5 Questions to Help You Reach $1M in Profit for Your Accounting Firm
On this week’s Growing Your Firm podcast, we welcome back Rob Nixon for a third time. Rob recently wrote a book, The Wealthy Accountant, which teaches accountants how they can earn more than $1M profit per partner after tax each year while working fewer than 500 hours.
We talked about five questions you can use with your own firm to help you get closer to this goal. To learn more about his method, check out the full book!
Summary
- The Context Most Business Owners Find Themselves In
- The Five Questions You Need to Transform Your Firm
Resources
Rob’s new book: The Wealthy Accountant
Additional Links
3 Ways To Increase Accounting Profitability With Fewer Staff
How to Create the Perfect Accounting Firm
How to Get Ideal Accounting Clients
The Five Questions to Ask
Before we jump into the questions, let’s talk about the context most firm owners find themselves in when Rob first encounters them as a business coach. In the beginning, the primary goal of all firm owners is to make enough money to pay the bills. There’s only so much time to figure it out before the business will fold.
What ends up happening is that they have a hodgepodge of client types, staff personalities, processes, and systems bound up in their business. It’s organic, but it can end up being like Frankenstein’s monster. The firm is alive, but there are a lot of parts that don’t work right. You may meet your revenue goals, but you’re working far too hard to get there. Or maybe you’re comfortable with your workload, but you know you could do so much better.
It’s time to go back to basics, to a blank slate, and create your business by design. That’s what the five questions are meant to help you do.
1. How do you want your business life to look?
You have to start with a self-focused mindset because ultimately, you own the business. It’s your name on the checks, so you should create the business that you want. You have choices. You can choose the amount of billable hours you want to work, how much you want to be involved, the kinds of clients and margin you want to work with, and so on.
How do you want to work? What’s your ideal work year? Dig into the details and decide. This sets up the baseline for your personal success.
2. What do you want your numbers to be?
By numbers, Rob means things like revenue, profit, average hourly, number of clients, average fee per client, and other business metrics. Forget what you have right now. What are your dream business metrics?
Rob believes that partners of accounting firms should make at least one million dollars in profit per year after tax and work fewer than 500 client hours. Clients should buy all the services they need that help them achieve their goals, so the average client fee should be well north of $25k.
To help firm owners weigh these decisions, Rob includes equations in his book to help you decide which clients are the most profitable for the time you spend helping them.
3. What products and services do you want to deliver?
Just because the government says a client needs to file a 1040 doesn’t mean you have to be the one to do it. You don’t have to be a one-stop shop for all of your client’s accounting needs. Rob believes that accountants need to get away from thinking of themselves as time-based businesses and consider themselves an intellectual property business.
If you want to be 100% advisory, do it! You can mandate that your clients use a particular product or service or they’re not in the firm anymore. One firm that did that lost 130 of their 256 clients, but their average fee per client went up to $26,000 because of the required tech adoption.
But how do you decide? Consider what you believe every client needs to succeed. Conversely, what have you done to help the clients that have grown the most since you started with them? There are the obvious requirements like compliance, but there’s so much more.
For clients that fear an advisory approach, stick with the numbers. You know more about balance sheets, projections, and the ebbs and flows of money than your clients. There’s no need to strategize about your client’s sales and marketing with them or any consultation beyond the numbers. Stick with your core strengths. You don’t have to do it all!
4. What culture do you want in your business?
Two companies selling the same products at the same revenue levels can have drastically distinct cultures. One firm may be local and the other remote, just as an example. Defining your culture may be considered too much of a soft-skill exercise for some, but it’s crucial for success.
Rob realized he had to define culture at his firm years ago when he had 26 people shifts in a team of 16 in a year. He took a weekend and wrote down 15 culture statements and 15 standards of behavior with clients. An example was, “Always answer the phone within two rings, and greet the caller with our specific message.” This set expectations of behavior for his staff to know how to operate. Think about how you’ll communicate with not only your clients, but also your leads, vendors, and team.
5. Who is your ideal client?
Consider the demographic, psychographic, behavioral, and needs-based characteristics of your dream client. Rob notes that the ideal client is the hardest consideration because you have to say no to a lot of potential clients. If you have a scarcity mindset, you’ll want to hoard as many clients as you can, but if you have an abundance mindset, then you’ll seek out the clients you want and reject clients that do not fit. Firm owners have to move into abundance and start feeling comfortable saying “no thanks” to clients who won’t be a good fit.
Who do you want to work for? Rob is a big fan of niche markets and industry specialization because this forces you to make rules on client types. Your ideal client might be a great potential client that is out of reach right now. But, by forcing yourself to stick to a niche, it will be easier to say no and refer them to a firm that fits their needs better.
Rob recommends that firm owners take half a day in a quiet place and dig into these five questions. Take your time with them and reveal what you really want your firm to look like. For advice on how to implement your plan, you can read Rob’s book (free on Kindle Unlimited as of this writing!) or reach out to him through his website.
Have you asked yourself these questions lately? Don’t forget to download your free copy of the 5 questions worksheet, and share with us about how these questions have changed your firm.
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