Expectations are usually bright and cheerful. The results are the harsh reality and do not always correspond to expectations. When expectations are exceeded, differences aren’t usually given much attention, but when they fall short, critics are likely to be quite cautious. I think it’s important to look at both types of differences and use that information to set new expectations.
I don’t know how accounting firms set their expectations, but I do know how surveys present the top issues facing firms and I suspect these are influencing expectations. However, I have seen many polls and I don’t believe most reflect the reality of running a practice and planning for the future.
In my own experience, my revenue projections have been determined by expected sources of new revenue more than by applying a growth rate to current or average revenue. I did this by listing the current customer categories and the expected growth rate and spin-off from these groups. I then estimated referrals from those customers, assuming the services would be similar to those customers. Next, I looked at emerging services, my promotional activities, and expected sources of new business, and estimated the “flow” of new customers and fees. And finally, I estimated the amount of special one-time transactional services. I did it annually for the next five years. I usually watch this month, but I do my analysis at the end of each year.
I then looked at the staff and projected over five years whether we had the right size and the right qualities of staff based on the revenue projection. An organizational chart has been very helpful in visualizing our practice and its growth. I also estimated salary costs, including benefits, for this period. The rest of our expenses were pretty much fixed and that was the easy part. I now had a five-year projection and actually a strategic plan. This reflected my expectations.
To be frank, I watched it often in the first half of the year, and when I realized we were hitting our numbers, I softened my reviews, leaving it until January when it was time for an update or a complete overhaul depending on how things developed. We’ve been working on adding services, some of which have established themselves quite significantly, and on strengthening our fixed monthly fee bundled service customer base. Taxes, which were the primary driver of new business in the early days, weren’t as prominent in our growth plans over the years. One reason was the decline in tax audits and IRS collections activity, coupled with the growth of new services.
Strategic plans and projections are a representation of your expectations. It is very useful to prepare and review them regularly. They’re also a great way to see if you’re where you thought you were at the end of each year. Make it your goal to close the expectation gap.
Do not hesitate to contact me at [email protected] with your questions about practice management or assignments you may not be able to complete.
Edward Mendlowitz, CPA, is a partner at WithumSmith+Brown, PC, CPA. He is on Accounting Today’s list of the 100 most influential people. He is the author of 24 books, including “How to Review Tax Returns”, co-authored with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition”. He also writes a blog twice a week dealing with the issues customers have with www.partners-network.com with the Pay-Less-Tax Man Blog for the bottom line. He is an adjunct professor in Fairleigh Dickinson University’s MBA program and teaches end-user applications of financial statements. Art of Accounting is an ongoing series where he shares autobiographical experiences with advice he hopes his colleagues can adopt. He welcomes practice management questions and can be reached at (732) 743-4582 or [email protected]