A good indication of a well-run Accounting business would be that the Partners are doing the least amount of client work while the Profit per Partner is extremely high.

Think about that for a moment.

If the Partners are doing a large percentage of the client work, then there is too much reliance on the Partners. There is limited leverage and the vast majority (in most cases) of the profit (and the revenue) falls on the Partners. Without the Partners there is not much of a business. This firm has a sustainability & valuation issue.

That is a definition of an Accounting Practice. Practitioners practicing their craft. This no not a business it’s a job.

A well run Accounting business will have a leveraged model where there is a high People : Partner ratio. The higher this ratio the more sustainable the business is. There are more people doing the client work and the reliance is not as much on the Partners. If the Partners are not there then most of the profit still is.

With every firm I coach my objective is to get the profit per Partner well over $1M per annum while the Partner client chargeable time is below 500 hours per annuum.

Most firms I meet (before I start coaching them) have Partner profit well below $1M and Partner time well above 500 hours. They are seriously overworked and seriously underpaid. That might be you!

I have met firms with a $300K profit yet the Partner(s) are doing 2,000 (sometimes more) client chargeable hours. Yuk, yuk and more yuk!

To get profit per partner more than $1M (after tax BTW) and partner hours below 500 hours it takes a different structure, different skills, different strategies and different tactics.

And it takes a new number to measure. Enter ‘Profit Time Index’. Or PTI for short.

It’s a simple number to work out.

Profit (BPB – before Partner benefits) divided by total Partner client charged hours.

A sole practitioner with $300,000 profit that has 1,500 chargeable hours has a PTI of $200.

A 3 Partner firm with $1.5M profit and the collective Partner chargeable hours are 3,000 then the PTI is $500.

An 8 Partner firm with $3.2M profit with collective chargeable hours at 10,000 has a PTI of $320. I like the 3 Partner firm better. Just because they are bigger doesn’t mean it is better.

I know of a Sole Owner firm with a PTI of $10,000! He makes a $6M profit and he has around 600 client hours personally. I REALLY like that business model.

Since I know of an Accounting business that has a PTI of $10,000 and I know of Accounting practices (sometimes large ones) that have a PTI of $200 or less then I think there should be 8 graduating targets to measure, monitor and manage.

PTI Scorecard

  1. $1 – $250 – you are overworked and underpaid.
  2. $250 – $500 – starting to make a little bit of money but still working too much.
  3. $500 – $1,000 – you might be making some money but what about the time.
  4. $1,000 – $1,500 – leverage has kicked in and it’s going great.
  5. $1,500 – $2,500 – now we’re talking but don’t get too comfortable.
  6. $2,500 – $5,000 – double it from here without doubling the time.
  7. $5,000 – $7,500 – keep pushing there is more in you yet.
  8. $7,500 – $10,000 – corporate structure is in place – go big or go home!

Your PTI should be improving every quarter. It means you’re getting more profitable every quarter and you’re reducing Partner chargeable time every quarter.

What’s your PTI and what are you going to do to improve it?