3 Things CPA Firms Overlook That Costs Them Tens of Thousands

You’re grinding away, paying your employees, and paying yourself. Things are ok. They could be better. You’re busy. But, don’t allow being busy to be the excuse for overlooking these 3 things I see repeatedly in small CPA firms. Once addressed, your profits will soar. 

AR and WIP

Sound obvious? Here’s what happens. CPA firm owners and partners are heads down working through their own list. They are solving problems, helping clients. After all, isn’t that why you became a CPA?

Here’s what happens. You are financing the work you do for your clients. Your clients are enjoying results while you are billing for those results later. Why would you do quarterly tax projections but not bill until next tax season? You have to be able to bill this up front.

When you look at WIP and AR- what are you writing off? Collecting? Progress billing? How do you change that so you are getting paid immediately? You should never have $500K sitting in AR. No one likes to have the conversation about “you owe me money.” But, if a client doesn’t respect you enough to pay your bill, why are they your client?

The first thing to understand is how your money is being accounted for real time. For example, money may be going into the bank, but are you reconciling who it is attributed to? To recognize your revenue, the money in your account has to match your books. If you don’t do this every 2 or 3 days, you could end up with a 30 day lag for recognizing revenue which quickly snowballs to not having a good pulse on running your business and AR that is out of control. 

In order to gain control of AR and ensure it doesn’t exceed a healthy amount, who is in charge of billing? This comes down to putting the right person in the right seat. This person should be held accountable for reconciling revenue every 2-3 days or a reasonable regular interval. They should also be empowered to question and to identify what isn’t working to make it better. Without this, firms find themselves wondering why they are so broke in December and January.

Now let’s talk about WIP. Firms that run the best clear WIP out regularly and apply it correctly. If you find yourself marking up or down, that’s a sign that you aren’t charging correctly, which leads to pricing clients from the very beginning. We’ll call this ‘onboarding.’

Onboarding new clients

There are 2 common mistakes CPA firms make when bringing in new clients. The first is when onboarding lives in the owner’s brain. It’s a problem. The expectation is set externally with the client, but it isn’t always communicated consistently and clearly internally. 

Here’s what doesn’t work. 

Owner meets with the client. Owner then hands off a folder of ‘stuff’ to an accountant who is left to guess at what happens next. Do you see the room for error here?

Here is what should happen. Have a system in place, an onboarding checklist, that needs to be created, communicated, understood, and adhered to by everyone in the firm. Additionally, a conversation needs to take place between the owner and the accountant who will be assigned to work with the client. If you are going to build a team and have that team of people touching clients, they have to understand what’s going on.

The second mistake commonly made is when the owner quotes the business. It is easy to think through how much time it would take you to do something, but what you can do in an hour may take your team member 2 hours. 

The rule of thumb here is that the owner should not create the proposal. For example, if you are bringing on a new accounting client, the head of accounting needs to be in that initial meeting or call with the prospective client, and they need to create the proposal. 

If you are bringing in a client who will need comprehensive advisory services, make sure you have advisory services packages pre-determined and that you do not stray from that pricing. 

In order to make everything work harmoniously in any business, it comes down to…

Accountability and measurables

Do you have the right people in the right seats? Do you know what gets each person out of bed every day and fires them up? Does everyone know what they are working toward? Without a vision, a ‘why’ in the firm and for each team member, people have jobs instead of careers. The pipeline for CPA firms is too dry to waste time hiring for jobs. People want meaningful careers.

In order to find meaning, there must be accountability. There are always fires to put out in CPA firms. At the core, every firm needs an executive level, empowered, firm champion/Practice Manager/Director of Operations on steroids aka the JULIE™ role to carry the vision forward, implement systems and processes, energize the team, and ultimately run the business. 

With accountability and measurables, such as performance indicators and goals, in place you will have:

  • Team members who are empowered to ask questions and who are incentivized properly through their compensation plans
  • Systems and processes that balance workloads vs. finding that one person has 40 clients when 3 others have 12 (and all are getting paid the same).
  • Clients who fit your mold vs. wasting time and energy on those who do not.
  • Minimal AR.
  • Clear hiring standards and goals.
  • Profitability that is unlocked without needing to increase resources

CPA firms are businesses. They should be very profitable businesses given the value of the professional advice and work they provide. By addressing these 3 commonly overlooked business problems, growth can be exponential. 
For more information on how to find and what to expect from the right person for the JULIE™ role, download our guide here.

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