Accounting Firms Scoring Goals, Not Just Behinds

Dominic Papaluca – Rise Business Solutions
September 25, 2016
HTA Advisory Case Study
October 12, 2016
What High-Performing Accounting Firms & Championship-Calibre Football Teams Have In Common

 

History is about to be made this Saturday, the 1st of October 2016. The clash between the two strongest teams in the Australian Football League, the Sydney Swans and the Western Bulldogs, is about to come to a head. These two titans have emerged as the best teams of the 2016 AFL season.

So what does it take to be a championship team? Two colossus of the football field have performed at the highest level to defeat their competition. They did it through sheer force of will and strength of character – key attributes your Accounting firm should definitely emulate. And like them, your Accounting firm should be focused on making history and not writing up history!

swanvsbulldogs

Now, what does it take for you to become a high-performing firm (HPF)? Well, you need to have high-performing numbers. Like the Swans and Bulldogs, your Accounting firm should put some substantial points on the board. After researching and working with hundreds of HPFs since 1993, we have seen a commonality in their numbers. High-performing firms are achieving five or more of these numbers:

  • Greater than 50% profit margin before Directors salaries / drawings
  • Greater than $500,000 profit per equity Director
  • Greater than $200,000 revenue per full time equivalent person (including Partners)
  • Greater than $200 average hourly rate before write-ons (WIP generated divided by client hours charged)
  • Greater than 5% write-ons (no write-offs at all)
  • Greater than 10 days in WIP at any time
  • Less than 40 days in debtors at any time
  • Less than 600 hours pa of Director time charged to clients
  • Less than 40 hours worked per person per week
  • Less than 15 days job turnaround time (from time job in to job out the door)
  • Less than 25 per cent salary costs (incl. super but excluding Partner salaries) as a percentage of revenue

Not all teams in the AFL can hit the high stats. Likewise, not every high-performing firm has all of these numbers. If you had five or more of them,  you would be classed as a high-performing firm.

There are many firms in the world achieving these results and better. We use the 80/20 rule twice in this industry to find the elite firms. Out of every Accounting firm in the world, 80% will do very little to improve their performance, 20% will do something and only 20% of those firms will achieve ‘elite’ status. So, I would only class about 4% of firms in the ‘elite’ level.

This can be relatively compared with football teams. We say “relatively” because there’s no denying the efforts sports team put into trying to win the grand prize. But, at the end of the season, only the elite rise up to take the trophy.

The good news is every single Accounting business or sports team in the world can be at this level – if they are prepared to change. The only reason you will change is if you have enough pain in what you are doing now or you are seeking pleasure on the other side. This is where the force of will and strength of character of these two football teams come in.

Our research indicates that over a 41-year period (1964 – 2005) that profit per Partner (CPI adjusted) increased a miserable 19% at the lower quartile and a paltry 40% at the upper quartile. Not even one percentage point per year over CPI – even at the upper quartile!

Most owners of Accounting firms do not achieve the rewards that their intellectual capabilities are truly worth. The traditional business model does not work as well as it could. With the developments in technology and knowledge the industry has not changed. In fact, I think it has gone backwards. The same can be said with under-performing, and frankly, disappointing teams. On paper, they have the talent to win it all but that doesn’t quite translate on the field. This is the bane of countless sports team owners the world over.

But, maybe you do not want to be a HPF yet. In sports leagues like football, teams can be in a rebuilding phase, just traded key players, perhaps have new owners, etc. For you, maybe you’re just looking to take it easy at first.

Here are 10 of the main traits we see in HPFs. See which ones interest you:

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