{"id":109821,"date":"2023-03-30t12:40:03","date_gmt":"2023-03-30t16:40:03","guid":{"rendered":"\/\/www.g005e.com\/?p=109821"},"modified":"2024-08-07t23:09:30","modified_gmt":"2024-08-08t03:09:30","slug":"the-business-side-of-cpa-firms","status":"publish","type":"post","link":"\/\/www.g005e.com\/2023\/03\/30\/the-business-side-of-cpa-firms\/","title":{"rendered":"the business side of cpa firms"},"content":{"rendered":"
<\/a><\/p>\n four ways to increase revenue. four reasons that employees should care.<\/strong><\/p>\n by marc rosenberg<\/i> future cpa firm leaders must have an understanding of how their firm operates as a business, including how it makes money and what holds back profitability. with this knowledge, team members will make better decisions about how they spend their time and perform their work.<\/p>\n more: <\/b>public accounting as a business, 101<\/a> | nuts and bolts of mentoring staff<\/a> | nine ways to measure staff performance on the path to partner<\/a> | sixteen duties of a partner<\/a> | five people to keep out of partnership<\/a> all businesses have economic structures unique to their industries:<\/p>\n the typical cpa firm is a low-volume, high-priced business<\/strong>, with a relatively high profit margin (generally 30-45 percent of revenue). the vast majority of a cpa firm\u2019s revenue is considered \u201cannuity\u201d business. <\/strong>clients of cpa firms typically remain with their firms for five to 10 years or more, thereby providing a relatively safe revenue stream that continues every year, primarily for compliance projects such as audits, reviews, compilations, bookkeeping and tax returns.<\/p>\n most expenses are fixed. <\/strong>even though staff labor is theoretically a variable cost, with the exception of major recessions the head count at firms stays relatively constant despite fluctuations in revenue. most firms can absorb a healthy number of new clients without increasing their personnel head count.<\/p>\n also, because of the shortage of labor, most cpa firms are continuously in a hiring mode: if a firm is fortunate enough to come across someone who has a good resume and is available, the person will generally be hired immediately, even if the firm\u2019s revenue volume does not appear to justify increasing head count.<\/p>\n low overhead expenses. <\/strong>cpa firms have low overheads compared to law firms and other businesses. despite earning substantial profits, the vast majority of cpa firms are not big spenders. many have very nice offices but would never be considered lavish. a very small percentage of a cpa firm\u2019s expenses are discretionary.<\/p>\n cpa firms are top line-driven.<\/strong> in the pursuit of increased profitability, many businesses must either increase revenues or decrease expenses. but cpa firms rarely focus on controlling expenses because there is little excess to trim. instead, virtually all focus is on increasing revenues.<\/p>\n cpa firms increase revenues by<\/p>\n increases in revenue drop directly to the bottom line (profits) because these revenue increases rarely cause the firm\u2019s expenses to rise much.<\/p>\n leverage is king.<\/strong> the vast majority of the work performed by a cpa firm is done by staff instead of partners. therefore, one of the top operating strategies of firms is to maximize the amount of client work that each partner can create for nonpartners to perform, under their supervision. achieving this high leverage frees up partners\u2019 time to devote to developing business, nurturing relationships with clients and referral sources and helping staff learn and grow.<\/p>\n bigger is better. <\/strong>any analysis of cpa firm profitability will consistently and conclusively show that the higher a firm\u2019s revenues, the higher its profits will be. this is because the bigger the firm, the more it can afford to invest in sophisticated marketing programs, develop specialties and niches, aggressively pursue mergers, create better training programs and hire high-level professionals in the administrative, marketing, hr and it areas. all of these tactics attract larger clients (who pay higher fees), more talented staff and smaller firms looking to merge in.<\/p>\n the cynics among you might ask this question. after all, the profits that the firm earns from the staff\u2019s great work go directly into the partners\u2019 pockets, right?<\/p>\n what incentive do staff have to contribute to firm profitability? what\u2019s in it for them? here are four good reasons:<\/p>\n the opposite of all those things happens when companies struggle. ask anyone who has had the misfortune of working for a stagnant organization that struggles with profitability. it can be miserable.<\/p>\n charge hours or billable hours.<\/strong> a cpa firm\u2019s widgets (units of production) are hours. the vast majority of a firm\u2019s revenue is billed directly or indirectly by the hour, so cpa firms pay a lot of attention to the billable hours worked by their personnel.<\/p>\n non-charge or nonbillable hours. <\/strong>all work time that is not<\/strong> worked on client projects. this includes training, firm meetings, business development, vacation, holiday and sick time.<\/p>\n billing rate.<\/strong> all personnel, from partner to staff, are assigned standard hourly billing rates. these rates, when multiplied by the hours worked on client work, result in a number called gross fees or billable time, <\/strong>which eventually is billed to clients.<\/strong><\/p>\n timesheet.<\/strong> all charge and non-charge hours are recorded on timesheets. these charge hours are entered into the firm\u2019s billing system and accumulate in the firm\u2019s work-in-process, which is the starting point for generating client invoices.<\/p>\n work-in-process (wip). <\/strong>wip is a receptacle in the time and billing system where all time and expenses are accumulated by client. when clients are billed part or all of the accumulated wip, these billings reduce the wip balances, leaving a net unbilled amount for each client. these amounts are either carried forward to subsequent months to be billed at a later date or written off.<\/p>\n write-offs. <\/strong>cpa firms (law firms, too) are rarely able to bill for 100 percent of their actual time spent on client work. the amount of client work that is not billed to clients is written off. the vast majority of firms write off 10-20 percent of their client time.<\/p>\n there are many reasons for write-offs, including:<\/p>\n realization percentage. <\/strong>the percentage of all client work that is billed to clients. the realization percentage for most cpa firms is in the 80-90 percent range.<\/p>\n billings<\/strong> are the actual amount of billable time that is invoiced to clients. the difference between gross fees (the value of all<\/strong> time worked on client projects) and billings (sometimes called net fees or net revenues) is write-offs.\u00a0<\/strong><\/p>\n leverage. <\/strong>this term is used in many industries and has a different meaning in each of them. in cpa firms, there are two interrelated ways to define leverage:<\/p>\n income per partner. <\/strong>the total earnings of all equity partners divided by the total number of equity partners. ipp is the primary measure of a cpa firm\u2019s profitability.<\/p>\n","protected":false},"excerpt":{"rendered":" four ways to increase revenue. four reasons that employees should care.<\/strong>
\nhow to bring in new partners<\/i><\/a><\/p>\n
\nexclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n\n
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why should employees care how the firm makes money?<\/h3>\n
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key definitions<\/h3>\n
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\n<\/a>
\nby marc rosenberg<\/i>
\nhow to bring in new partners<\/i><\/a><\/p>\n","protected":false},"author":1339,"featured_media":52068,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[3120,3002,2266],"tags":[],"class_list":["post-109821","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pro-member-exclusive","category-special","category-partner"],"acf":[],"yoast_head":"\n