Manage Your CPA Firm on Purpose: Are You Driving Firm Profitability — or Merely Accepting It?

Would real-time, actionable metrics help you make better decisions? They certainly have in our firm. Like so many other accounting firms, we used to review firm performance metrics a few times a year — usually when we got invitations to participate in MAP surveys.

But now, we have implemented our proprietary performance management system, backed by robust business intelligence, and it has been nothing short of transformative for our firm.

Today, we can quickly analyze productivity and realization numbers by service line, by engagement, even down to the partner level. At any point during an engagement, we can see how profitable it is, so we can do something to turn it around if needed. As soon as billing begins, we have the numbers to tell us how profitable the engagement was, allowing us to make decisions about whether to pursue similar opportunities and how to staff them.

Yet in most firms, performance metrics are used as little more than a history lesson. And there’s a very good reason that most firms don’t review these metrics more frequently. Generating them typically requires pulling data from multiple systems and dumping them into standalone spreadsheets. Not only is this process time-consuming, but it can also be error-prone. The result is often outdated metrics, with different versions of the “truth” being generated by these disparate systems.

If you lack a single version of the truth, you are essentially driving blind. Without the real-time, actionable data you need to make good decisions, you could be heading down the road to an unprofitable outcome. By the time you realize it, it is probably far too late to make course corrections.

What’s Your DTA?

The truth is that any firm can make these performance metrics part of a regular review process. It’s a matter of priority.

Back in the 1980s, when I worked for Coopers & Lybrand, we had something called a Daily Time Analysis (DTA). Every day, each person on the job would post their time on a sheet of 13-column paper. The senior on the job maintained the DTA, spending at least an hour every day tabulating those columns and comparing with the budget. If the senior could not produce an up-to-date DTA upon request, he or she would be taken to task.

The point is that, even without technology, you can choose to make regular profitability analysis part of your expectations and standards.

Luckily, we do have technology today that can quickly and accurately generate performance metrics. Far more than the glorified time and billing systems of the past, today’s practice management systems integrate time tracking, billing, workflow management, customer service, sales and marketing functions into one integrated system. When these solutions are backed by robust business intelligence, they can quickly analyze all this disparate data to produce simple, powerful graphics illustrating the trajectory of the firm.

These practice management systems answer a lot of questions very quickly. How does the tax department realization rate compare to the audit division? How did billable hours compare to budgets on each engagement?

When departments or individuals aren’t performing well, you have the numbers to hold the responsible parties accountable — and to give credit where credit is due. Accountability is key to performance management, and performance management is key to driving a profitable firm.

In a series of upcoming blog posts, we will pose some questions for you to ponder. Among them:

  • Does each division and staff member have a productivity goal? Are you (and they) regularly monitoring their progress compared to those targets?
  • Can your system calculate realization percentages as bills are generated?
  • Can you easily calculate realization for each line of business?
  • Do you know the firm’s unbilled work in progress by billing manager on a daily basis?
  • Can profitability be assessed for each business line and not just firmwide?
  • Do you know realization percentages for each staff member?
  • Assuming that you can generate some or all of these metrics, are they available in real time to allow partners and managers to monitor their people and engagements and make midcourse corrections? Or are they simply a history lesson?

As you begin to discuss these issues with your management team, remember that in today’s competitive environment, the only way to continue growing is to deliberately drive firm profitability with actionable intelligence.

But maybe you’d rather sit back and enjoy the ride, accepting whatever destination you happen to reach. Myself, I prefer to be in the driver’s seat.