Strategies for Boosting Profitability

Source: The Marc Rosenberg Blog

Recently, Marc Rosenberg hosted a roundtable of 25 managing partners (MPs) from most of Chicago's largest local firms. Here are some of the highlights:

• Increasingly, firms are using compensation committees to allocate partner income.
• Several firms have set targets (ranging from $375K to $750K) for new business origination for promoting a non-equity partner to equity.
• Mergers were the biggest cause of revenue growth in 2011.
• Not-for-profits (NFPs), as a practice area, received mixed reviews. According to one MP: "For a firm to be successful with NFPs, the partners have to accept the fact that their profitability will be lower than on for-profit clients."
• Practices for improving realization percentage include:
  • Billing consulting work, such as litigation support, at much higher rates than accounting work;
  • Raising rates if your realization rate gets close to 100 percent, or if the gap between partners and professional staff gets too close;
  • Hiring recent graduates to reduce write-offs that result when partners and managers are forced to do low level staff work.
• Tactics for increasing the staff-to-partner ratio include:
  • Letting partners focus on doing what they do best rather than focusing on chargeable work for the sake of posting higher hours';
  • Putting senior staff rather than partners on jobs;
  • Discouraging partners from doing work that nonpartners can do;
  • Hiring more staff to reduce partner charge hours;
  • Hiring more recent graduates, who generally have a lower turnover rate than more experienced hires;
  • Over-hiring to anticipate staff defections.
• Strategies for collecting receivables include:
  • Put past-due clients on credit hold;
  • Have an administrative person make collection calls;
  • Get past-due clients on a payment plan.

For the complete post, read "CPA Firm Profitability: Best Practices."

From The Marc Rosenberg Blog, October 9, 2012, http://blog.rosenbergassoc.com/.