How to Prosper during an Economic Downturn

By Byrd, James; Smith, Douglas et al. | The CPA Journal, November 2012 | Go to article overview

How to Prosper during an Economic Downturn


Byrd, James, Smith, Douglas, Helms, Marilyn M., The CPA Journal


Strategies and Opportunities for Accounting Firms

Tough economic times have occurred periodically throughout history; according to the National Bureau of Economic Research, there have been 10 recognized U.S. recessions mat covered approximately nine years in a nearly sixty-year period (1953, 1958, 1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, 2001, and 2007-09). A recession, or even an economic slump, is not an unusual event; for one quarter of the twentieth century, the United States was in an economic downturn.

Although such challenges are often short-lived, some have longer durations. Variations exist in the magnitude of their impact, and there are regional differences in the severity of a downturn and the strength of a recovery. According to an economist's strict definition of declining gross domestic product (GDP) for two or more consecutive quarters, the last U.S. recession officially ended in 2009, but business and economic challenges remain. The country's current prolonged period of slow growth and cautious consumer spending - combined with unemployment, rising fuel prices, slower business activity, and a housing oversupply - is definitely a challenge for all businesses, and accounting practices are no exception.

Exhibit 1 illustrates that accounting employment generally follows the same pattern as overall U.S. employment The primary difference in the trend lines is the higher rate of increase in accounting employment from 2003 to 2006, following the passage of the Sarbanes-Oxley Act (SOX) of 2002. It is clear mat the accounting field, like other sectors, is subject to the fluctuations of the business cycle, although not as severely. The 2010-1 1 edition of the Bureau of Labor Statistics Occupational Outlook Handbook calls for national job opportunities for accounting and auditing to grow 22% from 2008 to 2018 (httpy/www.bls.gov/ ooh). Because current challenges exist, strategies for surviving in a still-weakly recovering economy continue to have relevance. Regardless of the economy, business best practices deserve continuous review.

Responses to a Downturn

The primary response to reduced revenues is to cut costs by a proportionate, or even greater, amount. Typical retrenchment responses include delaying expansions; deferring maintenance and special projects; freezing training, business travel, and nonessential spending for supplies and services; and decreasing expenses. Other tactics include eliminating waste, monitoring receivables with moie frequent billing, or offering discounts for immediate payment Some hard-hit industries are also limiting or eliminating raises for employees. Others are using unpaid days off, or furloughs, as a short-term solution.

Although a variety of cost centers can be affected, depending upon a business's type or industry, personnel reductions are typically part of an overall response in a downturn. But because businesses need accountants for compliance filings, the accounting departments of corporations do not usually reduce staff at the same rate as other functional areas of the organization. Maintaining morale and productivity becomes an added responsibility for managers. According to Lindsay Blakely in "How to Manage in a Recession," employees are under increased pressure to produce more with fewer resources (CBS News, June 23, 2008, http://www.cbsnews.com/8301-505125_ 162-5 1 208 896/how-to-manage-in-a-recession/). Productivity is critical, but continuing to increase productivity at the same rate as before a recession is not feasible.

Public accounting firms might find themselves with fewer clients as their business customers retrench. In an article on cross-discipline training, Max Messmer suggested that cross-training employees to perform multiple job functions can be an option even during retrenchment ("Cross-Discipline Training: A Strategic Method to Do More with Less," Management Review, vol. 81, no. 5, 1992). This approach has an additional benefit it allows workers to understand how different functions in a company fit together. …

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