an example from outside the accounting profession.
by marc rosenberg
the rosenberg practice management library
it has been said that organizations should never have profitability as a goal. why? because profitability should be the result of an organization’s efforts, not its goal.
more: core values: why your firm needs them | five keys in compensating new managing partners | what partners do and don’t deserve | five steps to transition to partnership | disturb the present to improve the future
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profitability is a measure of success in accomplishing core business goals. the disney corporation probably says it best in their mission statement, which is short and sweet, but very powerful: “our mission is to make millions happy.”
disney super-pleases parents by creating hundreds of quality movies and lovable characters children grow up with and adore, and by creating theme parks that tap into our fantasies and imagination.
they create the disney magic by operating their entertainment facilities with fastidious devotion to efficiency and cleanliness, and fanatical attention to the tiniest details, and by countless other efforts. disney’s customers not only pay for their access to disney, but they do so with a smile on their face, and they keep coming back for more. at disney, the philosophy is clear: create and maintain a world-class organization that satisfies the customers’ needs, and the profits will come as a result.
the same theme is true with cpa firm profitability. to be truly profitable, firms need to achieve successfully business goals other than profitability. then, and only then, will firms be profitable.
- do you want to find easy, quick ways to increase profitability?
- do you want to hear about proprietary techniques that previously have never been made public?
- do you want to discover revolutionary ways to cut costs?
- do you want to find a way to increase productivity without establishing partner accountability?
if your answer to any of the above questions is “yes,” you’ll be disappointed.
let’s clarify what we mean by “profitable.”
at a cpa firm, profits often are measured with an imperfect figure called income per partner, or ipp. it represents revenues less expenses but excluding any payments to partners. let’s say a firm has five partners and the total income for the five is $2 million, which is distributed to the partners for an average income per partner of $400,000.
now it becomes important to distinguish between the terms “profits” and “compensation.”
to properly measure profits, as opposed to “income,” a portion of the partners’ compensation would have to be classified as compensation expense. because there is no simple way to allocate the $2 million between compensation and profits, most firms don’t bother doing so.