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3 Critical Mid-Year Checkpoint Metrics for Accounting Firms

Carl Coe
Posted by Carl Coe on Oct 17, 2023 10:41:05 AM

While you may find it hard to believe that we're already more than halfway through the year, we're quickly heading into the final stretch of 2023. The business calendar marks us firmly in the fourth quarter.  

How is your firm doing on annual and quarterly goals? You’ve probably highlighted a few key metrics you want to track this year to ensure your firm is making sufficient progress toward business goals.   

If you’re still in the process of identifying relevant metrics, or you’re looking for a few more to add to an existing list, think about incorporating one or more of these three. Each of the three metrics below relates to a different area of the business to help you get a broader sense of firm performance.

 1. Number of sales calls and appointments

Many accounting firms want to grow, but none of them want to lose revenue from month to month or quarter to quarter. Even if you only have modest goals for the growth of your accounting firm, it’s still beneficial to track the number of times you (or your sales reps) are scheduling meetings with prospective clients. 

It’s not just about the quantity here – you should also do a few spot-checks to examine quality. You don’t have to micromanage every aspect of the sales process, but every once in a while, it can be helpful to listen to a recording of a meeting or even attend one with a sales rep when your schedule allows. This helps you feel confident that your team is setting high-quality appointments, not just filling their calendars to meet their quotas. 

If you are the one responsible for sales at your firm, perform an honest evaluation of your meeting booking performance. Try to identify a few areas where you’ve succeeded as well as areas where you need to improve 

2. Utilization vs. realization rate

Accounting firms deal with many different numbers and statistics throughout their day-to-day work. When it comes to tracking the performance of the firm itself, it can be tough to know where to begin – especially for new firm owners or those transitioning into new leadership roles. 

Two of the most critical metrics that your firm should be keeping track of are utilization and realization rates. Utilization defines the number of hours your firm billed on client work compared to the total number of hours they work. Example: an employee who billed 30 of 40 hours towards a particular client would be at 75% utilization for that specific week. 

Realization is more of an external target. It calculates the amount of hours billed to the client compared to the number of billable hours worked. There are a variety of reasons why your realization rate might not be where you want it to be, but the most common scenario involves a flat-rate or retainer pricing model where the client is charged a set amount, but the team’s work goes well beyond that amount. 

For example, say you charge $4,000 per month for bookkeeping services, but for one month, your team collectively puts in 150 hours of work at a rate of $40 per hour. That means the client project cost $6,000 but only brought in $4,000. In this case, your realization rate would be about 66.6%.  

Both metrics help give you a strong grasp of operations compared to revenue at your firm. Utilization rate helps you determine whether your team members are working efficiently on client projects. Realization rate is an indicator of whether your services are priced appropriately based on the resources required to complete them. 

3. Invoice lead time

This final metric is the most straightforward: invoice lead time refers to the time between you sending an invoice to clients and them sending payment. This is sometimes known as accounts receivable, but that term relates specifically to the amount of unpaid invoices, not necessarily the amount of time it takes for the invoices to be paid. 

Focusing on the lead time allows you to understand how quickly your clients are paying. The less time between invoicing and payment, the healthier your cash flow, which provides your firm with more options and flexibility for the long term. If your invoices aren’t being paid on time and it’s causing cash flow issues, it may be worthwhile to look at an accounting firm practice management software platform that can help streamline your invoicing process. Pay particular attention to the amount of time your invoices are outstanding after a significant business change like the addition of a new service or the hiring of a new team member. 

Conclusion: Numbers are vital for accounting firms 

Most accountants are quite comfortable with business numbers, profit margins, and similar calculations they’ve made thousands of times throughout their careers. But when it comes to tracking the performance of their actual business, we find accounting professionals are much less certain.  

The three metrics above are just broad examples of what our clients have found success using. The specific numbers you track are less important than building the habit of keeping up with critical metrics that indicate the broader performance of the business. Choosing the right accounting practice management software platform makes it much easier to track and analyze vital numbers that will help you set and achieve business goals. 

Topics: Practice Management


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