Managing Your Firm in Uncertain Times

Managing Your Firm In Uncertain Times Presented by: ConvergenceCoaching, LLC

Our Agenda • Discussing what we’re seeing in CPA firm management this year, in light of the economy • Exploring options for various management strategies you can consider including mandatory no overtime, reduced work weeks, and staff reductions • Discussing the communications strategies around each of these options • Identifying the steps to take to minimize the morale impact of a staff reduction • Developing strategies to retain your best and brightest and motivate your team to do what they can to contribute to the firm’s success

The AICPA isn’t saying it’s going to be bad, just that some firms are considering cost savings options. We want to see every option exhausted before layoffs and if it comes down to it, offering help to the few who may need it. It’s not time to say the sky is falling as many firms are still doing quite well.

Mark Koziel, Senior Technical Manager, AICPA PCPS CPA Trendlines, April 15, 2009 What We’re Seeing • Firms on the coasts and in most primary cities are really feeling the economic impact • Other firms that are struggling more are those with: – Large audit practices, as the audit groups have been the first to feel the pinch with consolidation, fee pressure, and softening pipelines – Industry specializations in banking, construction, homebuilding, real estate, retail, restaurants, and dealerships – Financial planning/investment practices that are heavily securities based – Big “wins” in recruiting in the fall, leaving them over-staffed for planned jobs this spring and summer • Tax groups were mostly feeling “ok” during busy season but recognizing that they are “softer than normal” for summer • Some firms are undertaking (or already have) staff cost reduction measures and headcount reductions (we’ll cover more on this later) • Firms with debt or poor financing are definitely feeling pressure • Most of our clients are seeing a slow down in cash collections Leading In A Down Economy • As leaders, it is our job to lead our teams through this uncertainty, which requires: – A positive, can-do approach – Planning, keeping the commitments of your plan, and reviewing your plan frequently – Over-communicating with each other, your key stakeholders, and staff • Keep them abreast of the situation and any changes • Be the positive voice in the face of their fear and uncertainty

Mitigating The Impact • Bill everything in a timely manner – Consider invoicing larger retainers • Collect as soon as an invoice is past due • Maintain your liquidity • Identify cost-reduction opportunities • Review financial performance and adjust your budgets at least monthly • Renew your collective commitment to business development and marketing activities – But still following client acceptance procedures and selling to your ideal target clients

Business Development Musts • Ask all partners or owners and managers to commit to holding at least 1 (but in the case of more experienced rain makers, 2) BD meetings per week – These are with referral sources, existing clients, or prospective clients – They can be by phone or in person • Hold bi-weekly meetings with partners and managers to report on BD activities

Mitigating The Impact • Continue to focus on staff development and retention programs – You will still want to elevate the best and prepare for future growth and succession • Consult with your clients – be proactive and reassure them, too! • Find ways to be more efficient or have clients do more work to address increased cost sensitivity • Capacity plan proactively – Pay attention to your work pipeline, sales pipeline, and headcount and explore your staffing more “scientifically” versus by gut

On The Bright Side • Firms that have been too busy to develop business are now firing up their marketing and sales engines and seeing some early successes – Their competitors are out of practice, too • The economic downturn is providing firms with increased advisory opportunities for clients • Like a forest fire, the downturn can provide an opportunity to cull “weak links” and emerge stronger

A Word Of Caution • We have just emerged from one of the toughest periods of recruiting in our profession’s history • Things may be loosening, but only temporarily! – 76 million Baby Boomers all plan to retire over the next 10-15 years – There are only 41 million Gen Xer’s to succeed them – Younger CPAs with talent can find employment anywhere or start their own practices with so many retirees willing to transition their books • We will all be back in that fight for people in the next 12-18 months – It may even be later this year • We have to use great caution and care as we manage any right-sizing initiatives to maintain the health of our current eco-system and position us well for the future

• We are not state labor law experts – we’ll share what we’ve seen others do, but you will need to consult your labor counsel before implementing these ideas in your firm, in your state

Right Sizing • A term from the 1980’s, coined by corporate cost cutters, right sizing means “bringing the size of your staffing costs in line with the size of your expected revenue production” • It is most often associated with layoffs, but that’s not all we’re discussing today Options for Reducing Staff Costs •Reduced salaries/draws or total comp expectations for owners •Zero/controlled overtime •Furlough •Reduced work-weeks and salaries for staff •Reduced hours for, or numbers of, interns •Flexible work arrangements •Staff reduction/lay offs

Partner Comp Reduction • Never popular, but ever inevitable • Firms should explore a reduction in partner draws to acknowledge the potential for reduced total comp • Now is the time to implement draw withholding for partners not billing and collecting • If the partners take an intentional comp reduction of 10% or more, this should be communicated in an economic town hall meeting (more on this later)

Zero or Reduced OT • Many firms implemented reduced or zero overtime programs during busy season – Those that did not are definitely considering them for the summer to force better work distribution – This can equate to a cut in pay for those non-exempt employees who counted on overtime to reach a certain income level and have to be managed as such – Others welcome the reduced expectation • Some firms have employees work a certain level of overtime during busy season as a regular practice and then will move to reduced work weeks for summer months

Furloughs • Closing parts or all of the business for a few weeks during slower times or holiday periods • This is challenging to implement with exempt staff due to federal (and some state) laws that require a certain number of hours for exempt employees – You must inform the exempt employee that absolutely no work is allowed during the furlough period or they are due their entire salary • Easier to implement for non-exempt staff because they are paid only for actual hours worked • Be cautious about “forcing” use of vacation or PTO as some states say “use it or lose it” laws are illegal

Reduced Work Week and/or Reduced Salaries • This is also challenging to implement consistently due to differences between exempt and non-exempt employees – Reducing the total dollar amount paid below $450 per week will jeopardize exempt status – Safest bet compliance-wise may be to reduce pay for exempt workers without specifying any reduced time expectation, but this may not be the most popular option • Typical approach is 4-day work week, which amounts to a 20% cut in pay • Some firms choose to close Fridays or half-day Fridays; others stay open and stagger work schedules to ensure coverage from various departments and positions – Clearly this becomes a significant scheduling effort and administrative task to manage

Reduced Work Week and/or Reduced Salaries • Other firms are asking their people to take a cut in pay – If you go this route, we strongly recommend partners “lead” by taking at least the same percent cut in pay – Usually, this option is best received with a commitment to review economic status monthly or quarterly and report to staff • Staff appreciate also being able to suggest other cost-cutting ideas (without fear) • When these measures hit their pocketbook they want to be sure the firm is not wasting money elsewhere

Intern Measures • In the “high times,” many firms have recruited more interns and asked them to work 40 hour work weeks due to the staff shortage • In this looser period for work, the intern programs are being scaled back to reduce the number of interns • In addition, intern programs are moving back to a more reasonable 20-30 hour week Flexible Work Arrangements • HUGE area in employee benefits program management • Definitely an approach we recommend for increasing employee motivation and retention, and it may be helpful in cutting labor costs • Includes: – Work from home programs – Telecommuting – Reduced work weeks – Job sharing • This is too complex to review in detail today, but these programs present challenges to the FSLA laws • Watch the new bill Working Family Flexibility Act introduced in December 2008 which will drive many changes to Federal and state laws to support more flexibility going forward

Staff Lay Offs • Reducing your headcount by a specified number or percentage • Should be seen as a last resort • Does present an opportunity to eliminate redundancy and less productive workers • Must follow federal and state guidelines for selection and protection of certain classes – Definitely seek labor counsel

Steps to Undertaking a Staff Reduction • Get labor counsel guidance • Meet with a small group of key leaders to identify the redundancy and less productive workers who should be targeted – Identify how their work will be redistributed and begin shifting things that can be shifted earlier • Establish a time line; consider holidays, weekends, check vacation schedules – We suggest handling these on Monday or Tuesday afternoon • Leverage or create an exit checklist – Decide on severance, “walking out,” IT password management, etc. ahead of time • Develop a consistent script that those holding the termination meetings will use – keep it simple! • Schedule a firm-wide meeting or teleconference to occur directly following the layoff – Prepare a consistent written memo that can be given to the team to handle any inquiries from outsiders and give explicit direction on who to refer press to

Staff Cost Reduction Communications Tips • Focus on the facts and avoid dramatic language • Tie your action to the economy • Make sure to share the WIIFM for others – Example language in a lay off: “This action enables us to right-size the staff capacity to meet the workload demands, which is simply good business. This move is not one we take lightly, but is instead something we feel we have to do to ensure the long-range well being of the team as a whole.” • Avoid over-committing – Everyone wants to know that this is the only action you’ll take – “Is it over now?” “Am I safe?” “Will there be further cost cuts?” – You cannot promise there will be no further action – Suggested verbal answer to a question on this might be: “I wish that I could promise that this is the only action we’ll take, but I can’t. We are in uncertain economic times. I believe we are doing what needs to be done to secure our firm’s future and position us for positive financial performance going forward. Hopefully our economy will begin its recovery and we will not be required to consider any further right sizing actions. That is our true desire. We recognize that this is difficult for you and appreciate your support in this action.” • Focus on the future – Enroll your team in supporting the firm’s financial performance – Point to specific things they can do to ensure a financial turnaround: • Focus on billable revenues • Develop new business • Keep costs down • Make cost-saving suggestions • Give up hours if you implement any of the FWA or time reduction strategies

Maintaining Morale • Communication is the #1 element in maintaining staff trust and morale during these times – This is true whether you are ready to execute an action or not – Your people are wondering and talking – Your leadership team has to proactively and ongoingly communicate information about your team’s view of the economic impacts and firm plans to ensure stability and trust

Maintaining Trust • Your people will remember these actions and who you were during them – Honesty and earnest good faith will retain trust and respect – Be as humane as possible with those leaving and those who “survive” – Plan your communications carefully – Don’t speak ill of those who are gone thereafter or allude to your being better off without them • If it’s true, your people are smart enough to know it

Keep the Machine Running • Avoid cutting employee benefits if at all possible – If you feel compelled to do so, survey first to see which ones are least valued • Keep meeting and holding key social functions, even if scaled back – An employee potluck instead of a catered picnic might be even more fun and the socialization is even more critical in tougher times • Don’t avoid holding staff, scheduling or other key meetings before, during, or after the action due to uncertainty – Keep your systems running “business as usual” as much as possible

Allow Your People To Be Part Of The Solution • Ask for their help in generating additional solutions to help improve firm performance • Give them specific goals and benchmarks needed to signal a turnaround – Raise the bar and people will rise to reach it • Most people want to be part of a team effort to improve – These trying times can actually improve morale, teamwork, and motivation if you focus your team and communicate what’s needed

Questions/Discussion

Tools and Resources ConvergenceCoaching Resources • ConvergenceCoaching’s web site includes articles and tools on these topics – www.convergencecoaching.com • Visit our blog for posts on topics such as: – Worried About the Economy? Get Proactive! http://blog.convergencecoaching.com/2009/02/worried-about-the-economy-get- proactive.html – Marketing Strategies to Drive Firm Growth http://blog.convergencecoaching.com/2009/05/marketing-strategies-to-drive- your-firms-growth.html

HR Resources • www.aicpa.org/pcps. The AICPA’s Private Companies Practice Section web site with tools and resources on HR. • www.convergencecoaching.com. Articles and tools via the Coaching Solution Center. • www.hr.com. HR.com is an online resource that covers the entire scope of HR issues. • www.hrpowerhouse.com. HR Powerhouse offers online tools, free appraisal forms, practices, process maps and more.

HR Resources • www.shrm.org. Society for Human Resources Management. • www.workforce.com. Resources for recruiting, training, HR management, compensation and legal issues.

Right Sizing Resources • AICPA Economic Crisis Resource Center http://economy.aicpa.org/2009/04/economic-memo-to-firms-and-human- resource-professionals.html# • All Academic Research In Favor Of A Reduced Work Week http://www.allacademic.com/meta/p_mla_apa_research_citation/1/1/6/7/7/p1167 79_index.html • City of Sacramento Sample Furlough Policy and Form http://www.cityofsacramento.org/labor- relations/Documents/PDFs/policies_and_procedures/Furlough.pdf

Right Sizing Resources • LinkedIn Answers: Pay Cuts In CPA Firms? http://www.linkedin.com/answers/finance- accounting/accounting/FIN_ACC/444869-4137181?browseCategory=FIN_AUD • New York Times Pay Cut Memo (example) http://www.businessinsider.com/new-york-times-pay-cut-memo-2009-3 • The Glass Hammer http://www.theglasshammer.com/news/2009/02/17/the-law-of-alternative-work- arrangements-furloughs-reduced-work-weeks-flexible-work-arrangements/