6 ways to reduce your cost base to enjoy a net profit margin of 40% or over in your accountancy practice

Is it possible to reach the elusive 40% net profit margin for your accountancy business? With rising wage costs and clients wanting more for less, many firm owners are settling for net profit margins of under 20%. In this article, we reveal how our clients have raised their profit margin so they are achieved a net profit margin of 40% or more.


Rethink your processes and workflows

Many firms have jumped on the bandwagon and moved to a fixed fee model. This is, in our opinion, a good thing. But how many firms have then taken a long hard look at how they do things to reflect the realities of a fixed fee model vs billing based on time? Before you make the move to fixed fee billing, it’s time to rework your processes to make sure you are only doing stuff that:

  1. The client wants or needs
  2. HMRC or some other regulatory body requires you to do, e.g. money laundering checks
  3. Is of value to you as a firm


When you apply this checklist to the way you are working, it can shine a light onto a lot of areas where you are over-auditing clients accounts or doing stuff which is unnecessary. For example, many accountants insist on a post year end meeting with their clients to discuss and sign the stat accounts. How many of your clients are really interested in the stats accounts? Why not refocus your working practices on a meeting with your client in month 9 or 10 of their financial year where you can actually add real value to your client. E.g. tax planning, business planning for the year ahead. The actual year end accounts can be finalised via email.


Add in higher yield services

With technology leading to a downwards pressure on fees for compliance services, now is the time to invest in building your firm’s capability to offer higher yield services. For example, tax consultancy, business planning, business growth services. Remember you don’t need to always deliver these services in-house. You can outsource these or provide them via a formal alliance with a specialist provider.


Invest in workflow and process automation

Technology in the accounting profession is not just about getting your clients onto cloud accounting software and add-on packages. The current and emerging technology available to accountants can also drastically reduce the time it takes to service your clients requirements. From quoting software such as Mark Wickersham’s ‘pricing in the cloud’ software through to the new breed of cloud based practice management software such as mTrio, careful investment in technology and workflow automation can drastically cut the time it takes your team to do the standard tasks. For example, adding a new client to mTrio, automatically sends them a welcome text, creates a client in Xero and opens a client folder for them in Google Drive. An onboarding job that used to take half an hour can be completed with one click.


Outsource your compliance tasks

A quick way to reduce your costs, particularly with rising wage costs, is to outsource them to an accounts outsourcing specialist and bookkeeper like ourselves. We find that our clients will typically cut their costs by up to 50% if they outsource their accounts prep and bookkeeping work over to us.


Spend more rather than less time with the right clients

When you are looking to save costs spending more time rather than less time with clients seems like precisely the wrong thing to do. It’s actually the right thing to do, as long as you are spending more time with the right type of clients. So, do a client portfolio analysis and identify your top clients, clients with the potential to grow and your best advocates. These are the right clients to spend more time with. The time invested in these clients will normally quickly result in higher fees.


Ditch your unprofitable clients

I know, we hate having to think about doing this. But, it really is a quick way to sort out your firm’s profitability. If you really don’t want to ditch these clients how about sending them over to us to do their year-end work and bookkeeping at a lower cost base? That way you get to avoid the difficult conversation with a client AND hopefully make them profitable again.


In summary,

The clients that we work with who are enjoying a net profit margin of 40% or over tend to have done at least 2 out these 3 things:

  1. Outsourced their year end accounts prep and bookkeeping
  2. Increased the amount of higher yield services, such as advisory, which they offer to their clients

Radically rethought their workflows and processes and used technology to automate wherever they can

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Posted in For Accountancy Practices.