Performing a Successful Firm Downsizing
Many CPA firms today are facing or considering downsizing, restructuring or similar modifications because of changes in the business environment. Knowing about our experience may help such firms prepare for what's in store. In 1989, our firm, Smith, Batcheider & Rugg (SBR by the end of 1993, SB&R had a leadership group of 5, a staff of 50 and $3 million in revenue. Along the way, we learned there are a number of major issues that must be considered as a CPA firm's leadership prepares itself for the economic realignments occurring in our marketplace. As a professional service firm addresses these issues, launching a program of analysis and realignment requires a delicate balance between the organization's needs and the personal interests of everyone involved. This article discusses actions that can help firms avoid analysis paralysis. In his book on Downsizing, Robert M. Tomasko said the problem is "not the quality of [the] analysis but the tendency ... to substitute analysis for action." A firm realignment should make a practice healthier and better able to compete in its local markets. Even firms that are not contemplating a downsizing can follow some of the steps recommended as part of a good practice management strategy. KEEP COMMUNICATIONS OPEN When major change is in the works, professional staff and associates must be made aware of management's plans. If they are forced to rely on the rumor mill, they will expend a great deal of productive energy ferreting out information that may not be valid. Management has to understand that once the leadership has settled on a reorganization, particularly a downsizing, the involvement of appropriate personnel at all levels is absolutely necessary for successful action. Firm leaders must discuss their strategy in advance, keep everyone advised and minimize surprises through decision sharing. Concealing a decision to effect a managed contraction for too long will only result in bad feelings and alienate personnel who could have been helpful in the process. Early involvement of key people at all personnel levels means the right information is disseminated to all associates. Once a decision has been made to eliminate a service or close an office, the sooner all those affected can be informed, the easier it will be to implement the decision. IDENTIFY THE SOURCES OF CASH As an organization shrinks, it may generate a temporary cash surplus. Using these funds properly is critical to a firm's continuing survival. The client base has to be analyzed with cash generation in mind. For instance, bidding a job at less than standard rates may be an appropriate strategy for a larger operation, but as a firm contracts and overhead is adjusted, management knows that the relationships between variable and fixed costs will change. Policies such as having a client who pays full fees subsidize a less valuable client relationship must be evaluated continually. Valued clients who appreciate the firm's efforts, recognize how to use its professional skills properly and pay a premium for quality services should be cultivated. Clients who demand too much, complain about cost and devalue the firm's efforts should be reevaluated. Management must assess the firm's cash sources. It must determine which clients are reliable, which are difficult to collect from and, even more important if the downsizing is caused by a general economic downturn, which ones will survive and which ones may not be in business tomorrow. Clearly, if firm resources are limited, smart CPAs will choose to work with proven winners. REVIEW THE PERSONNEL COMPLEMENT As a business shrinks, its personnel must become more versatile and flexible. The associates a firm chooses to retain should have the desire and skills to compete in the new employment environment. That means taking a careful look at associates' personal needs. …