What CPA Firms Can Do to Ease the Staff Shortage

Ask CPA firms about the effect of the staff shortage, and 99% of them will say it is negatively impacting their firm’s bottom line. This is the finding of a poll of 250 CPA firms in May 2023 conducted by PR Newswire and Censuswide. This doesn’t mean that profits are disappointing – far from it – because partner income is skyrocketing. What it does mean is that profits could be even stronger if firms had more staff to get the work out.

Many readers know these facts:

• The number of students pursuing a major in accounting is dwindling.
• The number of people taking the CPA exam in 2022 was 67,000, down by one third from 102,000 in 2016. It’s the lowest level in 17 years.

The demand-supply imbalance

There are three possible solutions to a demand-supply imbalance:

1. Reduce demand: This doesn’t mean reduce demand from clients. It means be more selective in accepting new clients, trim back unprofitable clients and raise rates. Move to a lower volume/higher priced operating model, so that your demand for staff abates a bit.

2. Increase supply: This one’s obvious – get more staff! Think outside the box and be innovative in sourcing personnel. We’ll explore specific tactics below.

3. Both.

Specific tactics

1. CPA firms need to change their operating model. Many generalist, local CPA firms have embraced the high volume/lower price strategy – maybe not intentionally, but that’s what they’ve done.

• Most CPAs don’t like doing business development and so they don’t do it. Historically, they have kept every client they ever obtained, regardless of whether or not these clients are profitable.
• Many practitioners have kept their prices low because they either thought their work wasn’t worth more or they feared clients would leave if rates were raised. Many firms mistakenly believe that lower rates should make it easier to get new clients.

Firms need to move to a higher priced/lower volume model. This will reduce the demand for staff. At the same time, firms will make more money and work less. For the first time in the CPA profession’s history, firms are adopting this strategy – and with tremendous success.

2. Partners need to work saner hours. In many ways, today’s staff think differently than previous generations, especially the baby boomers. Take, for example, the willingness to work overtime. We’ve been hearing this comment from staff for ten years or more: “I don’t want to be a partner because they seem to be always working, including nights and weekends. I want better work-life balance.”

I know that partners might wonder what I’m smoking when I suggest they need to dispel the image that they work “all the time.” By executing the strategy outlined in #1 above, hopefully they will be able to work fewer hours.

Being a partner in a successful firm should be something that staff aspire to… Earn $600K a year. Work with clients they love and who love them back. Be their own boss. Solve client problems. The staff will want these things, but not if they have to work crazy hours.

3. Use high-level technology. Since the dawn of computer systems, CPAs have been continuously able to reduce their workload and still produce a quality product. No one could disagree with the need to continually embrace technology to reduce time worked. I’m far from an IT expert and can’t give you specifics, but CPA firms need to use artificial intelligence to continue to reduce work time without diminishing work quality.

4. Increase staff compensation. This one puzzles the heck out of me. When many of us went to college, majoring in accounting led to the highest-paid entry-level jobs compared to most majors. IT and engineering used to be the only two majors that led to higher salaries than accounting.

Inexplicably, many other majors have caught up and even surpassed entry-level salaries for accountants. Students do much better with majors in finance, marketing, and economics. How can accounting salaries have slid so far?

I talked recently with the MP of an eight-partner, $15M firm about this. His firm’s average partner income was $750,000. He offered this thought: “We partners earn great compensation. Way more than we ever thought. What if the partners in my firm reduced their average comp by $50,000 each and used that money to increase staff salaries? If we think it would improve staff retention, longevity and their desire to be a partner, why wouldn’t we do it?”

Between 2018 and 2021, equity partner compensation rose 24%. Though I haven’t seen research on this, I’m almost positive that staff compensation has not risen anywhere near that rate. Partners need to start sharing more of their profits with the staff.

I am ecstatic to see that firms are now giving double-digit comp increases to many of their staff, hoping that this will increase staff retention rates and, more importantly, get staff excited about being a partner someday. While this kind of salary increase may be hard to digest for smaller firms with lower earnings, we suggest starting with the suggestion at the beginning of this list; that is, changing the firm’s operating model. This will help firms realize an immediate increase in revenues without increasing workloads.

5. Source staff from unconventional places. The two that I’ve seen are (a) outsourcing and overseas staff, and (b) hiring non-accountants such as finance and math majors for lower-level work.

6. Firms need to start their recruiting earlier. What’s earlier? High school students. Firms don’t need to dedicate the same resources to high school as they do college. But the efforts need to be greater and more intensive. A part of this strategy could be to offer scholarships to high school students who fit the profile of those who may pursue accounting in college.

For those who have an internship program, I’d encourage you to consider extending full-time offers sooner. Waiting until interns are in their last year of college may be too late; it’s possible you won’t find a college senior who doesn’t already have an offer from another firm. Think about hiring younger college students; say, sophomores. If they perform well, lock them in by giving them an offer to have two more years’ worth of internships plus a full-time offer once they graduate.

7. Length of time it takes to be partner. I’ve always thought that CPA firms wait much too long to promote talented staff to partner. Most staff generally need to have 13-20 years of experience, much too long for top performers to wait for the ownership position. This can be done without “giving away the store for free.” One strategy is for CPA firms to make even greater use of the non-equity partner position. Another is a change of mindset: many firms wait to promote staff to partner because the partners want the staff to prove that they are just as “good” as them. That’s unrealistic; it’s too high a bar. A 32-year-old new partner can’t possibly be as experienced and knowledgeable as a 50-year-old veteran owner. Don’t hold them back.

8. Tax season hours. Many partners and staff work a minimum of 55 hours a week in the tax season. A number of firms tell me that 60–70 hours a week is common. The partners say: “Sure, we would love to work fewer hours in the tax season. But the grim reality is that an enormous volume of work needs to be completed prior to April 15, and there is no way around working lots of overtime.” Well, firms can change this: (a) When weeding out undesirable clients, skew your efforts towards clients who have big projects in the tax season; (b) When the firm has an opportunity to get a new client, part of the client acceptance process should be the time of year that the work must be done; (c) Outsourcing; and (d) Hiring non-accountants such as math and finance personnel.

The new, expanded second edition of our book, CPA Firm Staff: Managing Your #1 Asset, addresses ► talent management ► retention ► flexibility ►importance of the boss ►mentoring ► leadership development ► advancement ► performance feedback ►recruiting, and other issues.

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What follows are suggestions that large organizations such as the AICPA, state CPA societies and CPA associations need to pursue.

9. Eliminate the 150-hour rule. We need to do away with this rule. It was intended to broaden the capabilities and insight of CPAs, but the extra 30 hours have failed to achieve the intended purpose. Worse yet, it has dissuaded students from majoring in accounting. These conclusions are from two studies cited below. These studies appeared in an article by Dr. Sharon Lassar, a professor at the University of Denver, in Going Concern, 8/26/23.

• The Center for Audit Quality (CAQ) recently released a survey in which they asked business majors who considered majoring in accounting but majored in something else why they did this. Sixty percent did not major in accounting because of the 150-hour requirement.
• Another study by Dr. John Barrios, a professor at Washington University of St. Louis, tells us that implementation of the 150-hour rule resulted in about a 40% decline in the number of first-time candidates taking the CPA exam. Further, Barrios found there is no difference in the career outcomes for those who became CPAs under a 150-hour regime and those who became CPAs under a 120-hour regime.

The 150-hour rule is an unnecessary and formidable barrier for students to select accounting as their major.

10. Stop making the CPA exam so difficult. I’m not suggesting major changes, but let’s make it less of a barrier to students majoring in accounting. I know some will be enraged at what I am about to say: A large amount of the material that students need to command to pass the exam will never be used in their careers.

11. Recruit more accounting professors. The AICPA needs to keep working on awarding scholarships to students who might seek a PhD in accounting and, ultimately, become university professors. It doesn’t help matters if universities don’t have enough professors to teach accounting.

12. The CPA profession needs an aggressive PR campaign to enhance our image. We all know that accountants have been unfairly and inaccurately characterized as nerds and introverts who are dull and boring with absolutely no social skills. I’m not sure what to do about this. Old notions are hard to change. But three things come to mind: (a) hire a PR firm to develop a long-term plan for enhancing our image; (b) hire screenwriters to create movies that showcase the cool dudes that CPAs are (and I don’t want a piece of crap like Ben Affleck’s 2016 The Accountant); and (c) get some of our colleagues who are good writers to write stories and novels, à la John Grisham, except our hero is a CPA, not a lawyer. A couple of years ago, Bill and Hillary Clinton teamed with a long-time, best-selling novelist to write thrilling novels. We should do the same thing. Personally, this has been a goal of mine for a long time, but I can’t seem to find the time to do it. But there is always tomorrow!