ENGAGE takeaways: 7 principles to improve CPA firm profitability

Change is a constant in the world of accounting, a reality reflected each June at AICPA ENGAGE in Las Vegas.

But while countless sessions throughout the week cover all the bases related to change, Bill Pirolli’s session covers all the basics.

Pirolli, CPA/CFF/PFS, CGMA, has hosted “Driving Firm Profitability” every year since the conference debuted in 2017, offering it for the 10th consecutive conference Tuesday.

“The profession over the last dozen years has been extremely successful, but now we’ve bumped into some years where it’s harder,” said Pirolli, a former AICPA chair who joined the consulting firm The Succession Institute in 2023. “When things slow down, people go back to the basics.”

That’s not to suggest Pirolli’s session is stagnant in any way. He’s seen his audience become even more engaged the last couple of years, particularly as more accounting professionals from younger generations find themselves in leadership roles. Some level of multitasking during conference sessions is inevitable, but muted smartphones were the order of the day Tuesday.

Speaking of smartphones, Pirolli recently added an unofficial eighth principle to his seven drivers of profitability.

“Technology is such a big topic with AI that I just put it off to the side because it really touches on everything. You could do four sessions on just that,” Pirolli said. “I want firms to be tech forward. Whenever there’s an opportunity or a challenge, try to think of a technological solution first.”

With a tech-forward mindset providing a baseline for learning, Pirolli presented his seven principles.

Market forces/firm knowledge

Before attendees look inward to focus their learning on their own firms, Pirolli asked them to make sure they’re up to speed on outside factors.

“The fact that you’re all here at ENGAGE,” he said, “listening to all these speakers and what’s going on in the profession, you’re educating yourself on market forces. I want you to take that back to your particular region of the country and apply it.”

Then, on the importance of firm-specific knowledge in the profitability equation, Pirolli shared the value of having a clear picture of the firm’s client demographics but also of the competition; of having a clear picture of service lines across the board but also an understanding of how those service lines are managed.

Such breadth of knowledge sets the stage for Pirolli’s other keys to profitability and segues perfectly into his next key.

Transparency

When firms share details with their employees about how they do business, some only share on a need-to-know basis. Pirolli says that firms need to let staff know everything about the business in order to drive profitability.

“I’m a big believer in being transparent with your people,” he said. “Giving them more information about how the firm makes money, how much money the firm makes.”

During his session, Pirolli shared a set of slides featuring examples of how in depth the sharing should go, as well as the importance of sharing not just the what but also the how and why.

To Pirolli, knowledge is power — empowering employees to begin to gain a deep understanding of how they can help maximize profits.

Client selection and termination

“Every firm says they have clients they need to fire. At 49 out of 50, it doesn’t happen,” Pirolli said.

Breaking up is hard to do, but it often needs to be done in the name of efficiency.

“Repetition equals efficiency, and efficiency equals profit,” Pirolli said. “You can be profitable doing 1040s because you do thousands of them. But if you have, say, one church that you represent — either get rid of it or get 100 more. Make up your mind.”

Pirolli preaches the potential power of an aligned compensation system on both the front end and back end of client culling.

“What I call voodoo math is the idea that if I lose a $500 tax return, I will make $500 less,” he said. “That’s not the way it works. If you lose a $500 tax return, I can guarantee you will make more because you won’t be sitting around doing nothing. You’ll be rendering service to better clients. And some people won’t fire clients because they’re afraid their pay is going to go down. How about if we said your pay is going to go down if you don’t fire these clients?”

Standards and service scope

Pirolli simply summarized this principle as “doing the work you are paid to do.”

While he’s careful to make sure attendees don’t construe his advice as promoting less-than-acceptable work, he stressed that CPAs don’t get extra credit (or extra money) for completing procedures that go beyond, for example, what a compilation is supposed to entail.

Whether it’s measured against standards or against service, “scope creep” can affect big-picture decisions as well.

“A classic is that [a client] loses their bookkeeper or their controller, and we just go in and pick up a whole bunch of work and don’t charge for it,” he said. “Are we doing too much for our clients?”

Billing and collections

Having a deep understanding of how your firm bills is vital, but so is having an understanding of how a seemingly small thing can make a big difference on the bottom line if everyone is on the same page.

“There can be a giant disconnect between your staff posting a quarter hour at their desk and the financial health of the firm,” Pirolli said. “It’s just 50 bucks, right? But for the math of the firm as a whole, what if everybody at the firm properly billed for that extra quarter of an hour? That matters.

“We still are a profession that primarily tracks hours — right or wrong, that’s a discussion for another day. But if you’re going to track hours, let’s be good at it, and let’s use them the right way.”

Leverage

While several of Pirolli’s principles hinge on making sure employees are educated on how to do right by the firm, he doesn’t mean to dismiss the importance of doing right by the client.

Keeping clients happy with parameters that are fair to the firm also can add up to more profits.

“My next one is leverage. What else can we sell to existing clients?” Pirolli said. “We always put the prize on getting a shiny new client, but all the growth that your firm needs for the next year or two years already exists in your client base. You’re just not leveraging it.”

Accountability

“Nobody owns a client,” Pirolli said. “It’s the firm’s client, and you have a fiduciary responsibility to the firm to manage that client in a profitable way.”

On a company retreat, The Succession Institute’s marketing director encapuslated what a culture of accountability should look like through the lens of his time in the Navy.

“In the Navy,” Pirolli recounted the director sharing, “when you need to make a decision, the decision process is cast in stone. You first do what’s best for the ship, you secondly do what’s best for your shipmate, and lastly, you do what’s best for yourself.

“Translating that to firms, you first do what’s best for the firm, secondly you do what’s best for your colleagues, and lastly, you do what’s best for yourself. We tend to flip that around.”

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.