The changing landscape in the tax industry means firms are facing changes at a faster pace than ever. In addition to rapid technology changes, staffing challenges are prevalent and clients are demanding more value-added services than ever. But in an industry where professionals are already overworked, how can we make meaningful changes in our firms for the future? One crucial aspect that often goes overlooked is the way we measure and monitor profitability. It’s time to shift our focus from billable hours to value-added services and profitability per employee. But what does that mean and how do we transition?
Traditionally, tax firms have relied on billable hours as the primary metric for measuring productivity and profitability. However, this approach fails to capture the true value that each employee brings to the firm. By focusing solely on the number of hours worked, we overlook the quality of work, the expertise applied, and the overall impact on client satisfaction. Historically, this has led to excessive pressure on employees to focus on long hours leading to burnout.
To truly understand and optimize profitability, tax firm owners must adopt a more comprehensive approach. This involves tracking and analyzing profitability at the individual employee level. By doing so, firms can identify their top performers, recognize areas for improvement, and make data-driven decisions to allocate resources effectively.
Calculating profitability per employee is a straightforward process. Start by determining the revenue generated by each employee, taking into account the fees charged for their services. Next, subtract the direct costs associated with that employee, such as salary, benefits, and any other expenses directly attributable to their work. The resulting figure represents the profitability contribution of that individual.
By monitoring profitability per employee, tax firm owners can gain valuable insights into the efficiency and effectiveness of their team. This information can be used to identify opportunities for training and development, optimize pricing strategies, and make informed decisions about hiring and resource allocation.
Moreover, shifting the focus from billable hours to value-added services can significantly boost profitability. Instead of simply charging for time spent, tax professionals should concentrate on delivering high-quality, specialized services that address the unique needs of their clients. This approach not only justifies higher fees but also fosters long-term client relationships built on trust and
expertise. When the firm is charging appropriately for the time it actually takes to complete projects, the opportunity for higher quality work with less stressed-out staff becomes available.
To successfully implement this shift, tax firms must invest in the professional development of their team members. Encourage employees to acquire specialized knowledge and skills that align with the firm’s target market and service offerings. By doing so, firms can differentiate themselves from competitors and provide exceptional value to their clients.
By moving beyond billable hours and focusing on value-added services and profitability per employee, tax firm owners can make informed decisions, optimize their resources, and position their firms for long-term success. Embrace this shift, invest in your team, and watch your profitability soar.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and providing strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
