Checklists to Improved Profits

“Breakthroughs occur when you focus on simplification, rather than complexity.” Here, we will focus on the practice management area, due to the fact there are many checklists focusing on the technical aspects of tax and accounting. In many cases, complexity and the volume of knowledge have exceeded the individual’s ability to deliver the benefits of that knowledge correctly, safely and reliably, in a profitable manner.

Atul Gawande, in The Checklist Manifesto, provided several lessons from both the airline industry and medical profession that can be applied to the accounting profession. Checklists seem to help provide protection against failures and instill a discipline that leads to higher performance. The problem comes when checklists attempt to become all-encompassing, long and often resisted. Checklists do establish a higher standard of baseline performance, yet resistance remains in all professions.

The following checklist is simple, yet many of the steps are either overlooked or ignored by partners because they are too busy focusing on the delivery of service and don’t take care of the basic business processes that drive the firm’s economic engine. In my opinion, this is clearly documented by the fact that too many delivery partners and managers do not have a clear understanding of the economic drivers in a professional service firm. Most have either not been adequately trained, or haven’t participated in, practice management events.

Often, members of the accounting profession referred to the inadequacy of the medical profession when it came to business acumen. From my perspective, today, the accounting profession has a much bigger problem due to the labor theory of value (dollars times hours). The checklist below can be a valuable tool, if simplified and applied to basic principles of value and best business practices:

Client Acceptance & Pricing

  1. Does this client meet our criteria? (Per acceptance form – see criteria below)


  1. Do we have the approval of pricing by the Chief Pricing Officer/Partner or Pricing Committee?



  1. Have we discussed pricing in advance of starting the work?



  1. Do we have a signed fixed price agreement with a change order provision?



  1. Has the client agreed to the terms of payment and provided bank authorization?
  • ACH payment
  • Credit card




Client Acceptance Criteria (An Example)

  • Utilization: Do they have the need for multiple services?
  • Appreciation: Will they appreciate, and follow, the firm’s advice?
  • Reward: Will they value our services and pay promptly?
  • Enhance: Will they enhance the firm’s capabilities?
  • Risk: Is the risk associated with this client acceptable?
  • Referral: Will they refer additional business?

From my experience in working with firms, I see several trends that are alarming and drive WIP and A/R to unacceptable levels. First, firms tend to allow after-the-fact pricing and, often, without adequate definition of scope and acceptable terms of payment. Second, firms are not properly utilizing the available technology to bill and collect electronically on a timely basis that’s advantageous to the firm. Finally, too many compensation systems does not penalize partners for accepting unprofitable clients and work.

Checklists are important and must continually be revised to reflect the most important steps in reducing risks and ensuring a higher baseline of performance/profitability. This can only be accomplished when checklists are integrated with business acumen, technology and value pricing. In my opinion, too many CPAs have relied on hours times dollars as the Holy Grail of value. Training regarding the firm’s economic engine and discipline/accountability are paramount. For years, I have heard firm leaders say the economic engine is broken. Do something about it and start the transformation process in your firm today. Educate your young professionals on value and pricing. Take partners and others out of the pricing process, if they refuse to change.

The good news … I am seeing focus and progress in some leading firms. The formula for success is not complicated. It requires leadership, new processes, discipline and accountability. It is not about technology, but rather, about the process. A new practice management system will not necessarily guarantee results, while new processes and accountability will improve performance. The financial rewards are exponential, rather than just incremental. Implement the five-step checklist and measure the results.