Quarterly Update — December 1994

Image of Todd Herman

In the book Vital Signs, "value" is defined as the relationship between cost and quality. This definition implies that, as the cost decreases or the quality increases, the overall value increases. Since we attempt to provide our clients with high-value services, I will share my thoughts on how we address both the cost and quality components of value.

"Quality" is generally defined as "conformance to requirements." We measure our service quality by periodically surveying our clients. Recent scores have ranged from 94% to 100%. These service quality surveys indicate that we routinely meet and exceed client expectations of excellent management consulting CPA's. Thus, we satisfy the quality component of value.

"Cost" of services can be difficult to compare. This difficulty stems from industry practices in arranging and billing projects. Project costs are estimated using a range of anticipated hours and hourly billing rates. From these estimates, project costs are generally arranged within a range of amounts, with a caveat that the total cost will be based on the firm's standard billing rates. Once a project has been arranged, it is generally billed on a statement that shows only total fees, without detail of hours and billing rates.

We have found that most consumers of CPA services do not know the hourly billing rates underlying the service. This is particularly true of services from the larger CPA firms. An acquaintance who is the controller of a company remarked that the large tax bill from a large firm resulted from the high volume of work required. In reality rate — not quantity — caused the high bill. To help address this knowledge gap, I have prepared a summary of hourly billing rates from published sources and knowledgeable estimates (see Table 1).

  Individual
Firms
Non-National Firms Big Six
Firms
Small Medium Large
Partner/Owner $112 $89 $112 $148 $225+
Manager $80 $69 $76 $97 $150+
Senior $64 $56 $61 $72 $90+

Table 1 — Summary of Hourly Billing Rates

This table presents rates for attest and tax services, which are generally perceived as routine services with little added value to the client. Thus, depending on the type of firm and level of person doing the work, a client may have the fabled "$1,000 per day consultant" working on a routine audit or tax return.

Our services can greatly benefit a client by improving their business processes and systems. Our rates are most comparable to those for routine services provided by individual and medium-sized firms, even though we can deliver more benefit to the client's operations. Thus, we satisfy the cost component of value.

In summary, our service quality levels and our cost structure enable us to succeed in our key goal of providing our clients with services of exceptional value.

Sincerely,

Todd L. Herman

Todd L. Herman


Client Project Update:

I am pleased to provide you with an update on our client projects. Projects we have completed over this period are...

Reduce Planning Time and Improve Planning Accuracy

Reviewed the proposed production planning process of an intimate apparel manufacturer to determine ways to use technology to reduce planning time and improve planning accuracy.

Improve Efficiency and Effectiveness of an AR Department

Reviewed the activity costs, processes, systems, and organization of a knitwear manufacturer's accounts receivable department to improve its efficiency and effectiveness.

Extended Competitive Financial Analysis for Management to Address

Extended the competitive financial analysis for a sportswear manufacturer to include ten years of information, identifying issues for management to address.

Tracking Prospects and Client Contacts

Enhanced an insurance agent's use of personal computers in maintaining and tracking prospect and client contacts.

Increased Budget Process Efficiency

Revised the monthly reporting package of a healthcare provider to reduce preparation time by using new features in Excel 5.

Revised Monthly Reporting Packages

Revised the monthly reporting package of a healthcare provider to reduce preparation time by using new features in Excel 5.

Enhanced a Standard Cost Sheet System

Enhanced a standard cost sheet system for an apparel designer and marketer to allow the cost accounting department to better monitor product cost development deadlines.

Assisted with the Review of Physical Inventories

Assisted with the review of work-in-process physical inventories of an apparel manufacturer, identifying several types of system cutoff errors.

Converted Records to Microsoft Access Database

Converted key records of a growth-stage company from the Superbase database program to the Microsoft Access database, significantly improving ease of use and lowering training time and cost.

Developed Overhead Rates and Budget Amounts

Developed overhead rates and budget amounts for personnel categories in a law firm to assess the profitability of services.

Future projects we are planning include...

Planning & Cutting Order Improvement

Devise and implement systems to improve the planning of cutting orders for an apparel manufacturer.

Benchmark Administrative Costs & Operations

Benchmark administrative costs and operations of a knitwear manufacturer against those of a sister company, identifying areas for improvement in both companies.

Annual Income & Cash Flow Budget Development

Develop the annual income and cash flow budget for a growth-stage company, enhancing the owner's knowledge of financing requirements.