How to Plan for Revenue and Profit in an Accounting Firm

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Most accounting firms plan their revenue and profit in one (or a mix) of the following ways:

  1. Our revenue (or profit) was $X last year. Let’s add X% for our target. Our costs are pretty much fixed, so now we’ll work out how many people we need, what the charge rates need to be and the chargeable hours per person. A work back scenario.
  2. We have X people right now who can generate work. Let’s put their charge rates up by X% and their chargeable time up by X% and reduce the write downs by X%. Then we’ll multiply it all out and get a revenue figure. Then we’ll work out the salaries and the overheads and that will build the profit model. A work back scenario.

I am going to suggest that these methods are fundamentally flawed for driving profit. I think you should do what I like to call ‘inside out planning’ – ‘not work back’ planning.

Let me give you a real example of a firm I worked with on ‘The Perfect Firm’ seminar program.

Michael K has a small accounting firm in the suburbs. He has been in business for a number of years and has a fairly solid, predictable business. Here are his vital statistics for the last 12 months:

  1. He has four (4) people (three (3) accountants and one (1) administration) plus himself - total of five (5)
  2. He has revenue of approximately $650,000
  3. He was ‘writing down’ $50,000 before billings
  4. He has $125,000 in work in progress at any time - 70 days
  5. He has $150,000 in receivables at any time - 84 days
  6. He has an average hourly rate (client hours) of $141.45
  7. He has an average hourly rate (all team hours) of $77.04
  8. He has 60 business client groups representing 85% of revenue
  9. He has 120 other clients representing 15% of revenue
  10. He has a profit before partner salaries of $210,000
  11. After a notional $150,000 salary for himself, he has a business valuation of approx. $300,000

In front of 110 people and over a 20-minute period, I did a ‘makeover’ on his firm and the results were staggering. At the end of the 20-minute planning session, he was targeting a $664,709 profit (up $454,709), revenue of $1,187,709 (up $537,709) and a valuation of $2,573,545 (up $2.2M)!

Once he understood the resources, training and methods available to him from us he committed to implementing the following 14-step plan:

The full details of Michael’s makeover are below.

Rob Nixon

CEO & Co-founder at PANALITIX

About the Author

Rob Nixon is the world’s foremost authority on how accounting firms can achieve peak performance. Since 1994, he has been running businesses that specialize in helping Accountants run better, more profitable businesses. His speaking work has taken him around the world where he has spoken to in excess of 170,000 Accountants. Currently, his landmark strategies and products are used by Accountants in over 30 countries.

On average, clients increase profit by 75.5%, enhance capacity by 30.6% and achieve sustainable revenue growth of 52.1% - in just 12 months.

Rob is the author of two best-selling books “Accounting Practices Don’t Add Up – why they don’t and what to do about it” – and “Remaining Relevant – the future of the accounting profession”. Both have received rave reviews from Accountants and industry professionals from around the world.

Rob’s latest book “The Perfect Firm: Your Playbook for Building a Perfect Accounting Business” aims to help Accountants build their perfect accounting firm.

In 2005, he created the revolutionary coaching model called coachingclub. The coachingclub model enabled firms to be accountable, to consistently learn and to share ideas amongst their peers. So far, over 800 accounting firms have graduated from his coachingclub program. The vast majority of firms have doubled or tripled profits because of the program.

Rob is a keen golfer (single figures) and adventurer (he is ticket holder 293 on Virgin Galactic to go into space). He lives in sunny Brisbane, Australia with his lovely wife Natalie and three children.

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