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How Capacity Planning Can Increase Profit Margins

Tim Sines
Posted by Tim Sines on Jan 2, 2024 1:45:29 PM

Sophisticated technology allows us to understand and draw meaning from data in the world like never before. And while it may not be as interesting to mainstream audiences as robotics or chat interfaces, the use of new technology to analyze accounting firm operations is one of the biggest factors driving change in the field. Thanks to the rapid advancement of tools like AI and machine learning, firm owners have better access to numbers about their operations, sales, and overall profit margins. 

One of the best ways to leverage the abundance of new data available to accounting firms is through capacity planning – the practice of analyzing how much production bandwidth your team has to meet firm goals and making sure you assign them the right amount of work based on that availability.

It might not be immediately apparent, but getting into the habit of capacity planning can go a long way toward improving your accounting firm’s profit margins. Here’s how: 

Provides team members with workload clarity

It’s a common situation not just in accounting but in all sorts of workplace settings that are heavy on information work: the star performer who does well with every task gets more and more piled onto their plate. All too often, enthusiastic, skillful performers who are overworked eventually start to experience burnout and resentment.

This happens when team members keep getting new work assigned to them despite already having as much as they can handle. When you’ve already got a full plate yet are worried about having to take on even more work, it can create a negative emotional situation that makes the additional tasks seem even harder.

With capacity planning, this kind of situation is much easier to avoid. You’ll have a better idea of everyone’s availability and can prevent over-burdening your team members with more than they can handle.

Increases client satisfaction through improved service

Have you ever been to an extremely popular restaurant during one of their busiest days of the year? While the best establishments can handle a significantly higher volume of patrons than normal without causing problems to their operations, many eateries will see a breakdown in the way things are handled.

When your accounting firm is at capacity (or even above it), your clients might feel a little like they would while trying to get a table in a packed restaurant during prime time. Someone might get back to them, but not right away. And if they do get the service they request, it might take a long time for it to be rendered. Worse, a busy establishment has a higher risk of making errors – and while we all know how annoying it is when your dinner order gets messed up, accounting mistakes can be much more consequential.

When your firm has the right capacity planning in place, this situation occurs much less frequently. Understanding how much work your team can handle will not only save them from the stress of overwork but also empower them to provide higher-quality service to clients, creating longer engagements that bring in more profit.

Offers a foundation for sales and marketing campaigns

To continue with our example from the last section: a smaller restaurant with only 15 tables wouldn’t try to do enough marketing to bring in 40 parties for lunch. On the other hand, a brand new place might need to promote themselves a little harder to get a sufficient amount of foot traffic in the door.

Like a restaurant – or any other business – your sales and marketing goals should be determined based on internal capacity planning. If you’re reviewing capacity reports for the year and have found that you aren’t allocating all available internal assets but still haven’t met your revenue goals, it’s a sign that you need to step up your sales and marketing efforts. On the other hand, if you’re consistently deploying more resources than expected to meet your goals, it likely means you have an issue with the efficiency of your processes.

By tracking and analyzing trends in capacity, you’ll be able to scale your promotional activity up or down depending on your firm’s current needs.

One easy way to improve accounting firm capacity planning: Software

The process of capacity planning may not be intuitive for every accounting firm owner, especially those new to the idea. Fortunately, there are plenty of cutting-edge tools developed that employ technology to help make capacity planning less of a challenge. By implementing the right accounting practice management software, you can take advantage of built-in tools for capacity planning that make the practice much easier for your firm. Over time, you’ll be able to strike the right balance between pursuing new business and making sure your available resources aren’t spread too thin, which will ultimately help achieve your biggest business goals.

Topics: Practice Management


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