INSIDE Public Accounting Releases The 2017 Accounting Firm Internal Operational Reports

INSIDE Public Accounting (IPA) has released their sixth annual Internal Operational Reports, comprised of the Firm Administration Report, the Human Resources Report and the Information Technology Report. This release coincides with the release of IPA’s 2017 National Benchmarking Report.

These internal operational reports examine further the operations and best practices of hundreds of accounting firms across North America, offering information on compensation, business incentives, bonuses, turnover, recruiting, partner compensation, technologies used and dozens of other topics and metrics – broken out by revenue bands and regions of the country.

The IPA Internal Operational Reports are used by managing partners, firm leaders, marketers, attorneys, firm administrators and business development directors to compare their firm’s performance against others, and to uncover trends, ideas and techniques to improve operations.

Key highlights from the 2017 INSIDE Public Accounting Firm Administration Report:

  • Training directors are now employed by 23% of all firms. In firms above $30 million, that number jumps to 54%.
  • Firms above $30 million are employing more social media staff this year, with 48% of firms of this size reporting they have someone dedicated to this area. Overall, 19% of all firms have social media staff, up from 16% last year. The average salary of a social media staff member is $60,579.
  • Sixty-seven percent of firms charge interest on overdue accounts receivables, with the average charging 1.3% monthly.
  • One in 15 firms report outsourcing some portion of tax return processing work, with the majority of those coming from firms greater than $30 million in revenue.
  • Firms acknowledge that they want staff looking for new business opportunities, whether it comes in the form of new clients or additional services to existing clients. Sixty percent of firms offer incentives for bringing in new clients for 0- to 2-year staff and 3- to 5-year staff. More than half the firms offer these incentives for all experience levels.

Key highlights from the 2017 INSIDE Public Accounting Human Resources Report:

  • Professional staff turnover declined this year, to 12.4% nationwide from 13.9% for the 2016 reporting year.
  • Professional staff have an average tenure of 6.6 years, about 100 days longer than in 2016, and roughly one year longer than a decade ago. Over the last decade, the tenure of professional staff employed at the largest firms, those over $75 million, trailed the all-firm average by as little as six months in 2007 to as much as 1.4 years in 2011. At that time, the average tenure was 4.5 years for professional staff at firm of over $75 million.
  • Nearly 50% of firms offer telecommuting options to all staff and 28% offer it to professional staff only.
  • Seventy-seven percent of firms offer flexible work schedules to all staff, while 16% limit this benefit to professional staff only.
  • Just one in six firms report they have a diversity recruiting program. One in three firms above $50 million report a diversity program in place.
  • Seventy-eight percent of all participating firms indicate they have a mentoring program in place. Twenty-six percent of firms offer outside mentor / life coach to staff members. Only one in nine firms rate the effectiveness of their mentoring program as “excellent.” Four percent rate their program as fair or poor.

Key highlights from the 2017 INSIDE Public Accounting Information Technology Report:

  • Sixty-seven percent of participating firms have a Bring Your Own Device (BYOD) plan for cell phones, with nearly 14% implementing within the last year. This increase is mostly seen in firms below $20 million and those in the $30 million to $75 million revenue band.
  • IT maintenance of applications is easier when using the cloud, according to 74% of respondents.
  • Cloud-based applications are being used more frequently across the board, and continue to be dominated by research (81% of firms), client portals (75%) and payroll (54%).
  • Only 30% of all participating firms have instituted a formal procedure to ensure information technology projects / issues are effectively managed

For additional insight into the results of the 2017 IPA Internal Operational Reports, access complimentary copies of the executive summaries.

INSIDE Public Accounting Releases 2017 National Benchmarking Report

INSIDE Public Accounting (IPA) has released the 28th annual National Benchmarking Report, based on fiscal year ends from September 2016 to June 2017. The release coincides with IPA’s release of The 2017 Accounting Firm Internal Operational Reports.

This report, the largest of its kind, is based on survey results from 559 North American accounting firms – a strong representation of the profession, including 238 firms under $10 million, 248 firms between $10 million and $50 million, and 73 firms above $50 million in net revenue. The report covers fiscal years ending from September 2016 to June 2017.

INSIDE Public Accounting’s National Benchmarking Report provides detailed information in 80+ pages of tables presented in nine different revenue bands and regional breakouts so firms can easily compare with other similar-sized firms.

Key highlights from the 2017 INSIDE Public Accounting National Benchmarking Report:

  • Top-line organic revenue growth (excluding merger activity) fell this reporting year to 5.3%, down from 6.3% last year.
  • Merger activity remains strong, with 50% of firms above $50 million reporting at least one merger last year and across all firms, 19% reported at least one merger.
  • Increases in personnel costs as a percentage of total net revenue have contributed to lower profit margins for firms of all sizes, with the national average of net income as a percentage of net revenue now at 29.1%, down from 30.1% in 2016.
  • Professional staff turnover is down in firms of all sizes, with a nationwide average of 12.4% professional staff turnover.

“The ‘glass half full’ view is that many firms are recognizing the need to change and adapt to new technologies and client demands for the future, and are starting to make some of the investments needed to accomplish that. They are forgoing short-term profits to make investments in the future,” says IPA Publisher Mike Platt.

“The ‘glass half empty’ view is that the business model that has contributed to generations of healthy growth and ever-increasing income is showing signs of strain. More sophisticated clients are demanding more services, technological disruptions are challenging the status quo, and generational shifts in the way business is done are all forcing the profession to create new ways of delivering value,” says Platt.

The IPA National Benchmarking Report is used by managing partners, firm leaders, marketers, attorneys, firm administrators and business development directors to compare their firm’s performance against others, and to uncover trends, ideas and techniques to improve operations.

Additional highlights from the 2017 INSIDE Public Accounting National Benchmarking Report:

  • Billing rates inched up for equity partners this year by 1.4% to an average of $345 for all firms.
  • Net income growth averages slowed slightly – to 5.2% from 7.8% in 2016. Factoring in the effects of mergers, the all growth rate slowed to 6.4%, down from 9.1% in 2016.
  • The average equity partner compensation for all firms is up an average of $10,000, to a nationwide average of $456,043.
  • Annual staff merit increases ranged from 5% to 7% on average, across all revenue bands and professional staff positions. Billing rate increases, however, were in the 4.0% to 4.5% range.
  • The percentage of female ownership this reporting year is at 18.9% for all firms, up from 17.5% in 2016.
  • Of more than 10,000 equity partners represented by participating firms, just 2% work a part-time or alternative schedule.
  • The average percentage of total professional staff with a CPA license is slowly inching downward in non-Big 4 firms. Across all firms, non-CPAs now make up an average of 57.9% of all professional staff, including partners.

The 2017 INSIDE Public Accounting National Benchmarking Report covers partner compensation, administrative salaries, revenue by service line, partner workloads, marketing costs, training requirements, realization, retirement plans and dozens of other metrics – both by revenue band and region of the country.

Regional highlights from the INSIDE Public Accounting National Benchmarking Report:

NORTHEAST

4.7% – Organic Net Revenue Growth
5.6% – Organic Net Income Growth
11.9% – Professional Staff Turnover
$83,005 – Average Professional Staff Comp.

SOUTHEAST

5.9% – Organic Net Revenue Growth
5.2% – Organic Net Income Growth
11.4% – Professional Staff Turnover
$77,991 – Average Professional Staff Comp.

GREAT LAKES

5.3% – Organic Net Revenue Growth
7.9% – Organic Net Income Growth
11.5% – Professional Staff Turnover
$74,487 – Average Professional Staff Comp.

GREAT PLAINS

5.0% – Organic Net Revenue Growth
2.3% – Organic Net Income Growth
13.1% – Professional Staff Turnover
$74.625 – Average Professional Staff Comp.

WEST

5.4% – Organic Net Revenue Growth
4.7% – Organic Net Income Growth
14.2% – Professional Staff Turnover
$83,362 – Average Professional Staff Comp.

 

 

 

 

For additional insight into the results of the 2017 IPA National Benchmarking Report, access a complimentary copy of the executive summary.

IPA Spotlight On … Mary Elliott

Mary Elliott

Mary Elliott

Name: Mary Elliott

Title: Elliott is currently the firm’s Chief Operating Officer, but will transition to Chief Executive Officer in January 2018.

Firm: Birmingham, Ala.-based Warren Averett (FY16 net revenue of $124.4 million)

Accomplishments:

  • First female CEO in Warren Averett’s history.
  • Appointed as Warren Averett’s Chief Operations Officer in 2012.
  • Developed operations board for the firm, and served as chair for six years.
  • Started Warren Averett’s health care consulting division more than 30 years ago. Drove it from a startup to one of the top service areas in the firm.

The firm announced that you’ve been named CEO, but you don’t take over until the end of this year. How will you prepare over the next several months?

I will spend the next few months meeting with our leadership, reviewing new responsibilities that fall under the role of CEO and taking opportunities to engage with our employees to ensure that my transition is a smooth process.

You’ve served as both COO and the PIC of the health care consulting group – at the same time. Will partners continue to take on administrative functions like this, or do you envision a different structure in the future?

Our firm is built on opportunity, and our structure will continue in that mindset under my leadership. We will continue to look for ways provide A+ service to our clients, while providing employees the opportunity to grow, innovate and thrive.

You say you have a passion for women’s opportunities and issues in the work force. Do you feel any special responsibility as a woman in this role, considering you are one of only two women leaders within the Top 100, outside the Big 4?

I’ve never felt that being a female at Warren Averett has been a hindrance or a catalyst for my growth within the company. However, I am a woman, and I’m proud of who I am and the path that I’ve been able to take. I see this as an opportunity to reach out with and for other women – how can we make our workforce better? I’m not alone though. We have a strong group of talented females coming up within the firm today. In fact, our leadership team also includes a female CFO and firm administrator.

With the advent of artificial intelligence, blockchain technologies, Big Data and the rest, how can you help make Warren Averett future-ready?

Innovation is key. We will embrace change, continue to look for opportunities to stay ahead of the curve and make strides in these areas through our specialty groups and experts.

Do you know someone else who would make a good Spotlight? Contact Christina Camara.

INSIDE Public Accounting Unveils 2017 Best of the Best Accounting Firms

Continuing the tradition of more than 20 years, INSIDE Public Accounting (IPA) has unveiled the 2017 list of the Best of the Best public accounting firms in the nation. This group, the highest performers within the profession, are ranked on more than 70 metrics. The 2017 Best of the Best firms produce superior financial results while planning for long-term, sustainable growth.

In 2017, 587 firms were eligible for this accolade by participating in IPA’s 27th Annual Survey and Analysis of Firms.

The IPA Best of the Best firms are scattered across the U.S. and Canada and come in all sizes – from 27 employees to 2,615. Two-thirds of the Best of the Best firms appeared on the list in 2016, demonstrating an impressive commitment to excellence and sustainability.

IPA has also named 10 firms under $5 million in net revenue for the Best of the Best Under $5 Million. Unlike their large-firm counterparts, these firms earned this distinction with fewer resources to deliver top-notch client service, sought-after benefits and professional development across the firm – hallmarks of the Best of the Best.

As part of IPA’s ongoing commitment to identify and recognize high-performing firms across North America, IPA also highlighted the five Best of the Best Canadian firms. These firms, ranging in size from $6 million to $28 million, represent the top 20% of the highest performing Canadian firms that participated in the 2017 IPA Survey and Analysis of Firms.

“Best of the Best firms excel by achieving the delicate balance of focus on culture, clients, team and financial results,” says Michael Platt, principal of the Platt Group and publisher of the accounting trade publication, INSIDE Public Accounting. “Best of the Best firms are judged on dozens of metrics that truly take a holistic view of success. Their strategic focus on all areas that make accounting firms great have produced the results that merit this sought-after accolade.”

Kelly Platt, publisher of INSIDE Public Accounting, says firm leaders who are looking to improve can look to the results produced by the IPA Best of the Best. “Best of the Best firms show that discipline, planning and a systematic approach to improvement can result in measurable progress toward their goals. In a rapidly changing business environment, Best of the Best firms thrive.”

A full list of the 2017 IPA Best of the Best firms, including the Under $5 Million category and Best of the Best in Canada can be found on the INSIDE Public Accounting website.

IPA also ranks the largest accounting firms in the nation annually, the IPA 100, along with the IPA 200 and IPA 300, those firms ranking from No. 101 to No. 300 in the U.S. Visit the INSIDE Public Accounting website for more details.

You may order complete copies of the IPA Best of the Best, IPA 100, IPA 200 and IPA 300 firm issues: (317) 733-1920; editor@plattgroupllc.com.

INSIDE Public Accounting Releases Annual Ranking and Performance Metrics of the Nation’s Largest Public Accounting Firms

INSIDE Public Accounting unveils the IPA 100 – the annual list of the largest 100 accounting firms in the country.  Find out if your firm made the list. IPA subscribers and firms that completed the IPA survey will receive the August issue, which features the IPA 100, IPA 200 and IPA 300 list, the fastest-growing IPA 100 firms, and an analysis of the data. The newsletter will be released this week.

The IPA 100: Key Highlights Of America’s 100 Largest Firms – Excluding the Big 4

  • The pace of organic growth (excluding mergers) has slowed to 6.8% for the group, down from 7.5% growth reported in 2016. Acquisitions (both traditional CPA firms as well as other consulting companies) pushed the overall growth rate to 9.4%.
  • Organic growth in net income, at 4.8%, has slowed to a pace not seen since 2011. Even factoring in acquisitions, net income growth is up only 5.5% over last year.
  • Audit and accounting services in the IPA 100 continue a multi-year decline as a percentage of total revenue – to now represent an average of 37% of total firm revenue as firms grow non-traditional services.
  • Non-traditional services offered by the IPA 100 firms, such as consulting, technology and financial services, climbed to an average of 27% of total net revenue.
  • Professional staff turnover (CPAs and other client-serving staff) averaged 15.0% for the IPA 100; with one in seven IPA 100 averaging more than 20% professional staff turnover.

“In addition to the challenges already faced by the profession, the coming wave of artificial intelligence, machine learning, blockchain technology and Big Data is advancing faster than anyone would have predicted even three years ago,” says Mike Platt, principal with INSIDE Public Accounting. “Efforts are underway on many fronts to re-engineer how the business of public accounting gets done. The coming changes will be transformational.”

View the full list of the IPA 100, 200 and 300 Firms.

For copies of the 2017 IPA 100 Firms issue, customized reprints and pricing information, please contact Chelsea Summers.

Subscribe to the IPA monthly newsletter today!

Sign up for our complimentary E-News Updates and become an IPA INSIDER.

Order any of the 2017 IPA benchmarking products, including the IPA National Benchmarking Report to gain insider strategies.

About The Platt Group and INSIDE Public Accounting: INSIDE Public Accounting (IPA), founded in 1987, is published by The Platt Group. The Platt Group publishes both the award-winning INSIDE Public Accounting newsletter and the award-winning National Benchmarking Report.

IPA Spotlight On … Rob Nixon

Name: Rob Nixon
Title: Founder, PANALITIX
Accomplishments:

Rob Nixon

Rob Nixon

  • Educated in excess of 170,000 accountants over 23 years.
  • Coached 800 accountants to success. Average profit increase in year one is 93%.
  • Authored three best-selling books on the accounting profession.
  • Built four successful businesses that serve the accounting profession.

Your new book is called, The Perfect Firm, Your Playbook for Building A Perfect Accounting Business. Is “perfection” even achievable?

There is no perfect firm. I’ve met 170,000 accountants and not one of them is perfect. There is no one-size-fits-all for the perfect firm. It has to be your version of your perfect firm. I wrote the book as a blueprint or playbook on what a perfect firm would look like if the reader did everything in the book. The book is full of strategies that have worked for thousands of firms around the world.

What’s the one area MPs should focus on to get started on the path to the perfect firm?

There are five sequential steps to creating your version of your perfect firm. It starts with a belief system that it is the owner’s business and no one else’s and should be designed your way. This is business by design, not by default. Step 1: What business life do the partners want to live? Step 2: What numbers do you want to achieve? Step 3: What services do you want to deliver? Step 4: What culture do you want to have? Step 5: Who are the ideal clients to fit steps 1-4? Business by design follows steps 1 to 5 in order. Business by default follows steps 5 to 1 in order.

How can accountants best get ahead of digital disruption to the profession?

Accountants need to brace digital disruption – not fear it. It is inevitable that machine learning, artificial intelligence, robotics and blockchain will fundamentally change the business model of accountants. It is an amazing opportunity to embrace the technology. The first step is to migrate all clients to cloud accounting. Then with real-time data they can offer predictive analytical services and proper numbers-based advice. Helping clients improve their systems dramatically reduces the time at the accountant’s office to do the client work.

You are an advocate for value pricing. Why?

The traditional model of time-based billing in arrears does not value the intellectual property (experience) of an accountant. Not only that, but it is highly unethical to bill in arrears. If you are adding value to the client’s condition then you should be rewarded based on your contribution, not on how much time it took to do the work. Accountants do not sell time – they sell what they know. What you know should be priced accordingly.  

Accountants like numbers, but you say some numbers are more important than others. Which numbers are firm leaders paying too much attention to?

There is a crazy culture of more billable time in the profession. I’ll give you more billable time says Johnny – I’ll just go slower and make mistakes – you’ve got your billable time. What a stupid focus. The focus on utilization hours promotes the wrong behavior. The other number accountants seem obsessed with is realization margin – we realized 88%, for example. Actually, no, you wrote off 12% and wasted $50,000 last month. When you price up front and drive time down by being more efficient you get positive realization and your average hourly rate increases dramatically. The magic number of an accounting firm is average hourly rate.

Final thoughts?

Accountants can change the world for the better if they are proactive and add value. Nearly every business in the world is connected to an accountant. Accountants can make a massive difference if they leverage off their trusted advisor status and help their clients with numbers-based advice.

Do you know someone else who would make a good Spotlight? Contact Christina Camara.

IPA Spotlight On … Henry Koziol, Freed Maxick CPAs

Name: Henry Koziol

Firm: Buffalo, N.Y.-based Freed Maxick CPAs (FY16 net revenue of $45.2 million)

Title: Managing Director, Chairman, Board of Directors

Accomplishments:

Henry Koziol Jr.

Henry Koziol Jr.

  • Joined Freed Maxick in 1983 and elected managing director this year, responsible for directing the strategic growth of the firm.
  • Develops and institutes firm’s technology plan, and has served as a member of the peer review team and the development, construction and executive committees.
  • Past chairman, board of the Western New York Chapter of the American Diabetes Association; board of directors, Buffalo Niagara Partnership.

How are you preparing now to step into the top job at Freed Maxick July 1?

I have been on our executive committee for a number of years, and have been involved in most of the firm’s significant decisions. Therefore, the amount of time to get up to speed should not be too considerable. Lately, I have been spending a lot of time meeting with my partners and our clients – trying to listen more and talk less.

You’ve said that what differentiates Freed Maxick is its people and depth of knowledge. How do you hope to enhance both as managing director?

We are constantly looking for individuals with unique talents and skills, in anticipation of the rapid changes in the industry and to deliver the type of services we provide. However, that’s not all we look for in potential candidates. We recently created our purpose statement, which highlights our beliefs in making a difference in people’s lives through our passion for helping others and inspiring those around us. It’s important to us that our people and processes live this every day.

The firm now has four offices in New York. Do you plan to expand beyond the state? Are you looking to merge in smaller firms?

Our strategic plan includes expansion in two areas – our geographic footprint and services offered. Conversely, many of our services such as asset-based lending have a national scope, so the physical office is not necessarily a factor. We are constantly evaluating merger candidates both in and outside of our current markets, but our requirements are very high. The candidate must have a similar culture in addition to fitting into our strategic plan. We won’t do a merger just to increase the top line.

Looking ahead, how do you see AI and automation changing the way Freed Maxick does business?

We have already invested in business intelligence as a client service, and will continue to do so. We know there will be rapid changes in how accounting firms service clients, and we remain committed to providing world-class service.

Final thoughts?

It is an exciting time to be in the industry. I have been heavily involved in our firm’s technology platform, which gives me a unique perspective of the rapid technological changes that continue to happen. I believe that there will be wonderful opportunities ahead for our firm, our clients and our people as we utilize these technologies to deliver highly valued and desired services.

Do you know someone else who would make a good Spotlight? Contact Christina Camara.

IPA INSIDER: June 2017 News

Listed below are the Top 10 most-read stories on the INSIDE Public Accounting blog for the month of June.

  1. Settlement Reached in Andersen Tax Trademark Dispute in California
  2. Kucera Named AAM’s 2017 Marketer of the Year
  3. CLA Merges in Southern California Firm
  4. IPA Vendor Spotlight On … Chandra Bhansali, AccountantsWorld
  5. Sikich Names Murphy PIC of Manufacturing and Distribution Practice
  6. Dempsey and Team Join CLA in Idaho
  7. Platt’s Perspective: Classifying Clients – It’s Good For The Top And Bottom Line (And Everything In Between)
  8. Canada’s MNP Announces Two Mergers
  9. AAFCPAs Hires New CFO
  10. Weiner Named Chair and CEO of Marcum, Bukzin Named Vice Chair

IPA Vendor Spotlight On … Chandra Bhansali, AccountantsWorld

Name: Chandra Bhansali
Company: AccountantsWorld
Title: Co-founder (with wife Sharada) and CEO

Accomplishments:

Chandra Bhansali

Chandra Bhansali

  • Introduced the first Windows-based based professional tax system in the 1990s.
  • Created the first payroll processing solution exclusively for accountants.
  • Used cloud technology to create Accounting Power for firms to offer client accounting services, countering the impact of do-it-yourself accounting systems on accounting practices.
  • Named one of the “100 Most influential People in Accounting” by Accounting Today for over 10 years.

You’ve been “in the cloud” for much longer than most and seem to have a knack for identifying emerging technologies. Can you offer any practical advice on how accounting firms can be more ‘future-ready’?

I’d tell them, “You are your clients’ most trusted advisor. What makes you their most trusted advisor? Your ability to analyze all the facts and help your clients make informed decisions based on those facts. To be future-ready, you need to use this important trait. It’s a fact that migration to the cloud is inevitable. Given that fact, when will you benefit the most from the migration? Should you wait until you are pushed to the wall, or move to the cloud sooner, in a more strategic way, to make the most of the migration?” It’s ironic that many of the same accountants who are their clients’ best advisors falter when making some of the most important decisions about their own practices.

Client accounting services seems to be a growing niche. Are accountants taking better advantage of the power of technology to help their clients?

Very few accountants are taking full advantage of technology to help their clients. Part of the problem is that most accountants don’t realize the capabilities of professional cloud solutions like Accounting Power. Given the choice, a large percentage of small businesses would not want to do their accounting in-house. They consider accounting to be a hassle and would love to offload it to their accountants, but most accountants don’t offer client accounting services (CAS), because functions like bill payment have traditionally been low-margin services. But with programs like Accounting Power, an accountant’s staff can now do everything their client’s staff did, only much faster and more accurately – all without leaving the office. Because of advances like this, many accountants are currently offering highly profitable CAS, which will ultimately become a major growth area.

What’s the biggest mistake firms typically make when making the move to the cloud?

The biggest mistake firms typically make when migrating to the cloud is to make a lateral move in which they move from desktop to cloud, yet their practices realize only marginal gains. That happens primarily for two reasons. First, these accountants don’t do their homework and learn about all the available solutions. Second, they are stuck in their current processes. To take full advantage of the cloud, you need to change your processes. If you keep an open mind and align your processes for optimal performance, then you will be able to take your practice to new heights that were never before possible.

There’s been lots of talk about the potential impact of Artificial Intelligence on the accounting profession. What’s your view?

My view about Artificial Intelligence is very simple – accountants with “Predictive Intelligence” will actually benefit a lot from AI. I’ll give you a simple example. AI will certainly minimize mundane tasks like data entry. If you let your clients offload their accounting work to you today, your fees will be based on what they currently spend on their bookkeeper or in-house accountant. When some of the capabilities of AI kick in to virtually eliminate data entry, that will greatly reduce your staff’s work and you will reap the benefits of that productivity gain. That’s “Predictive Intelligence.”

Final thoughts?

You know you have tremendous influence with your clients. Until now, accounting software vendors and payroll service providers have used your client relationships to make themselves billions of dollars. Would you like to continue doing that, or would you rather use your client relationships do what is in your, and your clients’, best interest? If you prefer the latter option, then download and read my whitepaper, “Forget Value Billing. Think Value Building.”  It will show you how you can use the cloud to greatly raise your bottom line, better serve your clients and feel the pride of being an accountant. Please visit www.AccountantsWorld.com/value to download the whitepaper.

Do you know someone else who would make a good Spotlight? Contact Christina Camara.

Platt’s Perspective: Classifying Clients – It’s Good For The Top And Bottom Line (And Everything In Between)

By: Michael Platt

Have you ever noticed that after you a buy a new car – let’s say it’s a 2017 silver Mercedes-Benz – you start seeing the same make, model and color every time you look around?

In similar fashion, firm professionals can begin to home in on their ideal clients and recognize them instantly. To help accomplish this, they need to go through two exercises that the majority of firms neglect: Define the firm’s best to worst clients, ranking them A through C or D, then outline a plan to improve their grades so they become better clients.

IPA’s most recent survey data, from more than 540 firms, show that only 30% are formally classifying their clients in this way. The other 70% are missing an opportunity to sharpen their focus, make more money and limit unnecessary headaches.

Mike Platt

Mike Platt

Many firm partners have their own ideas on who their A, B, C and D clients are, but it’s rarely agreed upon firmwide, and lower-level professionals may hold vastly different views on the attributes of a “perfect” client. The more clearly this is defined up front, the easier it is to target that group.

Every firm over the years has collected all kinds of clients – some are ideal fits for the services the firm provides; some were ideal at one time and are now legacy clients; and some are no longer appropriate.

So, how would a firm decide which clients are As and which are Cs or Ds? That’s up to every firm to define, but typically A clients are ones with growth potential, who are cooperative, pay premium fees for premium services, come to you before making major decisions, rely on your advice and refer other clients to the firm.

B clients, for example, may not access a full range of services or actively refer your firm, but they are owners of up-and-coming companies who could likely become A clients someday. C clients may be your 1040 tax return customers, and D clients could be those who are late providing information, argumentative with staff, late paying bills and constantly complaining about fees. Some D clients are unavoidable (think your brother-in-law, or the grandson of your best A client), but all should be reviewed and culled on a regular basis.

I believe so strongly in classifying clients that I suggest identifying them by letter grade in a firmwide database that is accessible to all professionals and reviewed every few years. Obviously, keep this information confidential – no client wants to hear that they’re a C client.

Once clients are classified, the firm should define a plan to move clients up. Can your firm guide tax return clients on ways to streamline operations of their businesses, grow and become more profitable? If so, those B clients may become more reliant on the firm’s expertise and opt to take advantage of more firm services, becoming A clients in short order.

Classifying clients moves the right metrics. When a firm focuses its energy on providing great service to A and B clients, realization goes up, fees go up and profitability goes up. At the same time, clients are fulfilling their dreams for their businesses, and they’re more successful and happier as well.

Classifying clients helps with business development. When you’re out looking for new clients, you don’t want to just grab whatever’s out there. Zero in on the kind of client the firm wants to pursue. That’s because not all revenue dollars are the same. Generating a dollar’s worth of revenue from an A client often costs far less than generating a dollar’s worth of revenue from a C or D client.

Don’t limit your thinking to believe that classifying clients is just a marketing activity. It is, but it’s much more than that. This exercise can focus the firm in a clear, targeted way on key metrics related to profitability, realization, revenue per charge hour and contribute to business development opportunities, growing the top line as well.

One other benefit to consider – once A clients are defined, future A clients are much easier to find, just like those 2017 silver Mercedes-Benzes you’re seeing everywhere.