Good, bad, ugly accounting
Each year Viv Brownrigg and the team from Business Fitness conduct a detailed survey of New Zealand accounting firms – The Good, the Bad and the Ugly of the New Zealand Accounting Profession. I consider this the best analysis of its kind and essential for accounting firms to gauge where they are at. Viv goes beyond reporting on the research and advises how to get KPIs heading in the right direction. This is gold for any accounting firm anywhere in the world.
Highlights for me:
1. The best revenue result by partner was a staggering $2.7m. But keeping this in perspective, it’s very unusual and probably better than what the big four firms do.
2. On average a firm generates $700k of revenue per partner and clears a profit per partner of about $220k (before partner salaries, interest and tax). That’s the baseline. You should be able to do better than this.
3. A reasonable average hourly rate seems quite low at $126. Those heading closer to $175 are certainly in a much happier place. Again, totally achievable.
4. Leverage models of 3-4 staff per partner are ok, but the better performers have 6-7.
5. Upper quartile productivity at 70% is reasonable when you include admin staff. Core accounting staff should be at 85%+. I’m still confident that those firms using the quote, job tracking and workflow model do much better than those who simply bill on a time spent basis. Customers tend to prefer a quote too.
6. Upper Quartile firms have Partner productivity at 68%. I have always advocated that the less time a partner spends on billable work, the better. So this does seem high to me. However, Viv did point out to me that firms which do have partner billing at about 70% have much better profitability. While I don’t like the model, Viv’s right.
7. Even average firms now have write-off percentages that are lower than 10%. I totally believe that by using Xero for core accounting and compliance work, you should have net aggregate write-ons.
8. Debtor and Lock Up days still seem very high to me at 72 and 99 respectively for an Upper Quartile firm. Certainly room for improvement here. WIP is however respectful at just 15 days. What it means is we’re rather good at getting the invoices out the door, but bad at collecting the cash.
In summary the headline KPIs for most firms seem to be improving. Poor perception of value is reflected in lower than achievable charge rates, an absence of value pricing, as well as write-offs that have averaged 9%. Educating clients about value can be both challenging and scary for many accountants. Producing a monthly management report straight from the client ledger is easy and a quick way to give a client a taste of the value that comes from a closer relationship.
Many practices have increased their average client spend by adding simple service layers, many of them seemingly insignificant. The compound effect of each service layer can be quite stunning. The bundling of services to increase the average fee really is working.
I recommend using Viv’s list of KPIs as a good way to measure performance each month and set the Upper Quartile from the GBU report as our minimum standard.