Most accounting firms plan their revenue and profit in one (or a mix) of the following ways:
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:
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:
A 7.5% price increase for existing client work. He will add value by doing a business performance review with each client.
Meeting 100% of existing business clients following a very specific meeting agenda and having 50% of them buy a new service from him. Normally we get up to an 80% conversion however we allowed a 50% conversion this time.
Of the 50% that needed something new the average new service was priced at $4,000. This was priced based on value based fees rather than time based billing.
Finding just 24 new clients (12 from referral and 12 from marketing method that we suggested) at an average fee of $12,000.
The first four implementation projects rounded out the revenue model of $1,187,709. Now he needed to deliver the $500K plus of new revenue. He did that by committing to…
Being 25% more efficient in all the work the firm did. We showed him a way to get 50% more efficient however he elected for 25%.
Targeting an ‘average hourly rate’ of $275 for new services to existing clients. The new services would be based on value based fees and normally much more than $275 however they needed to be his numbers.
Targeting an average hourly rate of $215 for new clients. He felt comfortable with this result.
Having his accounting team be 75% productive (1265 hours) for the year
Himself being 40% productive (675 hours) for the year
He needed to employ .5 of an Accountant so he elected to hire 1 new 5 year qualified CPA offshore (in the Philippines) at a total cost of $25,000.
These six projects enabled him to create capacity and deliver the work. Next we looked at his cost structure and cash flow:
He decided to give his team a 10% pay increase.
He would focus on ‘writing up work’ rather than ‘writing down’ work and by following our ‘eliminating write downs’ program he would get to +5% write ups.
He would implement our work in progress training program and reduce WIP to 15 days.
He would implement our receivables management program and reduce receivables to 30 days.
The full details of Michael’s makeover are below.
Rob NixonCEO & 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.