Realization is the Key to Profitability

Source: CPA Practice Management Forum

Consultant Bryan Shelton explains why maximizing realization is critical to preserving accounting firm profitability. Too often, accountants look at write-downs as a “necessary evil” and “a way to make clients feel better about the fees they are paying.” To the contrary, cutting fees sends the message that you doubt the value of your work. Rather than making clients more comfortable with your fees, it can create similar doubts in their minds.

To enhance realization, firms need to value what they do and communicate effectively with clients so that clients value it as well. Like construction firms, accounting firms need to have a change-order process to communicate necessary fee increases on a timely basis. It's not acceptable to write off fees because of poor communication. Clients question fees for many reasons, including “because they can.” It's important for accounting firms to understand that when a client asks for a reduced fee just because it's worked before, it's OK to say “no.”

Shelton asserts that increasing billing rates while maintaining (or even reducing) a firm's current realization rate is a bad strategy. Boosting realization has a bigger impact on a firm's bottom line than increasing fees by the same percentage and maintaining the current realization rate.

Shelton offers several tips for improving realization, including performing realization studies, establishing realization standards, and improving realization for problem clients.

For the complete article, read “Realization: The Quickest and Most Effective Way to Increase the Bottom Line.”

From CPA Practice Management Forum, CCH Incorporated, 800-449-8114, September 2011, p. 12.