Score one for value based pricing

A post on CPA Trendlines has really hit the nail on the head with regards to some of the most compelling arguments to abandon an hourly billing rate in favor of a value pricing model.  The key to maximizing your take from what the market place will bear for your services is to walk away from the cost plus model of hourly billing and decide what work you are willing to do at what price.  After that decision is made, you just need to find the clients who see the same value in your services that you do and have the willingness and capacity to pay for those services.

One of the comments on this article outlined several client ‘reactions’ to bills.  The only time reactions to bills are even an issue is when hourly billing is used and the amount of time required is a bit ambiguous, at least to the client.  The professional may have had a good estimate as to total cost up front, or at least sometime in the middle of the engagement (especially if special problems have arisen that cause more work on the project). 

Had cost been discussed in total up front and been set so long as all goes as planned, these reactions would never take place, because the client and the professional would be on the same page in the beginning, instead of finding out there are differences at the end.  Value based, fixed up front pricing can save a lot of headaches, heartaches, and wallet aches for both the client and the professional as engagements with clients who don’t understand your value will not begin in the first place.

How ethical is corporate taxation?

Nothing said here will bring an end to corporate taxation, but I would like for a minute to pretend that it is negotiable to examine its legitimacy and the effects of the system in place.  Our founding fathers waged war with England for taxation without representation, but when we levy taxation against non-voting entities that is exactly what we get.

The corporation is a legal liability shield and capital raising device used to run many American businesses, however, without real people (employees, shareholders, vendors, customers) this legal entity is just a shell.  Most citizens are persuaded by politicians to look at corporations as merely a shell rather than to look at them for the sum of their real-people parts.  Thus, taxation of no one in particular is better than taxation of a specific person, so corporate taxation is popular.

This does not come without side effects as taxation without representation is not entirely true.  There is not legally sanctioned voting representation, so representation comes through the back door with lobbying, political contributions, and good old-fashioned bribery.  The result of taxing a non-voting entity with much money and power is a lot of unethical behavior brought about by the structure of the system.  The answer is not to police the unethical/illegal activity further, but to examine the system that produces it.

An excellent tenant of good government is transparency.  This is another problem with corporate taxation – the taxation of no one in particular.  Who really pays corporate tax (the corporation of course)?  The real people involved with the corporation must pay the tax in some way shape or form, because the shell in and of itself has no income or wages to tax.  The shareholders pay with decreased stock appreciation and lesser dividends.  The employees pay with lower wages and lesser benefits.  The vendors pay with lower profit margins themselves.  The consumers pay with higher prices used to subsidise the tax.

The lack of transparency imposed by corporate taxation may be the worst of all as the government is able to raise revenues with little to no legal accountability.  The group paying the tax is ambiguous, so it is hard to unite an ambiguous group to oppose tax increases or to help in drafting better tax policy (except for the opposition from the corporations themselves).  The opposition comes in the form of lobbying and bribery, which ends up being rather effective, but further muddies the ethical considerations and transparency of government.

Diamond in the rough

An article at PCWorld.com showcased several open-source projects that serve as alternatives to software products for which most users pay dearly.  One of my favorites as an accountant was GNUCash.  While I have not had time to thoroughly review the product, the screenshots appear similar to the registers in Quickbooks.

Considering the price of Quickbooks, and its lack of interoperability between versions (one of the greatest annoyances I have with the program) GNUCash may provide a very simple but powerful alternative for users that are familiar with accounting programs.  I doubt that it is as pretty, but it seems to be a great value.

There were several other products shown in the review and it is a great article for small business owners who are tired of paying high prices for products that overpromise and underdeliver.

Universities don’t instill technical proficiency

Following a discussion with one of my former professors regarding an article from the Pennsylvania CPA Journal I was given an opportunity to speak to a group of students at Creighton University regarding certain Excel skills that I have ascertained and use on a daily basis to be effective in performing my work.  I know that the local universities do not require much in the way of developing technical proficiency with key tools because of my recent experience as a student and experience with new staff from various local schools that are astounded by some rather simple but effective formulas that make our work much quicker and easier.

My rule is basically to never do by hand what you can get the computer to do for you.  Use Excel as a spreadsheet, not as a calculator or worse, a typewriter.  Use Excel to perform valuable functions that speed up your work, instead of merely digitizing work that was previously done on paper.  I remember during my first month at work, someone on the other side of the cubical wall asked if anyone knew how to use a VLOOKUP function in Excel, and the local area of the office was silent.  Then there was a mention that a very technically inclined person from the other side of the office my know how to use the function properly.  I could not believe that no one who had been at the firm for several years knew how to use this function.  At the time, I was not familiar with it myself, but I have since become very familiar with the family of lookup functions.

Another great decision making / problem solving skill that would be great to have out of the university is to quickly recognize a situation where a database program is going to be more effective than a spreadsheet.  I have done a ton of trial balances for tax clients in Excel, because that is the way it has been done for the past 20 years.  However, with the integration of improved trial balance software (CaseWare), I am starting to wonder if anyone’s trial balance should see the inside of a spreadsheet, no matter how simple (especially if there will be a lot of book-keeping adjustments made).  The trial balance software reduces errors and duplication of work from year to year by giving accounts permanent associations that generate useful reports automatically.

Not that universities don’t do a great job at giving us the proper foundation to be adequate accountants, but firms as well as other employers expect someone who has graduated from an accounting program to have a certain level of proficiency with these types of tools that is not necessarily instilled in our post-secondary educational system.  I was thrilled that this professor understood the issue and allowed me to speak to his class, but I would like to see the next step of required curriculum or testing to establish a baseline for technical proficiency that employers can depend upon.

Does FASB have a future?

With the recent decision by the SEC to allow foreign corporations to file their financial statements in accordance with IFRS (no reconciliation to GAAP required), does GAAP (and FASB) have much of a future?  FASB, recognized by the SEC as a standard setting body, has traditionally served setting standards for public companies who report to the SEC.

However, with the recent decision to no longer require foreign companies to reconcile with GAAP, the SEC has taken the first step towards requiring no publicly traded company to report based on GAAP if they use IFRS.  FASB and the IASB are still working on their convergence project to create a single international standard for accounting, but with this move the SEC has tilted the balance of power in favor of the IASB.

If FASB and IASB have a serious disagreement, I doubt IASB will have much incentive to concede (or even compromise).  FASB may remain in play for privately held companies, or public companies that are deeply entrenched in GAAP and have no international components, but the a large number of US based public companies will probably take the option to report on IFRS when it is given to them.  This proposition is already being floated around the SEC and will probably be approved shortly (if IFRS is good enough for one set of publicly held companies, it is good enough for another set of publicly held companies).

Accountants and auditors for publicly held companies may have only one set of standards to be intimately familiar with in the near future as IFRS is positioned to take the place of the American standard of accounting embodied in GAAP.  Apparently good guiding principles trump stringent, sticky, loophole-filled rules.

NolaPro leads the pack on web based accounting software alternatives

The majority of small and medium sized businesses utilize some type of desktop accounting software to handle their book-keeping and accounting chores.  Among the most prolific are Quickbooks and Peachtree.  Quickbooks is now offering its own web-based solution called Quickbooks Online Edition for $24.95 per month ($300 annually).  However, from a review of the comparison between Quickbooks Pro 2008 and Quickbooks Online Edition, it appears that the online edition is missing support for inventory tracking and pricing, as well as additional cost for customized invoicing, delayed billing, class tracking, and time tracking. 

Another plus for the online edition is its support for 3 users plus your accountant at the $24.95 per month base fee compared with $200 per user for QB Pro.  If you’re a small company with no inventory, QB Online may provide a sufficient solution, or you may be stuck on your desktop if you are in love with either the QB or Peachtree software for handling all facets of your business.

There is a very acceptable alternative that I have had a chance to review lately that has flown largely under the radar.  An Ohio based software development firm, Noguska, LLC, has developed a web-based accounting software that appears to be a comprehensive solution that is completely scalable in NolaPro.  NolaPro is free to download and install on your server or desktop, however you can opt for a NolaPro hosted solution for $25 per month, $60 quarterly ($20/month), or $200 annually ($16.67/month).

As an accountant I often have instances where I have one entity with multiple companies and multiple QB files and Quickbooks is slower than dirt at switching between the companies as it unloads one database and loads up another.  In NolaPro, separate companies are on drop down boxes that switch nearly instantly.  More than one user?  NolaPro doesn’t mind as it supports unlimited users with customizable rights.

So QB roles out a new edition, you have to run out and buy the latest and greatest, and your accountant has to do the same to remain compatible.  In the hosted NolaPro solution, upgrades are made automatically and free of charge, and if you choose to host yourself, the upgrade is free for download, just as the original program was.  NolaPro makes its money by the natural consulting business that develops from the utilization of its software.  The software is encrypted so that they have the rights to customization and such.  So if you have a highly specialized invoice for customers, but you want to be cheap, you can download the NolaPro program for free and take the money you saved to hire NolaPro consultants to make your special invoice.

QB Online did not offer an inventory solution with its product, but NolaPro includes an integrated inventory/shopping cart program, where the online shopping cart is tied directly to the inventory system within the accounting package.  I do not know how this works on a desktop installation, but it is pretty neat to see it work on a web-based installation.

There is a demo on the NolaPro site, but it has been messed with quite a bit and doesn’t really give you a feel of what your initial installation will look like, but it is at https://demo.nolapro.com/.

I desired to do an evaluation of Netsuite, as I have read about their solutions on WebCPA.com, but it has been almost a month since I emailed the company asking for more information and I have received no reply.  However, I am happy that I found NolaPro in my search for solutions to aid the small and medium sized business customers my firm serves.

Community involvement or survival of the fittest?

An article at Canada.com addresses the issues surrounding business models, client services, employee retention, and recruiting for knowledge based firms like attorneys, engineers, architects, and accountants.  The assertion is that knowledge firms need to move to a more communal structure of governance to maintain their continuity and attract new talent.  

the traditional model of billable hours and working your way up to partnership is under siege thanks to a blend of economic pressures, including new client demands, business consolidation and the fight for talent.

The preceding was uncovered through a survey of mid-sized legal, engineering, and architectural firms.  Although accounting firms were not specifically surveyed, it seems that the issues addressed are similarly applicable to them as a knowledge based industry.  The arguments set forth are rather similar to some of the same arguments set forth by proponents of value based pricing in professional service firms, especially with regards to the treatment of the staff worker in a knowledge based firm.

It appears that the new leaders within the knowledge based industry will be the ones that take the biggest steps in creating loyalty among their employees and an atmosphere that makes work a desirable location. One of the greatest costs and losses for a knowledge firm is when a major investment in time and education walks out the door for another opportunity and that human capital asset is replaced by one fresh from school that must undergo the process of time and capital investment to replace the prior employee.

However, not all partners will see a more communal environment positively (especially the “rainmakers” who are most enriched by the eat what you kill system). This dichotomy of interests is similar to the dichotomy of interests often faced by businesses with divided ownership interests. As accountants we know how we would advise our clients to handle situations where incentive packages do not promote the overall health of the business. We would tell them to change the incentive package so that the health of the business is aligned with the individual motivations within it.

Finally, would a more communal partnership or other system of corporate governance for knowledge based firms disincentivise the rainmakers and drive them away into their own businesses or to other firms where they are more enriched?  Part of this depends on who the people are, how they are motivated, and how loyal they feel towards their current organization.  Will a more communal system really improve the business environment and the services provided to clients or merely drive down revenues and profits as the rainmakers seek opportunity elsewhere?

CPA Cadidates

FYI, it may help to speed the process of receiving your NTS for retaking parts of the CPA exam if you submit a copy of your state board form (I know this is required in Nebraska) electronically and send the original in the mail.  This cut the time required to receive my NTS for retaking the exam to about 1 week.

Tax Notice

Deadline for extended tax returns and 5500′s is 10/15/2007.  To avoid extra penalties get these items filed today!