By nature, accountants are ultra-comfortable around numbers. However, when it comes to the numbers that are key to running a successful CPA firm, too many small- and mid-sized practices are limited in their appreciation, tracking and analyzing of data, and key performance indicators (KPIs).
Of course, we live in the data age, and it’s easy to get overwhelmed. But there are crucial barometers to read, track, and analyze on an ongoing basis. Here are 10 KPIs that are important to accounting firms of all sizes, in categories including efficiency, marketing, and performance.
1. Turnaround Time
The percent of work turned around in a certain time frame is always a relevant metric to track. Both client satisfaction and employee satisfaction are often tied to turnaround time. If the client turns in information at the last minute — or if the firm turns out work at the last minute — both sides can feel aggravated. Committing to a turnaround timeline and living to it creates satisfaction and orderly efficiency.
Of course, firm management needs to assess whether the current turnaround time is acceptable, and whether it can be improved. Finding an appropriate turnaround time for tasks will vary by season and by nature of the work. Study the trends of turnaround by season, by line of service, and by producer. Track turnaround in your scheduling and workflow management system, and analyze it twice a month, if possible.
Pro Tip: Track all time spent on projects — whether your pricing is value-based or an hourly rate — with Jetpack Workflow’s time budgeting tool.
2. Budgetary Accuracy
The effectiveness of budgeting client projects impacts the utilization of personnel, staff satisfaction, scheduling, and overall firm profit. The more the budget aligns with the actual effort, the better for all concerned. Keeping track of the percentage of budgetary accuracy will allow you to optimize bids and isolate the kind of work and conditions at which you are better and worse. Study budgetary accuracy by line of service and/or niche quarterly.
The number and dollar value of potential client engagements in the pipeline are relevant data points. Also, know the success of closings and the number of days that opportunities are open and unfulfilled (not closed). There should always be something in your sales pipeline. However, the volume of that inventory will vary by season. Firms with a strong focus on business development will typically have a monthly or quarterly target for the dollar volume in the pipeline.
4. Referral Source Traction
Tracking the number of opportunities by referral source, dollar value, and closing helps firms know who to concentrate on. The referrals should be tracked both as they come in and as they are referred out. Referral sources should be ranked and monitored, and the results should be shared with the right vested parties.
5. Wins and Losses
Tracking how much dollar volume you pick up annually from new clients (wins) and how much volume you lose through client departures (losses) is imperative to steer your firm successfully. Trends in wins and losses should be analyzed and managed by the firm to predict and encourage winning behavior and correct losing behavior, as appropriate. All clients have a lifeline. The successful firm will be able to replenish.
6. Billed Production per Timekeeper
Set targets for the amount of billed production you achieve by producer, as well as targets for different criteria, such as busy season, non-busy season, and the full year. Generally, when the year is out, you want to see the billed production tied to a multiple of compensation paid.
Keeping the CPA firm engine running healthily is about hitting capacity sufficiently. If you have a certain number of “producers,” then they’re capable of producing a certain level of dollars in billed production. Know that optimal capacity in each reporting period and how close you come to meeting it. Some firms will work people harder; some less so. But whatever the culture, there will be a dollar capacity level by person and for the whole team.
Pro Tip: Use a real-time capacity planner like Jetpack Workflow’s Plan tool to make this process so much easier.
8. Achieved Rate per Hour
The gross profit of a CPA firm will be dictated heavily by the average rate per hour of work that is billed out. For example, if $10,000 is billed out on 1,000 hours of production, the average achieved rate is $100 per hour. The average achieved rate is much more meaningful than the realization rate, but is impacted by realization. Firms in different regions perform at different average rates. Know where your firm stacks up on achieved rate relative to your region and your competitors.
9. AR/WIP Turnover
Cash flow drives firm partner/owner happiness, so the quicker you turn receivables and convert WIP to dollars, the better. Turning receivables and WIP seven-to-eight times a year is a very healthy stat. In addition, transparency about the aging of the A/R and WIP in firms is of great importance.
10. Profit per Producer
The capital of an accounting firm is people. Each producer comes with a cost, which includes wages, perks, payroll taxes, benefits, CPE and licenses. Keeping track of the excess of the revenues created over the cost for each producer is a powerful way to stimulate better utilization and awareness.
Successful accounting firms of all sizes develop these goals and metrics to track performance and ensure continuous improvement. While we outlined 10 common KPIs here, any metrics you use should be realistic and attainable, and should be aligned with your firm’s values and priorities. Firm leaders should reinforce the targets and provide feedback to the team to help keep everyone on track – and to give the firm a competitive edge for the future.
Want to dive more into KPIs for accountants? Download our free ebook, Double Your Accounting Firm, to learn more about how strategies like KPIs can help you to grow your firm at a much faster pace!
About the Author
Ira S. Rosenbloom, CPA (LR), is chief operating executive of Optimum Strategies, LLC, a CPA advisory firm specializing in practice performance, mergers and acquisitions (M&A), and ownership and succession strategies focused on business continuity and success. A dynamic speaker and noted author, Ira regularly contributes to national, state and local professional accounting organizations and media. Find out more at OptimumStrategies.com – and check out a recent Growing Your Firm podcast Ira did with Jetpack Workflow.