Let Your Beanie (CPA) Run Your Business

Sometimes when watching the grass grow is just too much excitement for my delicate constitution, I participate in some of the dweeb (CPA) forums on Linkedin.com. Last week, one of the dweebs started a thread about how the younger generation doesn't have the work ethic of us old people. The thread alternated between dweebs opining that the younger generation is entitled to a better work life balance and the old dweebs telling them, “You youngsters are lazy and, by the way, stay off my damn grass.”

I stupidly wandered into the discussion, writing that pure economics will determine what happens to work life balance in the dweeb world of the twenty-first century. Clients really don't give a damn about our work life balance. We either get the work done on a timely basis, or they leave. To this, one old dweeb trying to be hip with the young folk, stated that owners of dweeb firms (CPA firm owners) should just hire more people to take of clients. This geezer dweeb was definitely not a business owner.

For this next part, you might want to grab a third grader. There will be some math involved. Third grade math is apparently above the level understood by the dweebs on Linkedin.com.

Here is a really simple economic truth I explained to the dweeb audience on the forum. In dweeb firms, dweebs who produce more make more money and are more easily promotable. Of course a number of dweebs, the non-owners, disagreed. They argued that pursuing work life balance should have no effect on earnings or promotion opportunities. To which I replied, “If all other factors are equal, paying the same amount to high producers and low producers means the high producers will leave for dweeb firms who do pay more to high producers. All the egalitarian firms will end up with is the low producers.”

Here's the third grade calculus behind my statement. Let's say we have two dweebs who are each billable at $100 per hour. OK, that is a low number, but I don't want to advance to fourth grade level math. Let's also assume our first dweeb works fifty hours per week, and the second dweeb works a standard forty hours per week. Here is your math exam. To whom can the firm pay the most money?

Tick, tick, tick. Use your lifeline if you must, or pull your third grader out of class. The teacher won't mind. I promise. Use my name. Let's look at the amounts billed by each. Our fifty hour per week person is going to bill $100 times fifty hours or $5,000 per week. Our forty hour per week person is going to bill $100 times forty hours or $4,000 per week. Who is more valuable to the firm? To whom can the firm pay the most money? The answer is pretty obviously the fifty hour per week dweeb. Here's the math behind this. $5,000 per week seems to be just a bit more than $4,000 per week. Ask your third grader if yu don't get this. Of course, the egalitarian dweebs will bitch that this isn't fair. Maybe the forty hour per week person spends ten hours per week volunteering to care for injured seals. Maybe he cares for the little old ladies I run down with my car each week.

I don't give a damn about fairness. Here's what happens from an economic standpoint. If the fifty hours per week dweeb's firm won't pay for his additional worth, he will leave for another dweeb firm that will properly compensate him. This may be bad news for injured seals and little old ladies, but this is exactly what will happen. What's even worse for the firm than losing the more productive dweeb is what happens to their entire dweeb workforce.

There is a concept in the insurance world called adverse selection. Adverse selection occurs when an insurance company creates policies that encourage low risk customers to leave and high risk customers to stay. For example, a life insurance company that insures terminal cancer patients for the same price as healthy customers is practicing adverse selection. Of course, they won't practice it for long.

A dweeb firm that creates a compensation plan that favors low producers at the expense of high producers is practicing adverse selection. All the good producers will go elsewhere leaving only the dregs behind.

Here's what you conclude. A lot of CPA's don't have much business sense, particularly the ones who aren't partners. Business isn't about treating injured seals and old ladies – unless you can get paid for it. My wife, Laura, refers to “fair' as the “F” word. It has no meaning in the economic real world. Only what exists counts. Paying low producers may satisfy some idiot dweeb's perception of fairness, but the mean old economy doesn't care, seals and old ladies be damed.

Here's another way I know the economy is driving what's happening in the dweeb industry. I don't see nearly as many articles about “mommy track” careers or work life balance as I saw in the early 2000's. Take a guess when these articles started disappearing. They disappeared with the beginning of the great recession. Surprise, surprise.

I will end with a comment regarding the assumption underlying the Linkedin.com exchange. That assumption is that the younger generation is less work oriented and feels a sense of entitlement. A week or so ago, my daughter, Meg, who is interning for Deloitte and Touche this summer, worked a sixty hour week. She volunteered for this. She is not in the least lazy – maybe a little bit entitled, but nobody's perfect except for me.

Each generation is molded by the economic circumstances of their coming of age. The great recession generation faces a grim long term job outlook. The generation preceding them faced a much more rosy outlook. The difference isn't in the kids. It is in the circumstances in which they matured. In any case I want them to stay the hell off this geezer's grass.

Thanks for reading. For real accounting and tax advice, please visit the S&K web site at www.skcpas.com. Drop me a line (that really dates me) at fstitely2@gmail.com. If you promise to stay off my grass, I might even buy you a Geritol at the bar. It goes down great with a beer chaser.