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The Top Best Practices for Your Accounting Firm’s Profitability

Some Best Practices for Your Accounting Business’ Profitability

 

Profitability

Profitability

Business profitability will always rank as one of the highest priorities within a business. A business can operate with superior customer satisfaction and service, but if it is not profitable, it will not remain open long. Fine tuning profitability for an accounting business is as simple as reviewing company policies.

Company Leadership and Management

Design a corporate management structure that has one managing partner and a small management team making a majority of the decisions for the company. By keeping most of the partners in the accounting firm focused on clients and staff, you generate larger profits. Make sure that there is a well-defined vision for the firm so that all partners and employees have a goal.

Metrics to consider:

– Percentage of administrative personnel compared to other full time employees
– Fees and overhead expenses associated with each person in the firm
– The billable hours contributed by the managing partner
– Income of each equity partner
– Spread in ages of all the partners in the firm

Firm Growth

 

Business Growth

Business Growth

The growth of the firm should be closely examined. CPA firms are often focused on the top-line. However, if client retention is good and a marketing plan is in place to gain new clients, these efforts will reflect positively on the bottom-line.

Metrics to consider:

– Marketing expenses in comparison to revenue
– Current and future growth rates
– Cost of fees and services offered
– Client retention and referral rates
– Fees per partner in the firm

Billing Rates

 

Professional billing rates

Professional billing rates

One problem that many accounting firms face is not properly billing clients for their time. While this is not to say that bills should be overinflated, they should be accurate. Accountants should bill more aggressively without gouging for their services. Overall, accounting firms should strive to bill at higher rates for fewer clients instead of lower rates for multiple clients.

Metrics to consider:

– Partner billing rates in comparison to industry rates
– Net billing rate of the entire firm
– Realization

Managing Firm Talent

 

Manage talent better

Manage talent better

Consideration should be placed into the acquiring, training, and retaining firm talent. Overturning employees can be very costly for the firm. Developing talent and retaining them for the benefit of the company will increase profitability.

Metrics to consider:

– Hiring practices including the hiring of college graduates to reduce costs
– Employee training costs
– Employee retention and turn over costs
– Employee compensation packages
– The use of a non-equity partner

Managing Talent Time

 

Better Time management

Better Time management

One of the most important things that partners and employees give to the company is their time. The old cliché “Time is money” stands very true. It is very important for the firm to make sure that all talent within the company is devoting the majority of their time to profitable tasks.

Metrics to consider:

– Equity partners billable hours versus hours worked
– Managing partner billable hours
– Professional staff billable hours compared to time worked
– Utilization of time versus work load

Partner Performance

 

Improving personal performance

Improving personal performance

Partners, as a whole, make more money than standard employees within a firm. It is very important that each and every partner is performing their duties and is contributing to the success of the firm. Partners have a higher accountability to the success of the firm, and this should reflect in their actions and compensation rates. Partners that are not contributing actively to the success of the firm should have their compensation and position with the firm reevaluated.

Metrics to consider:

– Reviews of performance by other partners in the firm
– Reviews of performance by management and staff of the firm
– Employee to partner ratio in the firm
– Other contributions to the firm outside of billable hours

Compensation System

 

Increasing compensation

Increasing compensation

It is important to review all aspects of the compensation system, especially for the partners. Make sure that all partners have equal access to clients and that one partner is not hoarding billable hours or clients. It is also very important that performance reviews are conducted annually to ensure that pay and other compensation is being distributed according to performance and contribution.

Metrics to consider:

– Compare compensation between lowest to highest compensated partner
– Establish a compensation system that provides rates based on performance and status

A review of all of these areas within an accounting firm can eliminate expenditures that are not necessary and increase profitability. Fine-tuning these areas will also help the firm run a more efficient office that retains better employees and has a steady growth rate.

Hi, I’m a Tax Pro based in Maine.

I love to publish about Tax and Accounting matters. I’m a business person at heart, and enjoy people who want to put up businesses and contribute to the economy.

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