Pathways to Growth: Time for strategic pruning

Accountants are a busy bunch these days. Rarely have I seen more activity than in recent months. What’s behind the uptick in clients and engagements? Multiple factors including new regulations (government loans and forgiveness), shifting tax deadlines, and the technology demands of pandemic-driven remote work. Additionally, I observe a boost in transactional activity fueled by the release of pent-up investment dollars.

A result of all this is the unfortunate demise of what I like to call “future think” — the ability to focus thoughtfully on strategic growth. Across the country, at firms of all sizes and specialties, I see exhausted practitioners pedaling as fast as they can to get work out the door, a task made even more difficult by a historic national downturn in qualified personnel.

With firms short-staffed, we risk our people and clients getting the short end of the stick. Without the ability to look beyond the day-to-day crush, firms will likely suffer from a lack of planning for what happens after this tsunami subsides.

It’s going to take thoughtful discipline to consider proven solutions, like amping up the approaches in the HR function, reconsidering offshoring, and adopting tech-based alternatives. These include bots and machine learning that can relieve the crush by performing predictable and repetitive tasks. Getting from here to there can seem a formidable task.

Consider strategic shearing

Our current public accounting environment is complex, and there’s no quick fix in sight. However, some firms are discovering the value of careful client pruning. Traditionally, a firm’s client list has been considered sacrosanct, especially when partners are remunerated on revenue in their own book of business. This brings into focus the additional need to review the compensation plan and protect partners who are making the right strategic moves.

I have not been a proponent of A, B, C and D client ranking because of its limited success. One chief reason is the subjective nature of the process. There’s your best rainmaker’s Aunt Sally who needs an hour or two of help with her tax return every year, and a partner’s former neighbor who’s starting a business on a shoestring budget. The exceptions abound, and the client base is relatively unchanged.

I walked into the kitchen recently and observed a houseplant that’s been around for a few years. It’s gotten large, unruly, and is crowding out everything else. It needs a thoughtful trim!

The pruning I recommend is a more strategic undertaking that targets less profitable areas within each industry and service line business unit. It highlights systemic profitability issues. It’s not a matter of an errant bush here, or a scraggly outgrowth there, but a more comprehensive evaluation.

This approach eliminates dead wood, or even reshapes a tree from the ground up. It unleashes the creativity needed for attacking the capacity problem with solutions like increased pricing, soft landings for culled clients, processing centers, offshoring and/or bots.

Industry and service line leaders should be responsible for the strategic direction and financial health of their business units. And in more advanced firms, their compensation is tied to business unit achievement. The good news is that if you have clarity regarding their role, you already have the capacity in your industry and service-line leaders. These strategic catalysts have an intimate knowledge of firmwide clients that compose their industry or service line, and access to the metrics to guide them. They provide the leverage to shine a bright light on entire areas needing attention, such as orphan 1040s with 50% realization.

I’ve seen firms make the mistake of putting the client pruning task in the hands of a managing partner who instructs partners to cull 10% of their client list across the board — a scattershot approach that is suboptimal. I recommend a strategic top-down pruning versus tactical culling from the bottom. This lets you clear away great chunks of less productive effort in the firm and make way for new, exciting innovations and opportunities.

Lean into HR

Combining strategic pruning with an HR reboot has been a winning approach for many stressed firms. My clients are often surprised when I advise them to enhance their HR approach as an enabler to organic revenue growth. However, we can’t grow revenue with one foot on the brake. We need confidence that we’ll have capacity while cultivating the market.

Their surprise reflects our industry’s overall lack of experience when it comes to creatively attracting and maintaining qualified staff. We’re way behind the corporate world, but the resources are out there to catch up.

For example, growth-minded firms would be wise to invest in learning how to work at a higher and more robust level with outside recruiters and how to mine nontraditional sources of talent. I saw the benefits of this firsthand during the years I spent in the tech industry, where we were often growing at 30% per year. Members of my team stayed ahead of the need by having a standing daily meeting with HR leaders to propel the talent acquisition engine.

As accountants, we may not be operating at quite that pace, but the current overheated environment suggests that we move forward to prudently prune our client base and enrich our understanding of talent acquisition and retention with all deliberate speed.

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