Focusing on profitability over growth is key in a recession
The decisions you make about pricing and pruning your business in the next month will have a significant impact on how your life looks in the upcoming year.
As a firm, it can be a balancing act to find the intersection of keeping clients happy, not losing revenue, and improving your own life.
But it's important to remember that revenue is just vanity, and profits are what really matter.
As we head towards a potential recession, it's essential to prioritize profits over growth. Many firms fall into the trap of trading dollars, spending too much time serving sub-optimal clients and wasting resources. But the good news is that more and more firms are recognizing the need to let go of underperforming clients and not replace team members who have left. This can help you focus on creating value for the right clients and honing your business for better profitability.
Instead of just trying to survive during tough times, it's important to shift to a success mindset. This means getting focused on creating value for the right clients, getting your team to do the right work, and increasing profitability.
It's time to think big and critically to transform your business model.
To make these changes successfully, it's important to begin with the end in mind. Define what you want your business model and pareto to look like in three years and have clarity on what you want, what you don't want, and why you are making changes. This will help you stay focused on your goals and avoid getting distracted by clients or work that doesn't fit with your vision.
Remember, the fewer clients you have, the less email, calls, and information you'll need to manage. It can be tempting to take on friends and family as clients, but limiting these types of clients to five or less can help you avoid being overwhelmed during tax season.
It's also important to pay attention to the numbers that matter. Monitor metrics like Monthly Recurring Revenue (target 75%), Revenue per Professional (target $250K), Labor as a percentage of Revenue (target 30%), Average Price Per Client (depends on your firm model, but aiming for $10K is a good benchmark), and Average Charge Rate (target $200). These numbers can give you insight into where you need to focus your efforts to improve profitability.
Lastly, identify your friction points and dictate the terms of the client relationship. Don't let clients dictate terms to you; instead, set clear expectations and boundaries to ensure a healthy and productive relationship.
Don’t let a scarcity mindset drive your decision-making during tough times. Focus on profitability and creating value for the right clients.
By thinking critically and making strategic decisions, you can transform your business and set yourself up for success in the future.
If you're interested in more insights like these, consider signing up for our Renewsletter: https://www.renewgroup.com/newsletter. Alternatively, if you'd like to discuss your CPA firm's specific needs, feel free to schedule a call with us: https://www.renewgroup.com/contact.
About the Author:
Shannon Vincent has dedicated his entire career to working with accountants in various capacities. He has consulted with Top 100 firms to Sole Practitioners, helping them create sustainable and profitable businesses. A member of the California Society of CPAs, he received a Bachelor’s Degree in Economics with an emphasis in accounting from University of California, Santa Barbara, and now resides in the San Francisco Bay Area. Shannon is passionate about helping accounting firms achieve greater profits through pricing improvements.
About Renew Group:
Are you tired of being on the diet but not seeing results? Most consultants to the CPA Profession do lots of talking and deal in 'fluff'. But there's no accountability and no focus on RESULTS.
At Renew, we start with your numbers. Our firms complete a Pareto for Profit analysis EVERY YEAR, set new targets to improve their profitability and then 'weigh in' regularly. We give you a roadmap to transform the profitability of your accounting firm by accessing our content, collaborating with other firms on a similar path and being held accountable by our coaching team and your peers.
Get paid what you're worth, create a better life based on a scalable business model and eliminate tax season insanity once and for all!