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William R. Pirolli
Seven ways to boost the bottom line

Cut costs, raise revenue, train your people, and reap the rewards.

April 29, 2013
By William R. Pirolli, CPA/CFF/PFS

Accounting firms play a key role in helping clients improve their profitability, but CPAs aren’t always the best at running their own businesses. To help CPAs beef up their firms’ bottom line, I will be teaching a session called “Seven Ideas to Boost Your Bottom Line,” at the 2013 Practitioners Symposium and Tech+ Conference in Partnership with the Association for Accounting Marketing Summit, to be held June 10–12 in Las Vegas. This article introduces you to the seven ways and touches briefly on how each one works.

  1. Start from the beginning. Rethink and renegotiate everything. I want CPA firm leaders to look at everything they are doing as if it were the first day of forming their practice. They need to ask themselves questions such as these: Am I spending my money in the right place? Can I get it for less? Do I still need all of these subscriptions?
  2. Software costs are one of the biggest areas where firms can save money. A lot of software providers now, especially with cloud-based platforms, are charging either by the number of clients you have or by the number of employees you have. We work with a vendor that provides storage and file transfer services and wants to charge by the number of email addresses a firm has. That’s a good approach for smaller firms, but it becomes kind of random—and expensive—for larger firms.

    So we sat down with the vendor and said, “We aren’t going to pay you that much money because the service is not any harder to provide because there are 80 of us instead of 10. You already have it bought and paid for. We don’t like your scale, and we want to pay you less.” Typically, vendors will agree to charge you less because they want you on board.

    Another area where you can save money is in your research material. That’s a big one. If you are a larger firm, you might want to double-check your policy on reimbursing tuition. And some of the items, you might want to increase. Let’s say you would like to provide more for tuition. You might save money in another area and use some of that savings to boost the tuition program.

    Everybody just gets complacent with this stuff. Things like sending your malpractice insurance out to bid every two to three years. You need to say, “Let’s get it bid instead of being comfortable with it.”

    Are you running your business like a business?

  3. Understand your practice. This refers to knowing what your client and service mixes are, as well as the key profit drivers of an accounting firm—utilization, realization, billing and collection, and net income per partner. Break down your practice into (1) what you are doing and how much of those things you are doing, and (2) for whom you are doing it.

    In a lot of cases, we see firms performing a certain service for just three or four clients, or, even worse, just one client. Get away from doing everything for everybody. Focus your client and service mix, because the more of anything you do, the more efficiently you are going to do it.
  4. You also need to understand the profitability—the business part of the business. Understand who you are demographically as a firm and focus that effort into things you do well or things you like doing that you can concentrate on and build. Our firm is starting to put clients into channels, creating an estate and trust group and a construction group so we can focus a set of staff on a specific goal. Firms of all sizes can do that. You don’t have to be a bigger firm.  

  5. Charge more. You should raise your prices every year. If your firm charges by the hour, then raise your hourly rate. If you are a value-billing firm, then increase the amounts you charge. A lot of firms froze prices, or even scaled them back, during the recession. That practice needs to stop. Your business costs aren’t getting cheaper every year.
  6. Firms often are reluctant to raise rates because of the pushback they will face from clients. But you can’t be in any business and not look at your rates on an annual basis. You need to understand whether you are charging the right amount. Use resources such as the AICPA Management of an Accounting Practice (MAP) Survey to compare your firm’s key metrics with those of your peers. You might be surprised by the number of firms that don’t know basic facts about their own business—such as how many billable hours the firm had. 

    Charge what you are worth, but make sure that you are worth what you charge.

  7. Capture out-of-scope work. In the interest of giving superior client service, we often do work outside of the engagement. We end up doing the client’s work, and we can’t get paid for it. Train your staff to understand exactly what the scope of the job is and to stop performing extra services. Instead, evaluate the situation, go to the client and say, “Hey, this is what we started. Here’s what we need to be doing. I think we’re trying to charge you too much money. You need to take back some of this responsibility, and we should get back to where we were in the beginning.” In other words, you’re going to need to pay us for any extra work that we do.

  8. Fire some clients. This is about focusing your firm. Everyone is afraid to let go of work once it’s in the door, but it’s sometimes necessary. If you are performing a certain service for only three or four clients, it makes sense to cut that line of business to focus your service list. You should have a ranking tool to evaluate your clients and know which ones are marginal.
  9. That does not mean you simply cut clients loose. You need to talk about contractual matters in each instance to ensure that you know what you can and can’t do in terminating the relationship. You need to know what the breakup meetings will look like, and you need to have a destination in mind for the client—another accounting firm or service that is a better fit. Transforming a termination into a transition can keep bridges from being burned.  

  10. Invest in people. Accounting firms can drive profit by leveraging themselves with proper staffing. You have to have really good people who are worth what you have to charge for their services. Train your staff in firm economics. Make them real smart. For smaller firms, it’s all about hiring someone.

  11. Build a culture of accountability. You need everyone rowing in the same direction. How do you do that? All accounting firms track at least one metric—net income per partner. How much money did I make last year? You have to build accountability in a multi-partner firm so that everybody is focusing not only on excellent client services and the hundred other things we need to do as a firm, but also focusing on profitability as well.
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As told to Jeff Drew, CPA Insider senior editor. 

William R. Pirolli is a partner in DiSanto, Priest & Co., in Providence, R.I.