Inefficiency Drains Profitability

Process improvement helps increase realization

By: Dave McCarthy, Lean Six Sigma Consultant  |  May 2011

Over the past month I've spent a good deal of time reflecting on this year's tax season. I'm continually looking for ways to improve our processes. Even though we have solid and efficient processes in place, there is always room for improvement. However, I didn't always think this way. Matter of fact, there was a time not too long ago where I didn't even realize the impact inefficiency was having on my own work let alone our firm.

Back in 2008, my personal downtime on the job was calculated for the first time. With a stopwatch in hand, a coworker tallied that I spent 15 minutes in a single day telling people who entered my office where to put files. While 15 minutes may seem insignificant, it's not especially when you multiply it by the number of days in tax season.

If I wasted 10 plus hours during our busiest time of the year, how many did my fellow partners waste? How about the managers and staff working on returns? And the administrative team who assembled the returns? Suddenly, those 15 minutes became hundreds of hours and thousands of lost dollars.

Increase Your Realization

Addressing inefficiencies has a positive effect on re­alization. Efficiency doesn't just allow you to work fewer hours and have less stress; it helps you make more money. For example, let's say you billed $800 for an individual tax return in 2010. What did you bill for the same return this past year? Whether you had $750 or $1,000 of time in the return, chances are you billed $800 plus a fractional increase for inflation. Sound familiar?

Firms that increase efficiency are positioned to make more money. After improving your processes, you now only have $500 in that same $800 return this year. By billing slightly more than $800, suddenly the firm has added more dollars directly to the bottom line. Multiply this by the number of returns completed throughout the firm, and the increased prof­itability is huge.

 
Start With Process Improvement

Lean Six Sigma is not a one-size-fits-all solution. It's about developing a custom process that works in your specific situation taking into consideration your uniqueness, like size, talents and facilities. So no two firms will have the same processes. However, there are three key things all firms should look at in coming up with their optimal process including:

  • Client information management. By ensuring most client information has been received before starting a tax return, your staff won't have to start and stop their work every time missing informa­tion is identified. 
  • Visual management. Passing information back and forth between staff and partners takes time. Placing returns in specific places based on status saves everyone time and you won't have to search for missing information either. 
  • Reducing bottlenecks. Somewhere in your pro­cess, things get backed up. By finding ways to al­leviate these bottlenecks, you'll keep your process moving so returns get out the door faster.
Change Your Perspective

At a time where everyone is still trying to do more with less, firms that operate as efficiently as possible will have a definite advantage. With Lean Six Sigma, you can be­come more effective at getting, completing and de­livering work that has a bottom line benefit. And by billing more quickly, you can increase cash receipts.

It takes time, effort and cultural changes to successfully use Lean Six Sigma philoso­phies. However, the payoff is great. Plugging the inefficiency drain can improve your firm's profits. 

Lean CPA
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