CPA Firm Profitability

Solve Your Time Problem

Shannon Vincent
May 6, 2024
4
minute read

How Pareto for Profit™ can help you work a 40-hour week year round

Time, time, time.  We don’t have enough time.

Fact: We all have 24 hours a day and 7 days a week.  Some firms use it wisely and generate great profits and life.  Some don’t and suffer from sub-par profitability (less than 40% before partners’ compensation), struggle to keep up, struggle to keep staff and suffer from poor staff retention. The former is better than the latter.

A Pareto for Profit™ will solve your time issue.  Our Pareto for Profit™ analysis shows you a breakdown of all of your firm’s activities broken down by revenue bands and number of clients.  Yes, all of your firm’s activities.  Example, what percentage of your revenue is generated from your clients in the $10,000 to $15,000 range by what percentage of your clients. And how much labor and overhead is consumed to service those clients?

The Pareto principle, also known as the 80/20 rule, states that 80% of your results come from 20% of your efforts. In other words, by focusing on the 20% of activities that generate the most value, you can maximize your quality of life and minimize wasted time and resources (and attract and keep staff).

The key to acting on your Pareto for Profit™ is to understand that it’s virtually impossible to successfully balance the profitability you need with the lifestyle you strive for if you have multiple business models under one roof.

We have important twists on a typical Pareto.  Why is Renew’s Pareto for Profit ™ so important for accounting firms? Here are some reasons:

We divide your client base into zones:

  • Fragility Zone: The Fragility Zone includes clients that are unusually large and firms are dependent on the revenue thus become a service provider by losing their voice, demanding partner time and working for free.
  • Leverage Zone: Clients where firms obtain leverage from technology, pricing and/or people. Typically ongoing clients that are profitable and good for cash flow
  • Danger Zone: Firms are seduced by 4-figure revenue, yet we’ve found that there can be unreasonable demands on partner time and Fall deadline needs/requests made by clients in this zone, relative to revenue.
  • Insanity Zone: Transactional, high volume, low revenue, lots of email, meetings, phone calls, tax notices and free work outside of tax season. Clients in this zone are technically below breakeven for your firm. High stress.

We also calculate a break-even price for your firm. This accounting firm X-Ray will give you the data and insights to advance your firm forward.

As our client, Michael, told us:


“The Pareto for Profit™ analysis points out how much time I spend servicing clients that leave me and my team tired and insane. Since this has been going on for years, it is time to make changes and move forward with a different mindset.”

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