accumulated remains the same from one year to the next does not mean the bill should be the same. The amount of the bill should depend on whether the services provided changed. Being more efficient can obscure the fact that you provided more services and more value.

Another problem with increasing efficiency is that the time saved by your people is not always used effectively. The work seems to increase to fill the time available to do the job. This is especially true when efficiencies are created in small increments. The extra time can be used in marketing or other profitable endeavors, but it is difficult to monitor that time when it comes in little by little.

Firms should make an effort to treat their services as products. It is difficult to do, but definitely possible. Standards can be set for most services, allowing for variations in the cost of delivering the service in different circumstances. This will allow you to use fixed fees, which clients prefer to time-billing. The fee is fixed for the service provided and for the deliverables. The fee determination should be in great detail so that change-orders can be identified and incorporated into the final fee.

Billing should be done at lower levels than is customary in most firms. If those who are the principal service providers also do the billing, the billing amounts will increase. These people have more information about the value of the service that does not show up in the time-and-billing system.

From CPA Practice Management Forum, CCH Incorporated, 800-449-8114, May 2005, p. 18.