Most CPA’s make nothing close to $1M profit per partner. Most are in the $200K – $400K range. I personally think that is waaayyyy to low.
For the risk you take, for how smart you are and the value you add I think you’re worth >$1M profit per partner. But you have to believe it first.
Now you may or may not want to make $1M profit per partner. However, you might want to double your current profit.
The old way is to follow the ‘labor hire’ business model. Get more Accountants to do the work, get them to charge more time and that will increase your revenue. Yes, that is true – your revenue will increase. And so will your cost structure. Unless you have very high leverage of people : partner ratio, and decent charge rates you’ll rarely get there.
Chasing ‘the billable hour’ or ‘more chargeable time’ is chasing the WRONG thing. After 22 years coaching Accounting firms I’ve found that if you chase the following strategies you’ll have more of a fighting chance to crack the $1M profit per partner mark.
- Better leverage & less partners. There are too many overpaid partners who are really glorified managers. Don’t accept a new partner unless they are a ‘rainmaker’. All non-rainmaking partners should not be partners. You need at least a 8:1 team : partner ratio and at least $2M revenue per partner.
- More administration / marketing team members. Get the admin team to do the admin work associated with the Accounting jobs and have a marketing person generate leads.
- Better quality clients. Only have A & B class clients that have some ‘up side’. Get rid of the ‘bottom feeders’ who are not ambitious and do not want to grow. Find new clients who are ambitious and want to grow.
- Value based fees. For special projects price based on value created not a ‘time and charge rate’ system.
- More projects per client. Work out how many projects each client buys from you and then see what else they can buy from you. Make sure the new projects are priced on value not time based.
- Offshore labor. Look at your delivery costs. You can often hire cheaper labor elsewhere with the same quality.
- Efficiency methods. Look at every process / tool and see can it be done faster with another way. Often technology can play a major part in this.
- Better utilization of Partner time. You can certainly prop up profits by having the partners charge more time. They have the highest charge rates. If you get partners focussed on high end work (30% of time), sales (60%) and leadership (10%) then you’ll achieve a much better result.
- Less time for Accountants. Stop beating them to a pulp. The objective should be less time on a client job not more. When you price up front you should reward efficiency (less time) not inefficiency (more time). A solid Accountant should work for no more than 1,800 hours and be effective for no more than 1,300.
- Average hourly rate increase. When you price a project up front your average hourly rate should be increasing every month. It indicates you are pricing better, adding value and getting more efficient every month. If it’s not increasing every month then it’s either your pricing, your efficiency or your your value.
The table below is an example of a sole practitioner model of $1M profit. It’s just an example (that does add up) and you’ll need amend for your business.
If you want to make $1M profit then you can. However your mindset and business model needs to change. It’ll take discipline, alignment and desire before you take action.
We’d like to help you get there.
We have the tools, the methods, the education and the ‘how to’ methodology to make this a reality for you.
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