Performance Indicators to Keep Your Firm Healthy and Happy

Published October 26, 2017

While the rest of the firm is crunching numbers for clients, CPA firm administrators are generally charged with creating conditions to achieve certain performance numbers and results. Many firm administrators have their favorite key performance indicators. Some are from the traditional pool, such as realization, utilization, revenues, and client satisfaction. Some are more non-traditional metrics. Whatever your preference, here are some potent elements of which to be aware:

1. Days Receivable – If days receivable – or days sales outstanding (DSO) – is growing, it means clients aren’t paying you as quickly as they used to. This could mean clients are having financial troubles, that they are not happy with your firm or services, or that your internal team is not being effective with collection efforts. Increasing days receivable is an indicator your cash flow is going to be extended, that people on your team may be overworked, and that morale internally and externally will become impaired. An acceptable target for days receivable should be determined and reviewed at points during the year to keep cash flow healthy and predictable.

2. Average Fee Levels – Take a look at average fees over a several year period. Have your fee levels been flat? Increasing? Increasing by more than the rate of inflation? If you are pricing competitively, flat average fees are a sign that the addition of new services would be important to growth and client commitment. Ballooning average fees may be difficult to replicate for extended periods, or can be if you are aware of the factors that create the growth and can continue them. Diminishing average fees may reflect efficiencies, a downturn in service, or even a declining interest in that service -- all of which foretell more decline and the need to make a change.

3. Demographics – Take a look at the average age of your clients. Is there a trend of growth in clients aged 35 to 45? This is a potential indicator of client sustainability. If a lot of clients are older than 65, it’s statistically predictable that the client base will soon shrink. It may also indicate your service offerings should change to better meet their needs. With a lot of younger clients below age 35, you may want to encourage the firm to examine staffing. Are younger clients more engaged with similarly aged accountants? Take a look at your staffing as well to make sure firm processes and services are properly matched to team members.

4. Client Referrals – Firms should study and track the number of client referrals, as well as the dollar volume those referrals bring. Look at both historical data and trends or patterns, which can be much more impactful. If your client referrals are growing, it suggests the future revenue stream will intensify. If referrals are flat or dropping, clients may be less than satisfied, which will put pressure on profits. Sure, you would be able to see client satisfaction trends if you utilize surveys or other forms of feedback. Referrals are a real time indicator of how clients feel about your team; becoming the gatekeeper of that data, and regularly reviewing feedback with firm leadership, is an important job for overall firm health and building client loyalty.

5. Pipeline – Inventorying your new business leads is important, but only valuable if your firm has parameters in place for mining and moving the sales opportunities to closure. Leads that are not closed out within 30 to 45 days are not likely to be realistic sources of new business, absent some special circumstances. If the pipeline is too shallow – meaning, there aren’t enough good prospects -- it’s a predictor that things are going to dry up fast. In contrast, if there’s too much in the pipeline, it may mean your firm is not being as selective as it should be, or you’re not moving quickly enough on those leads. Too much in your pipeline may also mean your competition is weak. That’s a good problem to have, but may mean the firm needs to hire more team members to cover a potentially exploding client base.

6. Social Media and Website – How is the traffic to your firm’s website? Are you increasing the number of people who follow your firm’s page on LinkedIn? Do you know how to find out? If your firm has no marketing person on staff, figuring out how to understand website traffic and social media marketing and engagement for the firm can add great value. Analytics such as this should indicate not only if the general public is seeing your name and messages, but can be a tool to use in business development and lead to attracting and reeling in new clients.

7. Project Turnaround Time – Keeping an eye on budgeting and scheduling software specifically to watch for efficiency metrics such as turnaround time can help the firm streamline processes, save money, and maintain client satisfaction. Make sure there’s a system in place that provides a specific due date for projects and a way to monitor success of that process. Do you know when jobs are running – or ran -- long? Is there a reason a certain job is taking longer this year than it did last year? Being able to monitor these metrics, and help the firm understand and avoid lag times and upheaval, can be incredibly valuable.

There is so much that falls on the plate of the management of a CPA firm. A healthy and happy firm revolves around crucial factors like culture and communication. Tracking the right performance indicators and addressing what they are revealing is going to make a big impact on culture and communication and the level of your firm’s health.

Ira S. Rosenbloom, CEO, Optimum Strategies - Optimum Strategies improves the performance, profitability and succession options of small- to mid-sized accounting practices across the Mid-Atlantic region. With targeted expertise in accounting practice management and firm mergers and acquisitions, Optimum Strategies is a trusted leader and consultant focused on providing marketplace advantages, next generation leadership development, and other operational advantages to create improved performance and stronger bottom line results. For more information, visit