IN OUR OPINION, PERSPECTIVE #89 — AUGUST 5, 2019
(A Continuing Series for Leading CPA Firms)
NON-BILLABLE TIME — ARE YOU GETTING YOUR MONEY’S WORTH?
“What you do with your billable time determines your current
income, but what you do with your non-billable time
determines your future.”
— David Maister
Today, at many smaller CPA firms, client service partners (defined as partners “on the line” who devote 100% of their time on clients with no firm administration responsibilities), generate, on average, about 1,500 to 1,600 billable hours per annum. At most of the Top 100 CPA firms, client service partners generate about 1,200 billable hours per annum. That should be the absolute minimum at the Top 100 firms. Without breaking much of a sweat, client service partner billable hours at the Top 100 could and should easily reach 1,300 to 1,400 billable hours per annum.
Regardless of the average number of client service partner billable hours at your firm, the question addressed in this Perspective is — what are you getting for those 1,000+ non-billable hours? If you are not getting a respectable amount of new business originations, you probably aren’t getting your money’s worth.
We understand that every partner is unique and business development results will always vary because skill sets are different. Some partners just don’t deliver much, if any, new business no matter how much training you expose them to. These partners are not good at new business, they don’t enjoy the experience, don’t know how to ask for a piece of business or simply don’t have enough gas in their tank to pursue it. Some other partners deliver only an occasional piece of new business because they try and sometimes, they succeed. And still other partners are good to very good at developing new business and see results of at least $150,000 to $200,000 each and every year.
Except for a handful of partners (usually the founders), client service partners at many smaller firms don’t deliver any new business for their firms. At most of the Top 100 CPA firms, client service partners, on average, generate between $25,000 to $50,000 in new business annually. $25,000 to $50,000 truly is a very small amount of new business to deliver to a firm during the course of a year and is a pretty poor ROI (return on investment) on 1,000+ non-billable hours.
In Our Opinion, client service partners with additional hustle, focus, accountability and firm emphasis could and should be generating, on average, about $75,000 to $100,000 of new business originations per annum. That’s two to three times more than you are probably realizing today! Imagine the financial impact if you were able to improve your ROI from those non-billable hours. It could be huge!
Here are some thoughts that might move the needle at your Firm:
- New business origination is a state of mind. To begin with, a firm has to attract partners that have a blending of technical and business development skills and make it clear that a client service partner has the responsibility to both: (a) serve clients in a quality fashion and (b) develop new business. Our observation is that many firms aren’t consistently delivering this basic message to their partners each and every year. Worse yet, when these firms are developing new partners, they aren’t stipulating that new business development is part of the basic job requirement. As a result, business development is not part of a firm’s DNA and the perception is that it is not important to their partner group. If it’s not important, a firm isn’t going to achieve acceptable results.
- New business origination doesn’t result from turning a light switch on. Like delivering high quality client service, delivering quality, profitable new business has to be part of a partner’s everyday routine. When not thinking and acting on behalf of clients, effective partners are out in the marketplace nurturing personal and business relationships that bear fruit over a period of time.
- A network of friends and contacts (lawyers, banker, consultants, etc.) are the major sources of new business and these professionals are trying to do the same thing as your firm — they are trying to originate new business on behalf of their companies and organizations. So, it is important to emphasize that CPA firms need to generate opportunities and reciprocate so that new business becomes a two-way street. Anything less, and a referral source will be “one and done”.
- Eating lunch every day with the same partners is not going to generate a new client opportunity for the firm. Sure, it’s OK to each lunch with partners from time to time but it should not be the daily routine. Partners need to get some client, prospect, and referral network lunches on the calendar each and every week. When possible playing golf or some other type of sports event is also a great way to generate new work. There is nothing more effective than deepening relationships on a personal basis and, whenever appropriate, get spouses involved — perhaps over dinner on a Saturday evening. It’s magic!
If all else fails, try the “nuclear option” which is to change your firm’s compensation system to one that has a heavy weighting on new business development bonuses. If a partner knows that a large portion (say 20%) of his/her compensation is based upon new business originations, you certainly will move the needle with those partners who can deliver more value from their non-billable time.
It is hard to understand why so many CPA firms put so little attention to the huge cost of non-billable time. Conversely, a tremendous effort is dedicated to increasing billable time but year in and year out, average billable hours don’t deviate much from 1,100 to 1,200 a year. If we know that this is more than likely not going to change, perhaps it is time to shine the spotlight on the 1,100+ non-billable hours that, if used more effectively, could have a big impact on your firm’s future.
Dom Esposito, CPA, is the CEO of ESPOSITO CEO2CEO, LLC — a boutique advisory firm consulting to leading CPA and other professional services firms on strategy, succession planning and mergers, acquisitions and integration. Dom, voted as one of the most influential people in the profession for two consecutive years by Accounting Today, authored a book, published by www.CPATrendlines.com., entitled “8 Steps to Great” which is a primer for CEOs, managing partners and other senior partners. In Our Opinion, is a continuing series of perspectives for leading CPA firms where Dom shares insights, experiences and wisdom with firm leaders who want to “run with the big dogs” and develop their firms into sustainable brands. Dom welcomes questions and can be contacted at either firstname.lastname@example.org or 203.292.3277.