The world has seen many changes globally be it be any function or industry, and the accounting industry is no exception. Being an accounting firm it's imperative that we support this revolution and think about updating our current way of working be it the way we file tax, record data, bill the client, or build a team.
Old models of pricing and staffing may not work for accounting firms going forward. Revamping the old model will help the accounting firms.
Evolved Pricing Model:
The traditional ‘practice model’ is Hours taken x hourly rate +/- write off = Price, Typically a time-based billing process. It’s a labour-for-hire business model.
More labour = more hours = more revenue.
This assumes that the price last year was about right, the person's salary was correct, the salary multiple was correct, and the estimated time taken was correct. That's a lot of assumptions to make. This model is extremely inefficient. In fact, it encourages inefficiencies (stop, start, go faster, go slower). This model creates a ⅓, ⅓, ⅓, model.
- One third for salaries
- One third for overhead and
- One-third for the Partners
The problem is salaries run more like 40-50%, overheads more like 20-25%, and profits more like 20-30%. And, as salaries rise, so do charge rates, but the profit margin rarely rises.
If you want to change the model and the behavior then something radical needs to happen.
- Get rid of hourly rates (keep the timesheets) and go to $0.99 per hour. Just break the nexus and mindset will change. It will encourage team members to clock in and out at all times. You will be able to better manage scope creep and seep, and you will have a more accurate average hourly rate.
- Price the job based on the value contribution to the client. It’s an art and also the thumb rule if they keep saying yes too easily, the price is incorrect - raise the price for the next one. You're selling intellectual property, not time, and your IP has been honed over many years and is extremely valuable. Of course, before you begin, you must obtain a written agreement from the client on the price and scope of work. Price cannot be valued after the fact.
- Put a time budget on all jobs. You could start with your AHR target and work backward. They will still hit the 10-hour mark, so you must raise the AHR target on a regular basis. It's just human nature for the team to stick to the hours/dollars budget.
Evolved Staffing Model:
In traditional ‘staffing model’:
- All staff report to the office daily 9 and log off at 6.
- Hiring Interns during the season and they go away post that.
- Go for Posting Ads, Recruitment Consultants etc.
This old staffing model creates a challenge of not being able to hire talent beyond your community and talented millennials whose expectations are a little different. If you think to adapt the obvious transition for you would be as follows.
- Be open to hire part-time talent
- The flexibility of WFH is new normal for even your office staff
- Adapt to the culture of having distributed teams
- In-house (In-office)
- Remote Onshore
- Offshore too
- Cloud Migration is inevitable.
Both the old practices of pricing and staffing are super time consuming and time killers but If you want to grow exceptionally remember “your clients want value, not your time.”You need to build value and deliver it through both pricing models as well as through your team.
When you go for building capacity through building an offshore team you can have the following benefits
More Time - for managers/seniors to save from being overworked and work-life balance
More Time - for managers/seniors to focus on high-value client-facing advisory work
This is a story of a CPA firm that has built a solid team of 10+ offshore employees, thereby Freed up their A team for more high-value client-facing work.
If you're happy at ease with the traditional model, don't change anything. You'll keep getting what you've always gotten. If there is a healthy dissatisfaction with the present, then make the necessary changes.
Entigrity™ is a trusted offshore staffing partner to over 550+ accountants, CPAs, and tax firms across the US and Canada. Our flexible and transparent hiring model helps firms of all sizes hire staff for accounting, bookkeeping, tax preparation, or any other task for 75% less cost. As a firm 'run by accountants, for the accountants', Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management, still, you are left with least to worry about compliance, payroll taxes, overheads or any other benefits.