Every client and every service in an accounting firm should be profitable.
If a client brought you their numbers and 40% of the profit came from an ancillary business, what would you tell them?
Maybe something like this...Your core business isn’t working. Let’s fix it, or at the very least, understand what’s going on.
Most firms that come to us know they have a problem. This one was different.
An established multi-partner firm, profitable, partners well paid. They’d been reading this newsletter for some time, and the more they read, the more one thought nagged at them: if other firms were getting these results, there must be significant potential in theirs.
They were right. Just not where they expected it.
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Like many firms, they make money in more than one way. Tax and accounting, advisory packages, commission income and wealth management. It all lands in one P&L, and the number at the bottom looked fairly healthy. So, nobody dug any deeper. Every day, accountants are analyzing other people’s businesses. We rarely turn the same lens on our own. (I’m reminded of something my Dad once told me – Dad was a bank manager for 20 years and he used to say that accountants were the worst he ever saw at looking after their own businesses)!
Every firm we work with starts with a Pareto for Profit™ analysis. Once we started to pull the income streams apart, it became clear that almost half the profit of the firm was coming from the ancillary income. The accounting firm on its own, the work the partners and the team spend their days doing, was profitable, but at margins well below what we would expect.
To be clear, that isn’t a criticism of the ancillary income. It’s good income, but it was hiding what was happening in the core tax and accounting firm. We strongly believe every service you offer should be able to stand on its own two feet. Too many firms have multiple business models under one roof, and everything is lumped together with no clarity on what’s working and what isn’t.
Once we looked at the firm client by client, the picture got clearer. We calculated the breakeven price for a client, based on allocating labor and overhead. Close to half the client groups sat below breakeven. Those clients in total accounted for 11% of the firm’s revenue.
Think about that for a moment. Nearly half the clients take time, attention and a ‘cup of coffee’ every tax season – not to mention ad hoc emails, calls (“have you got 5 minutes, it’s really simple…”), dealing with tax notices etc. – and the firm loses money on each one. We call that the Insanity Zone, for obvious reasons. Most partners know intuitively exactly who is in it. Few have done anything about it. (Hint…do you know what your breakeven price is? It’s usually higher than you think).
For a firm making good money, this is a people problem as much as a profit problem. Finding and keeping good staff was the partners’ number 1 challenge. Let’s face it, good people don’t stay to work long hours on low-value clients. They stay where the work is interesting, the clients value them, and the firm can afford to reward them for the value they help create. Our annual benchmarking data backs this up: team attrition falls on average from 21% in the year before firms work with Renew to 7.9% for firms that have worked with us for over 3 years (2026 Renew Model Firm Benchmark Report).
Here’s what we told the partners in this case: The accounting firm should make a healthy profit on its own. Everything else should be the cream on top.
Our first principle at Renew is Make the Firm the #1 Client. You wouldn’t let a client run their business without knowing which part of it makes money. Why accept it from yourself?
Here’s an exercise to work through now that 10/15 is behind you:
In our experience, most partners already know which clients should go or are underpriced. What’s often missing is a consistent approach to the exercise, so you stop making excuses for dealing with clients who are ‘good people’.
A 1-page scorecard and an Excel worksheet. Score your client groups and it shows you what happens to your revenue, your hours and your AHCR (Average Hourly Charge Rate) when you act on the result.
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Then, if you’d like to talk through what you learn from the numbers, or you’re interested in a full Pareto for Profit™ analysis on your firm, Book a call.
Text us at 317.496.2192
if you want to talk it through.
