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If you’re an accountant, what’s the HABU (Highest And Best Use) of your time? Our advice: Don’t get bogged down by mundane tasks—it will stand in the way of tackling your true priorities.
Taking your firm to the next level doesn’t have to be hard, according to a recent article by Clayton R. Weir.Technology can turn the trick.
When it comes to the digital revolution, the accounting profession is late to the party. While fintech has swept the financial services landscape, CPA firms are practically stuck in the floppy-disk stage. Unfortunately, accountants’ workloads have continued to expand, and the lack of automation is hindering efficiency.
The first step out of this hole is to reimagine your technology infrastructure to free up your accounting teams, so they can focus on vital, strategic projects—and not get tripped up by humdrum tactical tasks. Here are some easy first steps to take.
Next Stop: The Cloud!
It’s time to ditch your on-premise infrastructure. Sure, it may have been necessary in the past, but now? Especially with the pandemic, remote work is crucial. Today your teams need to easily access information, with streamlined usability. Cloud computing can break down traditional organizational silos and increase collaboration across your entire business. Accountants can collaborate more closely with colleagues in other business branches, yielding much more inclusive decision-making. Did you know that 70 percent of European businesses are pushing for greater cloud adoption?
It’s API Time!
An API is an application programming interface, which connects computers or computer programs. When your firm adopts one, your teams will be amazed by their new-found power to access and share the data and insights they need to make smart decisions. They’ll reach a whole new level of efficiency where their products and services can communicate with one another and be included in your firm’s daily workflow.
Accountants are forever drowning in boring, repetitive tasks (did somebody say bookkeeping?) instead of tackling true priorities—such as making the all-important leap from compliance to advisory, which is vital to the continued health and wellbeing of the accounting profession. As a matter of fact, 58% of accountants state that automation boosts efficiency and productivity, because it delivers access to the real-time data necessary to deliver greater efficiency and improved performance.
Although it seems like magic, it’s technology. If your firm wants to step up to the next level, it’s not hard. And when you do embrace technology, you’ll wonder why you didn’t do it long before. It will immediately pay off with more efficient workflows and tighter teams.
In my first two articles on The Future of Accounting as reflected in The Rosenberg Survey—a comprehensive annual survey of the accounting profession authored by The Growth Partnership—I addressed emerging patterns we’ve seen regarding changing partner compensation systems and the issues of partner buy-in and buy-out. In this article, let’s talk about a topic that’s of lively interest to us in the accounting world: the metrics that drive CPA firm profitability.
For many years now, whenever we’ve analyzed the top 10 metrics with the strongest correlation to profitability, as measured by income per partner, the same four factors keep reappearing. They might interchange, but they’re the same.
The results from our 2020 survey (based on 2019 figures) are listed in order of income per partner (for firms over $2M in annual fees):
|Rank 2019||Rank 2018||Metric||Average of the Top 25% Best Performers|
for Each Metric
|Average Partner Income of the Top 25%
Performers in Each Metric
|1||1||Fees per partner||3,046,992||775,073|
|2||2||Fees per person||258,099||717,496|
|3||4||Partner billing rate||445||707,098|
|4||3||Ratio of staff to partner||12.4||698,023|
Avg. IPP for all firms >$2 million – $497,417 ($469,542 in 2018)
The best path to profitability is a combination of high leverage and high billing rates. The top four items on this chart are all measures of leverage or rates. In this case, leverage assumes three forms; these are the biggest leverage ratios:
When you put these three factors together, they form a reinforcing pyramid that supports a firm’s success. But there’s a fourth factor that plays a decisive role in determining firm profitability: high billing rates.
Speaking of the power of higher billing rates… In the table below, you’ll see that having aggressive billing rates is a significant factor in achieving a high level of profitability. As consultants, we consistently see firms with aggressive rates outperform those with lower rates. Here is some convincing evidence — regardless of market size. (Note: in the chart below, IPP stands for Income Per Partner.)
|Population Range||Average Partner Billing|
|IPP||Average Partner Billing|
|IPP||Average Partner Billing|
What patterns emerge here? Firm members in the upper 25% are making almost double ($643,000) than those in the lower 25% ($357,000), regardless of population size markets. Firms with the highest billing rates will have the highest profitability. But it’s just not the billing rate—some firms charge flat fees. It’s clear that the firms that charge the most for their services reap the rewards.
Our advice? Don’t cut your rates to get new business—it’s a short-term fix at the expense of the long term.
Our chart below shows that even if firms with high billing rates have lower realization, they have higher “net” realized rates. See the results below:
|Average Standard Partner Billing Rate||Realization||Net Realized Rate||Average Income|
|Average Annual Net Fees|
The lowest 25% have higher realization (87.9%) than the highest 25% (85.1%), but the net realized rate is almost half (226 vs. 379). As I’ve said in the past, you cannot deposit percentages into the bank account; you can only deposit dollars.
At the Rosenberg Survey, what have we learned about the metrics that drive CPA firm profitability? First and foremost, income per partner is the ultimate measure of profitability. The surefire way to increase profitability (income per partner) is via the four factors: leverage (the pyramid with three sides: fees per partner, fees per person, and ratio of professional staff to partner) and rates. When assessing the key metrics crucial to profitability, those are the four factors we analyze.
But what else new has happened in the accounting world in the past dramatic year? By the time you read this article, the deadline for the new Rosenberg Survey (July 30) will have already passed. But if you’re interested in obtaining a copy of the 2021 Rosenberg Survey when it’s ready November 2021 so you learn what’s changing in the accounting world today, please contact us.
In the wake of the pandemic, these are challenging times for architectural firms, particularly regarding the field of commercial real estate. But there are tools you can access to give your firm the competitive edge it needs to triumph in today’s marketplace. One such tool is the AIA Leadership Academy: A Leadership and Business Development Program for Architects.
Consider taking advantage of AIA’s new flagship leadership development program, the AIA Leadership Academy, developed in partnership with The Growth Partnership (TGP), an executive coaching and advisory firm that’s a subsidiary of Engineered Tax Services, an AIA Innovation Partner.
This three-year program is designed for architects who are ready to advance their firms by learning critical business and leadership skills to grow their business, lead change and innovation, empower and engage people, and create immediate impact.
It’s the first—and only—multiyear program for architects that focuses on firm, professional, and community leadership. Expert instructors lead small classes (cohort-based classes) limited to 28 students. Students receive one-on-one personalized virtual coaching sessions.
The curriculum will teach you to lead across four key areas: managing yourself, your architectural firm’s growth, your profession, and your community. The program combines annual retreats, virtual classes, and individualized coaching. Sessions include knowledge-based lectures, facilitated exercises, panels, small- and large-group activities, success labs, best practice forums, and project-based assignments between sessions to promote problem solving and application-based learning.
Architects already have the technical knowledge and expertise to be successful, but interpersonal skills and leadership are an area that many professional service providers struggle with.
In addition to the development of leadership skills, it’s important for professionals to offer advisory services and suggestions to bring added value to clients. This can strengthen the client relationship and loyalty.
Differentiate yourself with value-added services
To achieve success as a leader in the architectural world, it’s important to focus not only on technical skillsets, but also to build your personal soft skills. You can act as an advisor to your clients by bringing to the table value-added services, such as a knowledge of incentives and benefits they can claim for projects you’re designing.
This can save your clients millions in tax dollars. For example:
These tax advantages bring substantial value to your clients. In addition, your firm could be claiming R&D credits and 179D deductions directly for some projects.
You can enhance your client’s bottom line by introducing the following tax strategies:
Winning clients by identifying hundreds of thousands of dollars in additional value
Clients can gain substantial tax savings in unexpected ways—but sadly, most CPA firms are unaware of these incentives, and because they require an engineer, they’re overlooked. When most architects hear “tax credits,” their eyes glaze over because they assume their CPA is supposed to handle anything tax-related. As a result, these incentives are left on the table.
Simple suggestions for tax planning might include:
Align yourself with strategic partners
With proper advice, your clients can pre-qualify for energy efficiency tax incentives stemming from 179D and 45L—and 179D’s new regulations make it much more challenging to qualify for. However, utilizing a strategic partner can make you shine. For example:
Yes, architectural firms are facing difficult times. But you’re not alone. The AIA Leadership Academy can help you develop leadership skills so your firm can achieve its full potential. In addition, Engineered Tax Services offers consulting and certification for these tax incentives and partners with hundreds of architectural firms across the United States to offer specialty tax services and consulting to help you achieve even greater success.