Challenges with recruitment and retention of staff and inflationary pressures make efficiency increasingly important. That calls for making more effective use of available resources. Small- and medium-sized practices (SMPs) have put in great work in this area to cope with some unprecedented challenges in recent years, but ongoing improvements will get even more challenging. This article builds upon some of the thinking shared at a recent meeting of the IFAC Small and Medium Practices Advisory Group (SMPAG) and looks at how SMPs can continue to effectively pursue efficiency.
Investing for efficiency
Many SMPs have worked tirelessly to improve efficiency through standardization and automation of processes. The efforts of the past are sometimes not enough to maintain competitiveness in the current environment. New tools and technology may be needed just to keep up. Standardization and automation need to be thought about as iterative processes.
SMPs that are already stretched for staff time will struggle to divert resources to look for and address such opportunities, and doing so can seem counterproductive if a short-term view is taken. This is especially the case where there are external costs in addition to greater demands on staff time. Careful consideration of costs and benefits is needed in such circumstances. Such consideration should try to take a longer-term view into account so that decisions are right for the future of the practice—not just for immediate needs.
People often need investment in training to increase efficiency. The ability for team members to support work across several different service lines, such as accounts preparation, audit, corporate tax, and personal tax, can be highly beneficial. This can allow the same individuals to work on various projects for the same client. Multidisciplinary teams can also mean less idle time as people can be deployed across various workloads. Such capabilities are hard to find and attract in the market for talent, so firms should consider training existing staff to broaden their skillsets. Again, careful consideration of long-term best interest versus immediate needs is imperative.
Firms are likely to improve performance faster if there is a culture of continuous improvement within the firm. That means encouraging all team members to question why and how things are being done and exploring alternative ways that enable tasks to be performed more quickly with no loss in quality.
"Gold plating" can waste resources where client value is not added
SMPs are in a prime position to understand what their clients value, and many make use of this knowledge to deliver services effectively. Whilst the pursuit of perfection may seem a noble aim, clients are often reluctant to pay for “gold plating.” If there are areas that clients value and they are willing to pay for perfection, a case can be made for focusing tightly on these areas. This assessment must be made after giving due consideration to client expectations in terms of quality and output.
The pursuit of efficiency may also require an examination of the relationship with a client. It is easy for firms of any size to fall into the trap of accepting all work offered by a client. Whilst arguments can be made that doing so provides an important mechanism of support for the client, carrying out routine but time-consuming tasks on behalf of clients can be expensive. With encouragement and training the client can often perform these tasks in-house, leaving the SMP more time to perform higher value work. A starting point to making changes here may be more openness in sharing the cost of activities and providing breakdowns to clients so a mutual assessment of where most value is added can take place. This approach is particularly important where the firm is short of staff.
Another value trap that firms of all sizes can fall into is becoming attached to retaining fees, even where the work makes little economic sense. Disengagement should be considered where the nature of work is problematic, or where the services performed are not economical. Retention in such cases may, as well as being economically challenging, affect staff morale. An assessment of whether a client is economically worthwhile can only be made where time spent is accurately charged to jobs.
Quality is not just for the regulator’s benefit
Recent developments in the profession, with the introduction of new quality management standards and ever-increasing regulatory scrutiny, mean an ever-rising emphasis on demonstrating quality for SMPs. It is easy to think of the pursuit of quality as something that only increases cost, but there can sometimes also be a beneficial side for efficiency. Getting things right the first time is generally the most cost-effective approach and introducing initiatives such as peer review of work can be useful where the time of senior staff is limited. Re-performance of work by more senior staff is expensive. There is also a reputational risk if poor work goes out of the door.
Getting quality right relies on using resources well, so SMPs need to have an effective budgeting process. This means that before any cost is incurred there is some consideration of whether the cost is in line with what the client may be expecting. Tools like benchmarking with other practices can be valuable but require openness in sharing information. Creating informal mutual support networks can be very helpful to firms. Metrics like revenue per head