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optimize your profit potential with these 10 steps.<\/p>\n
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1 \u2013 scale your practice<\/strong><\/p>\n expanding the service connection with clients leads to stronger loyalty, heightened satisfaction, and a growing top and bottom line for your firm. determining the potential for expanded services and the ability to provide that degree of increase is the core of scaling your practice. create a roster of services that you deliver along with which clients receive them, and then make a list of clients for whom services can be expanded.<\/p>\n quantify the number of new fees available if you successfully increase service to clients. the goal is not to maximize the number of clients, but to have clients getting the maximum service. as you transition into expansion, be mindful of a practical goal. one hundred percent of your clients accessing all your services may or may not be realistic, but generally, 50 percent of your clients using 50 percent of your services is a realistic goal. think about services you do not currently offer and whether potential demand justifies adding them.<\/p>\n 2 \u2013 profile your business<\/strong><\/p>\n determine the model client for your practice. each firm brings varying skills and preferences for client service. as a result, the model client will not be the same from firm to firm. the definition should be primarily a function of the services you like to provide or have the best ability to provide.<\/p>\n in some cases, it is a compliance client, for example, tax returns and financials. other firms want to provide significant consulting services along with compliance. be as granular as you can on the service and as descriptive as possible about the client. you may feel your model is best delivered to closely held enterprises or businesses that are global or niche-based. you may have sales volume parameters for your model, as well as operating history attributes. also, look for a level of fee appropriate to the services and value you are providing.<\/p>\n the easier it is for a referral source to understand what you are looking for, the more productive that referral source can be. the better you define yourself in the market, the easier it will be for potential clients to understand your concentration and react accordingly. definition yields efficiency and economies of reaction time and performance. the more narrow your definition, the more specialization will come \u2013 and the greater the value your service will be to potential clients, existing clients and employees. the heightened value of your services will result in higher profit and longevity.<\/p>\n 3 \u2013 filter with fees<\/strong><\/p>\n fees can be both a magnet and deterrent for business. accountants must use fees to their advantage. set minimum fees for all engagement levels. when time is at a premium, especially during the busy tax season, minimum fees are vital.<\/p>\n to set a minimum fee, consider factors such as the true and average time of a project, targeted net realizable rate, expertise, position in the marketplace, the complexity of the type of project, and your cost structure \u2013 including annual training and technology utilization. the more specialized your practice and the more sophisticated the project, the more success you will enjoy from minimum fee and value fee structures.<\/p>\n 4 \u2013 grade your clients<\/strong><\/p>\n stratifying your client base with grades ranging from a to d will make an important impact on how you allocate resources and prioritize your time. the criteria for each grade should be based on factors that are tied to the promptness of payment, frequency of referral, level of fee, engagement realization, and the potential to grow the relationship.<\/p>\n this grading system does not include a factor for the personality and the demands made by the clients. clients expect a service. being properly available to your best clients and not bogging down your system with the needs of lower-tier clients will allow for more emphasis on the better clients which will then generate enhanced profits and efficiencies.<\/p>\n 5 \u2013 manage your metrics<\/strong><\/p>\n cpa firms track key performance indicators (kpis) to better manage the business. some factors are lagging, some are leading and some are real-time. traditional metrics like billing, collections, realization, and utilization are valuable and should be part of a dashboard that is available easily at a minimum to the leadership of the firm and, at best, to all of the players.<\/p>\n beyond the traditional factors, productivity per hour is a must to target, monitor, and achieve. too many firms get hung up on their realization percentage and not on the effective hourly charge and collection rates. when budgeting your firm\u2019s finances, target a total net profit for the owners and relate that to the number of performance hours to come to a target charge hourly rate. for example, if your net profit was 40 percent and you wanted a profit for the partners of $1,000,000 with optimally 10,000 charge hours generated from your timekeepers, you would need an average rate of $250 per hour to hit the target. in a firm with multiple areas of specialty, you would have different rates for each department, but overall the goal would be for the full firm to come in at that net profit target.<\/p>\n 6 \u2013 enforce engagement restrictions <\/strong><\/p>\n all engagements over a particular threshold must be budgeted. the threshold should take into consideration your most typical client by service and the next tiers both above and below them. the budgets need to be inserted into each client\u2019s module in your time and billing system so that tracking actual to budget can be automated, and variances can be handled in real-time. depending on your package, you may have the ability to lock down an account when a percentage of the budget has been reached that is beyond the percentage of completion.<\/p>\n if you do not have a lock-down mechanism through your time and billing package, it is important to issue a report when accounts hit the 50 and 75 percent levels so a decision can be made about continuing the services \u2014 or approaching the client about additional fees or alternative service options. you will want to have a lockout in every circumstance when a client is behind in payment beyond a standard set by the firm.<\/p>\n 7 \u2013 persistently manage workflow priorities<\/strong><\/p>\n time is a critical lifeline in an accounting practice, and poor utilization of time will impair profitability and lower morale. work assignments and engagement tracking should be transparent, and the management of priorities should be centralized. depending on the firm’s size, scheduling may be done by consensus through a management group or may be assigned to one person.<\/p>\n many practice management software packages contain workflow tracking modules and will interface with the firm\u2019s tax preparation package. the more automated your workflow system is, the better your efficiency and profitability.<\/p>\n 8 \u2013 employ an incentive-based compensation program<\/strong><\/p>\n motivated personnel works diligently and more efficiently. depending on the level of employee and the nature of responsibility \u2014 whether administrative, accounting or supervisory \u2014 the achievements to be incentivized and the results to be rewarded will be different. the most productive incentive systems will reward team-based results and individual achievements. goals need to be formulated with a \u201creach\u201d component. monitoring of results must take place during the year, and there needs to be ongoing coaching for performance.<\/p>\n incentive systems should be simple to administer and understand. the financial rewards to employees, which can be a mix of compensation and fringe benefits, should be distributed twice a year \u2014 after busy season and before the end of the calendar year. the owners of the firm should have bonuses that are incentive-driven and those bonuses should also be distributed at least twice a year.<\/p>\n 9 \u2013 emphasize roi<\/strong><\/p>\n cpa firms routinely invest time and money in their business. every member of the organization must have tangible production goals with values attached. client service hours and billings are a natural yardstick, but other tasks have value, as well. while functions may not be chargeable, they will bring varying value. blanket administrative or unassigned time has no value for the accounting team; however, marketing, client goodwill, and firm projects do have value. every person must deliver a dollar value of annual firm value to justify compensation. investment in software and business lines must generate certain savings in hours and dollars or new revenues. the risks that come with certain efforts must be factored into roi.<\/p>\n 10 \u2013 benchmark referrals<\/strong><\/p>\n strong referral sources are vital to the stability of an accounting practice. referrals from current and past clients are necessary for the health and perpetuity of your firm, but so are non-client-based referrals. as you build your referral system, do your homework to determine the potential for referral for a given party, their history with others, and the nature of the competition for the referral. each year, set targets for either the number of opportunities or the dollar level for each source and work towards exceeding the goal.<\/p>\n firm profitability will improve if you follow the 10 action steps noted here, but improvement is not restricted to these recommendations. each firm has its own culture and challenges. however, profitability should be a major focal point for your firm \u2014 just as you insist it should be for your clients.<\/p>\n","protected":false},"excerpt":{"rendered":"