Most Accounting firms plan their revenue by 1 (or a mix of) 3 ways: Our revenue last year was X – let’s go for Y. Then do an internal work back of people x charge rates x productive hours. Our profit last year was X – let’s go for Y. Then do an internal work back…
Just been working on this for my new book. The manuscript will be finished by year end. The new book will be out in March 2015.
Last December we ran a trial 2 day event for Product Development. Specifically how Accountants can create products (that require minimal labour for delivery) out of what they already know. Turning intellectual property into intellectual capital. It was supposed to be a one off event. The delegates loved it so much (many saying it was…
Although the detail might be quite complex (and hundreds of strategies around each one) improving the profit of an Accounting business is relatively simple. Get more clients of the type you want Retain the ones you already have Have each client buy more services (projects) from you each year Increase the top-line price of each…
The more projects a client buys from you the better they are served and the more you ‘put a fence’ around the client. It makes it harder for them to leave your firm if they are buying (on average) 4+ services from you. This KPI however should not be about retaining clients (although that…
If you are like most firms you will have a range of charge rates in your firm. Normally charge rates range from $100 – $350 per person depending on salary & experience level. If this is the case then your Average hourly rate (AHR) or net firm billing rate for client hours will be around $150-$200.
It’s pretty pathetic to think that is all you believe you are worth! This is such a silly system for pricing.
I think you are worth much more but you have to believe it and you have to change the way you price projects.
There are 2 measures of Average Hourly Rate.
1) AHR – client hours. Take your revenue (let’s say $2M) and divide by client hours billed (let’s say 10,000). In this case it is $200.
2) AHR – hours worked entire team. Take your entire team (incl. partners, admin & professionals) and multiply by the working hours in a year to get total hours worked (say 12 people X 1750 hours each = 21,000 worked hours). Now divide revenue ($2M) by total hours worked (21,000). In this case it is $95.
It’s important to look at both of them. You can have a fantastic AHR for client hours (>$400) yet very poor on all hours worked (<$150) because of the productivity, people mix & administration process. The ultimate measure is to be focussed on AHR – hours worked entire team. It’s this one that will ultimately drive your profit before partner salaries.
If you are pricing projects up front then there are only 4 ways you can dramatically increase your AHR.
1) Charge more for the same project – straight price rise
2) Be more efficient and have less time on each project
3) Sell higher value projects based on value created
4) Change your administration mix and get more out what you have got
Your AHR should be improving every single month. If it is then that is a reflection on your pricing / sales prowess and your efficiency of throughput.
If it’s not improving (or going backwards) make sure you mention this to our coaching team when they do your Business Performance Review.
I have written an extensive report on Accounting firm performance. You can download the full report here with all 12 KPI’s in it.
Enjoy video # 4
It’s very easy to increase profits in an Accounting firm. Simply have the most senior people (partners) charge more time. The partners generally have the highest charge rates and theoretically the most experience.
Yes you will increase profits but for the short term only.
David Maister, author of many outstanding professional services firms’ books said it best:
“What you do with your billable time will determine your income.
What you do with your non-billable time will determine your future”
Assuming that the partners of the firm are partners for the right reasons (not a glorified / expensive senior Accountant with the title of Partner) then the partners should only be doing 3 things:
1) High end advisory work for a small percentage of time <30% of time. 2) Nurturing existing clients making sure each client has every service they need to satisfy their goals in life. 3) Acting in a leadership position – driving performance, winning new clients & innovation. If Partners spend 2 hours analyzing phone bills and scrutinising the colour of the receptionists new chair - not a good use of partner time. If Partners spend 2 hours doing compliance work for $200 per hour. Hmmm - not a good use of time. If Partners can spend 2 hours in a client meeting and bring back a $10,000 project with a 75% margin then I would consider that a good use of partner time! Enjoy video no. 3
The relationship between profitably and ‘productivity’ (or ‘utilization’) in the old revenue model has always been about ‘billable hours’. How many can be charged to the client/project. As mentioned previously driving billable hours is a ludicrous business model.
Many partners of firms want to drive billable hours and they are quite proud of the fact that they, a team or team member has more than someone else. WARNING! Excessive focus on this metric promotes the wrong behaviour. Team members ‘hog’ work, they ‘pad out’ time sheets and are generally inefficient.
If you want to be as efficient as possible then price the project up front, have an hours budget on the project and then drive the time down – thus running out of work and creating capacity.
The measure is simple – charged time into available time. So if there were 40 hours in a (working) week available to charge and your team member ‘charged’ 30 of them then that would equate to 75%.
If there is plenty of work to do and you have sufficient team members then a healthy mix of ‘productive time’ is expected –around 75% of a normal working week. But not much more.
Enjoy video no. 2
This year I am embarking on my 20th year working ‘on’ the Accounting profession. In that time I have influenced Accountants in 38 countries, had over 85,000 Accountants attend seminars / webinars and personally coached over 500 firms to success.
Although not an Accountant, for nearly 20 years of my professional life has been about Accountants and their success. I started working with Accountants when I was 24 (yes, I know I look younger than that!) and have loved every minute of it.
Some people like science or making things. I like Accountants. In fact I love Accountants!
Accountants can offer so much value to their client base and therefore their community. They are an integral part of the success of business. They are the natural business leader and the true trusted advisor.
They offer an immense amount of value to their clients and they are seriously smart. Yet, they don’t make much money!
If profit per partner is one measure of success then only 2.5% of the profession is earning more than $1M per partner. Most partners of accounting firms make around $350,000 per year. I think it’s a paltry sum for the contribution they make.
The problem is their self-esteem and the business model that they operate under. My business is the Proactive Accountants Network and through our membership and coaching program we help Accountants to:
Maximise their cashflow
Run a more efficient business
Utilize their team better
Delight clients with value added work
Work less hours
Grow their revenue & wealth
Live a better lifestyle
This video series is a ‘secrets revealed’ report focusing on how to revolutionise the financial performance of an Accounting firm. It’s based entirely on what our ultra-high performing firms are doing to achieve success and revolutionary financial performance. As you’ll discover, I do not pull any punches – I just tell it the way it is.
Enjoy getting focused on revolutionising your revenue, profit and cash!
Check back here often for each installment or sign up for RSS feed so you are notified immediately.
Here is video # 1 – enjoy.