Why are accounting firm owners super busy yet make so little money?

In discussing firm profitability with many accountants and bookkeepers, a question I often get is:

“Why am I making so little money, given how busy we all are?”

The following are just a few of the reasons I’ve discovered:

Fees are too low

There is just so much to say about this that I could write an entire book (oh wait, I did!). But the following are just a few things to consider. 

Billing per hour rather than based on the value of services provided. Many practitioners have it in their minds that their time should be billed out at a set hourly rate. Your standard hourly charge-out rate should simply be one of the things to consider when billing a client for whatever service. More importantly, what does the client think it’s worth? What do you think it’s worth? You need to be very clear and know how to set fees for all services you render.

What you’ll charge will be largely influenced by:

  • How fearful you are of your clients, about what they’ll say and whether they’ll take their business elsewhere
  • Fees charged in the past
  • Scope creep
  • Poor communication and poorly set fee expectations with the client

Poor employee productivity

You must be very attentive to each employee’s utilization and realization.  Put differently, do you monitor whether each employee is charging out all the hours he/she can (utilization)? If not, why not? And are their effective charge-out rates truly what they need to be, given their skill sets, training and pay? Measuring and monitoring this is far more critical than most practitioners think.

Poor hiring habits

You need to have the right people, with the proper core values, proper mindset, and team culture.  Selecting the right candidates for your practice is critical and often requires some training to do so properly.

Bad clients

Too many of us are not selective enough when taking on a new client. Or keeping existing clients, for that matter. Just because they have a pulse doesn’t automatically make them a client you want to service. Be clear on the kind of clients your firm wants to service, and which clients you should consider firing.

Work assignment

Properly assigning work to the best team member is a difficult skill to master. It requires good skills in delegation and the ability to properly assess your team’s ability. The difficult part, many times, is having confidence in your team to pull it off. Assign the work, and let them go, being careful not to micro-manage too much.

Poor training

Training your team is EXTREMELY costly and time-consuming. But it is very likely the very best investment you can make. A poorly trained team cannot produce effectively or efficiently.

Providing poor service

Very difficult to charge high fees if the client is not impressed. Nor is it unlikely that you’ll get referrals if the service isn’t impressive. What does providing poor service mean? How will clients judge you? Here are just a few things they will look at:

  • Availability – Are you available to answer questions quickly and to their satisfaction?
  • Ease of access – How difficult is it to find you and meet with you?  
  • Office look – Does your office area (inside and out) look clean, well-maintained, and organized?
  • Turnaround time – How long does it take to provide the desired service, and how does it compare to what was promised and to your competitors?
  • Proactive vs reactive – Are you too late with providing needed solutions?
  • Experience – Is dealing with your firm a good experience that they’ll want to do again and again?

Having too little capacity

This one ties in to providing great client service. To impress clients, you need to have a team large enough to meet demands. Seems logical, but many will defer hiring until it’s too late. They forget that hiring takes time, and most new hires will not be productive for quite some time, thus delaying your ability to meet client demand. And always remember, if the demand is high (as it is for most accountants and bookkeepers across North America), hiring should not be viewed as another cost to your firm but as an increase in your ability to earn revenues.

High cost of operating

Rising cost of labour, insurance and real estate can really make generating a profit more and more difficult. Strangely, despite all this being very challenging, it is seldom the number one reason for lack of profits.  

I’m sure all of you reading this can think of a dozen other reasons practitioners are not always profitable. I know I certainly can. But I’d bet that if you could nail each one of the above extremely well, you’d be well on your way to having an extremely profitable practice.