Why Many CPA Firms are Underperforming
Source: CPA Practice Management Forum
According to consultant Shannon Vincent, many CPA firms recognize that they are underperforming, but they don't understand the reasons. The solution, Vincent says, is to track these six key profit drivers:
- Productivity
- Work-in-process (WIP)
- Average hourly charge rate
- Write-ups/write-downs
- Accounts receivable
- People leverage
Unfortunately, most firms fixate on productivity – or “utilization” – alone, which can backfire. For example, if a firm sets a utilization goal, employees may focus on easier (though not necessarily more profitable) jobs to “get their time on the clock” and may be more concerned with time than effectiveness. As a result, there's no incentive to complete jobs, which can lead to long turnaround times, dissatisfied clients, and hefty write-offs.
Vincent emphasizes that his solution works only if firms track all six profit drivers and implement them at the same time. He offers tips on how to get started, explains the key role pricing plays in improving firm performance, and provides a case study to illustrate the tracking process.
Tracking key profit drivers can produce significant performance improvements. “In most firms,” Vincent says, “even if they had to hire someone to do only tracking of their numbers, they would see returns.”
For the complete article, read “Track Your Key Profit Drivers.”
From CPA Practice Management Forum, CCH Incorporated, 800-449-8114, May 2011, p. 5.