March 27, 2009

IS 50% PROFITABILITY REALLY POSSIBLE?

Yes it is if you change the way that you do business. And this is what this blog is all about, finding ways to improve accounting firm profitability through process improvement, process efficiency, revenue enhancement and expense management. These improvements are necessary due to what I like to call the “perfect storm” that is now taking place in the profession: age and gender demographics, technology, labor costs and the commoditization of core services. CPAs will have to change the way they practice by better utilizing technology and redesigning processes. My premise is that as long as this transition is taking place why not seize this opportunity by redesigning the client service delivery model to increase profitability. Let’s start with some low hanging fruit.

Inefficiency

From current surveys of accounting firms the total utilization of all personnel in most public accounting firms range between 50% and 55%. This means that 45%+ of the total labor efforts in most firms is not being charged to clients and the value of these efforts are not being captured. Increasing the utilization by 5 percentage points (i.e. 50% to 55%) in a ten million dollar firm would drop an additional one million dollars to the bottom line.

The Question: What could you do to improve overall utilization in your firm?


My first thought is to schedule weekly to make sure everyone’s plate is full. After tax season you will start getting those “need work” emails usually from some of your less experienced staff. Keep them busy by requiring that more experienced people push down work that they shouldn’t be doing anyway. Hold a very brief scheduling meeting every Wednesday or Thursday afternoon for the following week. You want have everyone fully scheduled so they can hit the ground running on Monday morning. When firms implement this system 10% improvement in utilization is fairly common.

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