Looking for profitability? First you need to define what it means for you and your partners, and then you need to get past some all-too-common misconceptions, say Marc Rosenberg and Kristen Rampe, co-managing partners of CPA firm consultants Rosenberg Associates and co-authors of the new book "What Really Makes CPA Firms Profitable."
Transcription:
Dan Hood: (
Welcome to On the Air with Accounting Today. I'm editor-in-chief Dan Hood. You know, no one knows better than accountants that profitability can be a slippery concept, but when it comes to their firms, you'd hope they'd be able to nail it down a little better. And yet many don't. Here to help with that are two people who literally wrote the book on what really makes CPA firms profitable. It's called "What Really Makes CPM Firms Profitable" and it's available now. And it's part of an ever growing shelf full of monographs that are indispensable guides to just about every aspect of firm management that was started by Marc Rosenberg, who's one of our guests today, Marc. Thanks for joining us.
Marc Rosenberg: (
Thank you very much. Great to be with you again, Dan, we go back a long way.
Dan Hood: (
We do indeed. We do indeed. Mark's the founder of the famous Rosenberg Survey and of one of the leading CPA firm consultants, the Rosenberg Associates, where he works with his co-managing partner and co-author Kristin Rampe. Kristin, thanks for joining us.
Kristen Rampe: (
Thanks for having me Dan. Glad to be here.
Dan Hood: (
All right. This is a big topic and, and I think one that doesn't get maybe talked about in enough detail. So I'm, I'm psyched to have you both here to talk about it. And mark, I'm gonna start with you when you say profitable or when we say profitable, what do we mean? How are you defining profitability?
Marc Rosenberg: (
Well, you know, uh, you'd think of there'd be any kind of a person or position in, in the country that could define profitability. It would be a CPA, but such as not the case, uh, such as simple concept, there's, there's maybe three different definitions that we see firms use. They made that consciously be aware of it, but you know, one is what do the partners want to earn? Um, you know, I've, I've worked with firms, uh, you know, over 20 years, I've worked with some firms where the, the average partner income is say $250,000 and it's, it's so much money. They don't even know how to spend it. And then I've worked with firms that earn six, seven, $800,000 and they live paycheck to paycheck so it's, uh, it's human nature, I guess. So, uh, you know what the one definition could be, how, or, or what, what the partners want to earn.
Marc Rosenberg: (
Another one is, uh, how hard are the partners willing to work? You know, the results of our Rosenberg map survey just came out and astounding, uh, uh, in huge increase in the average partner income of CPA firms. Now at 584,000 up from 5 24 last year. Uh, in other words, uh, the CPA firm industry is, is rocket and partners are making a real nice chunk of change. So yeah, at the same time, as you know, Dan, our profession is, is, is, is just struggling with this labor shortage. And, uh, so firms are in this mode where business is booming and they don't have the, the people to get the workout. So, you know, if they don't have the people to get the workout, then partners have to do the work. So, you know, so how hard do partners wanna work? That that could be a, a profit and then a third one. And I think it's the most important one is how does your firm profits compare to other firms benchmarking? And we're gonna talk about that a little bit, bit later on, but, uh, just from a definition standpoint, uh, our book defines profits, just like, uh, we learned in school, uh, uh, about how partnership accounting works, uh, uh, profits are all the money that the firm earns before any payments to partners. Uh, so that's really how we're gonna, uh, uh, refer to the term profits.
Dan Hood: (
Excellent. All right. Well, good to level set to, to that degree. And, and, and it's interesting though, even as you describe it, you know, there's three different ways you can define it. And, and then in each case, it's a question of, of preferences and decisions based on the partner group, right? There're gonna say, well, this would be profitable for us because I, I don't, I can't live on $600,000 a year. Whereas you say the person who can make $250,000 and doesn't know what to do with it, that's, they're gonna have a very different concept of profit. So starting that to getting that definition for yourself is gonna be pretty important. Um, but it also obviously leads, leaves lots of room, um, uh, for, uh, confusion and, and, and misconceptions. And I think, uh, that's an area that, uh, uh, we might talk a little bit about more is, is sort of what misconceptions do accountants, uh, have about profitability about what it means and how they achieve and all that sort of stuff.
Marc Rosenberg: (
Sure. Uh, one, one of the most enjoyable chapters that we wrote in this profit book was kind of debunking all sorts of myths about how you become profitable. And one of 'em is, uh, overrating, uh, the, the, the, the, the situation where a partners might be encouraged to have high billable hours. Now, I say high, the, the national average is around 1100. We don't like to see partners have 14, 15, 1600 bill. Cause what is that partners? Aren't acting like partners. They're just chunking out the work, or it's more important what partners do with time than their billable time. So they need to have a devote time to managing the firm. Probably the most important thing or equally important is developing staff, uh, making your firm a great place to work and, and helping them learn and grow. So we don't. So partner, we, we, we actually do computations on this that, uh, uh, there's an inverse relationship between partner billable hours and profitability.
Marc Rosenberg: (
In other words, the higher the partner billable hours, the lower the profits. Uh, another one, uh, misconception is, uh, gosh, in order to earn a grade of a on this, uh, metric realization, uh, it should be a hundred percent it's sort of intuitive. Well, no, that's wrong. Uh, what if, if your firm has realization of a hundred percent, that means that all of your clients are paying your fees without objection. And that's, that's just that you don't want that. Uh, I've always, uh, uh, admired a client of mine that told me one time that what, what you strive for is for firms to see as expensive, but good . Uh, so we like to see realization in the 88 to 92% range. Uh, another one is partners oftentimes, uh, got this democracy thing. Uh, let's not have anyone person to have a lot of power.
Marc Rosenberg: (
Let's divide up the firm administration, uh, partner, a does this partner B does that. And so on, uh, again, this prevents partners from acting like partners, cause they're doing the work, the administrative work that a 50 to $80,000 a year person can do. So, um, I think that's, uh, I'll, I'll just add one more. Um, and that is, uh, you can't have a goal of profitability. You can't, if you want, but profitability is not really a goal. It's it's really, you gotta do all the things that, that make a firm profitable, like management, like developing staff, like growth, like delivering wor world class service to your clients. You do those things then profitability follows
Dan Hood: (
Well. And there's also, I mean, it sounds, you know what, what's fascinating one about all those, those misconceptions are sort of super counterintuitive, right? Like you say, you know, why shouldn't I be, if I'm working lots and lots of hours, certainly that's gonna make me profitable, but obviously for all kinds of good, very good reasons. Um, that's not what you're seeking. Uh, but the other thing is that, um, uh, you could probably be profitable and be a fairly badly run firm. I mean, accountant founding firms are in demand. There's a lot of, lot more need for their services, uh, than there are people to fill that demand. It's really, it sounds like what we're talking about is, is there's a, we're, we're, we're combining profitability with a successful firm, which you would call a really successful firm as opposed to yeah, we covered the bills and we all take money home, but our people are unhappy.
Dan Hood: (
We don't have a future. We're not gonna be able to get new partners to come in. We're not gonna be like, maybe you think about it this way. It's not a long term profitable business. And I think that maybe is a little bit of what, what, what a lot of these misconceptions are around. It's like you take a very short term view of saying, yeah, I'll work 1400 hours this year and we'll make a ton of money, but you're gonna burn out by the time you're 40 and no one who's gonna wanna work with you. And you're probably not gonna be doing the best work that you can, et cetera, et cetera, et cetera. So it's, um, it's interesting cuz it definitely verges into that, that area of really what we're talking about is being a long term successful firm, as opposed to, to, to grabbing as much money out of it as you can and then burning out fast.
Dan Hood: (
Um, it, it's interesting cuz I talked about, you know, account, it would be very hard to not be profitable. Um, in the sense of there's so much demand for accounting firms, unless you're absolutely terrible, terrible, terrible. Um, uh, but, but there's also a question of right. Some firms may look and say, well, wish we had more money. We maybe we we'd make more investments. We may do more in M and a, we might Bo it buy more technology. We might hire, uh, you know, uh, niche, specialty staff, any kind of thing like that, or raise the, the salaries of our staff cuz there's mark, as you mentioned, such a terrible staff crunch going on. So I think for a lot of firms they say, well, it's really not about being profitable. It's about being more profitable about having more money for, for ourselves, but also for things we wanna invest in on that front, Kristin, I wanna bring you in here and, and start to talk about this notion of getting more profitable. You know, why can't firms just say, Hey, I'm just gonna raise my fees. Um, I, I, to Mark's boy, right? I've got a hundred percent realization um, or even, even if I'm going for the, the better model of 88 to 90%, why can't I just raise my fees and make a lot more money?
Kristen Rampe: (
Yeah. Well, in some ways I, I wish more firms would take that approach right. Of, of, of raising their fees. Um, because you certainly can. I, you know, the sure there's a point at which maybe there's a threshold and you, you know, you have to be able to provide the value that supports the fees that you're going to raise it up to. But the challenge I see in our industry is, um, more often the firms that are still, uh, even still today when the curtain marketplace that we're in afraid to raise their fees. You know, and, and I just, earlier this week I heard more than one person say, well, you know, our clientele is really price sensitive. I'm not sure they would support a fee increase, you know, oh, we could raise our fees, but we would just write it off. Um, and so I do believe that part of the equation of being a really profitable firm is having a strong fee structure.
Kristen Rampe: (
And I also believe there are a lot of CPAs that could use some work in that area and finding a comfort level in raising those prices. In fact, one of the tactics that we talk about with some of our clients is you should be losing or at least getting pushback on some amount of your proposals and new clients because they don't like your prices. Like if you're closing all of your deals and no one's saying, boy, that's, that's pretty expensive or gosh, this just doesn't, you know, I can't, I don't have the budget for it. Then I would suggest that you're not pushing that envelope high enough to really try to get up there and say, Hey, let's try, you know, like, let's see intentionally try to get 10% of our prospects to decline working with us because it's too expensive. I think if you're not there, you know, if you're 0% or 1%, um, there's ability to, uh, to move that needle, but yes, you've gotta support it. I think in our industry, the bigger challenge is putting the price on the value we're already providing. I think we're providing the value. We just need to price it.
Marc Rosenberg: (
I'll just add to that if I may, um, uh, you know, uh, I've been consulting for over 20 years and uh, if there's anybody that's, uh, gets on this, the, the, the podium and, and, and just, uh, really strongly encourages firms to be aggressive, not, not gouging, but have aggressive billing rates, it's been me. Um, and, uh, one of the related to that is, uh, uh, again, I'm, uh, I'm always suggesting the firms that every, every now and then, uh, you take a look at the lower, uh, uh, uh, more difficult clients jam, lower, lower profit, and call them out, find them a different home. So you have more time for your better clients. Well, that's generally fallen on deaf ears for a lot of firms until this year, uh, yesterday. Uh, uh, one of the activities I have is I, I run a, uh, a 25 person round table group of the managing partners of the largest local CPA firms here in Chicago. And I gotta tell you one, after the other, after the other, they're, they're starting to call out their clients. They're just suffering. So mightily from a, from this, this, this imbalance between demand and, and labor. So, uh, uh, I, I was just, so it was so wonderful to hear that cuz that's what a good business person needs to do in terms of running a CPA firm.
Dan Hood: (
Well, it goes to Kristen to your point, right? It's it's not about you can, you can just raise prices, Willy nilly, but that's not what you should be doing, right? You should doing it in a, in a, a strategic or a, an intentional way. One to, to drive out the, the, um, I'm always tempted to call well to call those clients terrible things, but let's just say you're lower, uh, lower clients. You're less profitable, less fun to work for less interesting clients. So it should be strategic. You should be saying, you know, these are clients we don't wanna work with, or this is a business line we don't want to be in, or this is, you know, we wanna focus more on advisory work and we don't wanna do just 10 forties or whatever the case may be. So you can raise prices and should Kristen to your point, but, uh, maybe, uh, do it with a little more, uh, a little more purpose and intention and strategy.
Kristen Rampe: (
Yes. And one of the, a strategy to employ there. And in fact, some, one of the reasons why I find a lot of firms hesitate about this to say, oh, well, you know, there's a few of these categories, right? Betty's been getting her taxes done by us for 40 years, you know, and her husband died five years ago and there's no, you know, we're not gonna possibly kick her out on the street. Totally fine. You know, or, or we have a, um, you know, nonprofit locally that we really enjoy supporting and we enjoy offering them sort of this really low rates audit, uh, you know, that certainly were, were losing money on, but it's important to us. So I encourage firms to have a, I like to call it, you know, back in the days when, when retail was a little more paper based. And if you knew someone who worked at say like the gap, right, they would get a friends and family discount like a physical card and you know, some dating myself a little and you could give that card to, well, as many people as you had cards and then they would get a special discount that really no one else would get.
Kristen Rampe: (
Um, of course today with the internet, everything's just a, a digital coupon. But with your clients, the friends and family bucket, you know, like you can have that bucket where you have those really low priced, you know, projects that you work on. No problem. Just be sure that that bucket is the right size for your firm, right. It probably shouldn't be 25 or 50% of your clientele getting ridiculously low market rate work, but can it be some amount of them? Absolutely.
Dan Hood: (
And they really should be friends and family. Right. Cause I mean, a lot of those people are just, they've been there for a long time and, you know, they signed up when we were, when we were small and, and hungry and struggling, but actually they're kind of jerks. So we've never liked them. And no one here likes them. There's no ones' friend. Why are they still here?
Kristen Rampe: (
The jerks gotta go. Um, but I would say that that friends and family bucket could also include some amount of strategically low, low priced items like the pro bonos or the nonprofits, but again, keeping an eye on the size of the bucket is most important.
Dan Hood: (
All right. Um, uh, uh, one things we're sort of topic we're sort of skirting around and mark mentioned, it is, there's a, we're talking about a lot of things that can be improved with data and looking at them and, and thinking about numbers specifically to all these. We're gonna talk about that about benchmarking, uh, in a minute, but first we're gonna take a quick break. All right. And we're back with mark Rosenberg and Kristin Rame of the Rosenberg associates. And we're talking about profitability. Uh, they've just come up with a book or what really makes a CPA firm profitable. I should, we should mention where this is available. What's the best Christian, what's the best place for them to, to find this book?
Kristen Rampe: (
Yeah. If you search for Rosenberg, associates, or CPA for profitability, you will find us in your Google search. Um, the website is Rosenberg, sos.com. That's a S S O C on the back of Rosenberg. Uh, we've got all the books there, including this one.
Dan Hood: (
Excellent. As I mentioned, it is a long shelf of, of, um, pretty much an encyclopedic, uh, dissection of what it takes to run a, a successful firm, uh, in all different aspects in, uh, in, uh, highly recommended and particularly the latest one about profitability. So let's get back to it. Mark. You had mentioned earlier, uh, the importance of benchmarking and said we would get to it now is the time, um, interesting about the three sort of ways you could measure profitability as you described? Two of them were a little bit subjective or a lot subjective, how we wanna say it, you know, it's, what do I want, how much do I wanna work? And it really came down to sort of personal preferences, but then the third was, was benchmarking against other firms. Um, and I think from accounting firms, Ooh, numbers, I would like to look at those. What, how, uh, what's uh, why is benchmarking important for a firm when it's looking at thinking about its profitability?
Marc Rosenberg: (
Well, I I'll start off answering your question by giving it a little, absolutely true scenario. It actually happened, uh, in the course of all the different consulting projects we do, we often interview partners one on one confidentially. And one of the questions I like to ask is what do you think about your firm's billing rates? Are they high? Are they low or just about where they should be? And the answer resoundly comes out either high or where it should be. They never come out low. Well, then I bring in the, our, our Rosenberg map survey and our, I call it my, our test laboratory of data and, uh, I show them that, uh, 10, 15 firms their size, uh, not necessarily in their community, but around their size and, uh, uh, geographic market. And I show them that there are like 20, 30% below everybody else's rates and the partners look like, uh, I've just invented, sliced bread.
Marc Rosenberg: (
uh, and it's at that point, I wish I would bill on the basis of how much money I made for them to get them to increase their prices instead of the, the conventional way. So, uh, you, you can't live in a cocoon. Benchmarking is all about not living in a cocoon. Uh, if a firm wants to truly evaluate their performance, uh, you know, say income per partner or staff partner ratio, uh, and realization you can't do it properly, unless you have something to compare to when, when they, uh, the news or the radio, whatever they say, well, the Dow Jones was 30,223. Well, they there's a little important thing they had after that up 30 points from yesterday or, you know, it, it's just the number itself. I wouldn't say it's meaningless, but it's not as meaningful as if you had something to compare to.
Marc Rosenberg: (
Um, and just as important and very related benchmarking helps firm identify what the firm needs to do to improve, uh, profitability and efficiency. Uh, uh, again, one of the, the, the, the, the, the stunning, uh, results of our survey this year is that, uh, staff partner ratio, uh, really climbed and it has been climbing, but it really jumped up, but that means that that's leverage, you know, uh, lawyers don't leverage themselves very much, but CPAs do and must. Uh, so, uh, it, if you're, if you have a staff partner ratio of two and a half to one, and everybody else is at five to one, then you got some work cut out for you. Um, so you need something to identify and take action benchmarking. Doesn't stop just at flipping over our survey booklet and saying, wow, this is interesting. it? Should you need to go the next step and say, all right, what do I need to do to get my metrics closer, uh, to, to, to, to the industry norm
Dan Hood: (
I do you, sorry, just cuz you mentioned that leverage aspect. We're always fascinated when we do our top on our firms list, there is a clear, like a, like a huge chasm between billion dollar firms and, and everybody else. And it's that leverage, right? The, the number of staff to partners is just, there's an enormous gap. It's like double and, and it goes a long way to explaining that their success, but two things, one, I, I would suggest you should charge by the number of times your clients go, wow. Um, whatever you blow their minds, that's, that's what you should charge for four or five of those in an hour. And, uh, you're, you're a wealthy man. Um, but, but I do wanna push, push a little bit into it, cuz I, I mean, we've been talking one of the things we we've sort of basing this whole conversation around is that accounting firms are not necessarily good at measuring their profitability correctly.
Dan Hood: (
They're not necessarily good at probably speaking, running their practices, but I didn't say that. Um, but, but uh, if we're, if we're saying that you know that, that there are issues with this, for instance, you, you talked about the numbers they're looking at for, um, for realization rates and are they realistic and are they what you would really ideally want? If, if, if we're seeing that at a lot of firms, when you benchmark yourself against them, are, are you kind of benchmarking yourself against people who aren't necessarily measuring their things properly or pursuing the right goals? How do you make sure that you're benchmarking yourself in other words, against the right numbers?
Marc Rosenberg: (
Well, you, uh, uh, make sure that you've got a good benchmarking survey to compare it to, there you go. All right. And I happen to know a real good one
Dan Hood: (
but it, but that's, that's accurately reflecting what firms are doing now. Right. But if they're not doing the right things, I mean, I guess what I'm asking is you just take all those numbers and just add 10% to them and say, well, this is what the other firms are doing. I should be 10% more cuz they're probably not doing the, or, or reduce it by for, you know, for realization rates. For
Marc Rosenberg: (
Instance, you have to go when, when you're below an industry, norm you have, you, don't just all of a sudden get up to the industry. Norm, take some steps again, yesterday's meeting, uh, we had this one firm, uh, and, and their partner income was, uh, 415,000 as I recall. And again, this particular Chicago group, I said that the national, our national survey showed 584,000 for the typical, this is about equity partner, by the way, uh, the Chicago group was at six 30. So this managing partner said, well, I, you know, I guess we're performing lower than everybody else. And we gotta do something about that. And I told, I told her, I said, you know, last year, you three 15. Now you're up to four 15. That's great. You've taken, you know, you can't get from three 15 to six 30 in one year, you need to take steps.
Marc Rosenberg: (
Um, so, uh, that's, that's, uh, those, that kind of methodology is, is very helpful. Uh, you know, whether it takes a year, three years, five years, you know, one of the things we do in our consulting is we, we, we, we play we're we're king of the spreadsheet, the Excel spreadsheet and we do a, what if analysis? So kind of on the left side of the spreadsheet is what you are now. And then on the right side is if you do this, this and that, here's what your firm might look like. But again, you, I love, I gotta hire you as a consultant then, uh, we should bill on the basis of the, how many times they go. Wow. And then we also tell them where we show 'em the wow is now guys, you can't, you're not gonna get there overnight. I don't, I don't know what the timeframe is for you going from a to B, but that you should have this goal in mind, uh, to where, where you eventually wanna wanna be.
Dan Hood: (
Cause then you can measure your progress in that direction. You're not gonna that right away, but you can measure direction. Well, we, we were talking a lot about profitability and how firms need to, to think about how they measure it, but maybe we talk a little bit about, um, about how they can get more profitable or increase their profitability. And I know the book is full of all kinds of examples, but if you had you to pick just one, Kristen, uh, and again, acknowledging that there are no silver bullets, there's a lot of different things you, you should be trying and a lot of different aspects of your practice that you'll be, you'll be working on. But if you had to pick just one, what would it be?
Kristen Rampe: (
Just, just one, if I had just one. Yes. Um, the first thing, the number one thing would be to have strong, effective management and leadership. And it's, it's a bit of a broad brush, but that sets the tone sets the stage for everything else to fall in line at a firm. Uh, it's not to say that there aren't some highly profitable firms that are managed awfully, cuz that definitely does exist. Um, and that there aren't some really well managed firms that are just struggling to turn a profit and need to do some things. But that is really a key foundation. Um, you know, when you've got someone or a small group of people who can set directions, who can make tough calls, figure out the strategy, it's gonna be a lot more effective. Assuming that profitability is a goal of the firm, um, in reaching that goal rather than having three or five or seven or 12 partners all rowing in different directions. And oh, I think this is best for the firm. I think that's best for the firm. Well, it just makes a lot more complicated. So I think there was only one that would be the one that I would pick.
Dan Hood: (
Gotcha. Well, let me push at that a little bit. Cause I mean, obviously if you could, if you could get, like you said, you had 10 or 12 partners all rowing in a different direction, how much can a, can a single person, uh, move the profitability needle within their firm? It really have to be everybody pursuing one thing. Or if, I mean, obviously if everyone would listen to the managing partner, that would be great. But how often does that happen? You know, how, how much can an individual sort of cha change the profitability of the firm?
Kristen Rampe: (
Yeah, absolutely. No, I do think there's a lot of impact that any one person could have, even if, you know, if you do happen to be on one of those where there's not a strong, um, current leadership or, or it is strong and you just wanna do your best, um, you know, making sure that you've got enough business in the door, it doesn't seem to be a problem today for most CPA firms. But, uh, I would say never, never wanna lose sight of it, right? Like don't forget how to do that. Um, most important today though, is that, you know, mentoring staff, helping them learn and grow, developing that next generation of leaders because in that long game of the CPA firm overall, it's all about, everybody knows this, right? It's all about the people. It is also all about the clients, but especially in today's marketplace, I would say the people side is just a little touch above.
Kristen Rampe: (
Both deserve a lot of attention, both deserve excellent service. But if you are, if you are still kind of, mm, just stepping up what your clients being priority over your staff these days, I don't think that's gonna end up, um, well for you, but other things that individuals can do, um, you know, are there additional services that your firm can provide? Can you lead the initiative to call those clients that really are a bad fit for your firm either because they make people mad, um, or they're low profitability or they been around forever and they're just not a good fit. You know, you can be the one to say, Hey, I don't think this is great client for us anymore. I'm gonna, and by the way, I'm not sitting around with nothing to do. , you know, like I'm gonna go get a new client to replace them.
Kristen Rampe: (
That is in line with what we're doing. Um, and then delegating, you know, the, the more you can use that leverage model that really, um, plays a strong part in, um, profitability. When we look at the, you know, some of the metrics that really correlate with high profitable, um, high profitability firms, it's that staff to partner ratio is one of 'em, um, revenue per person. So the more people you have on your team generally speaking, the more and, and that are that you're delegating to, right. Don't just have them there, but give them them things to do. That's um, that's
Dan Hood: (
The key. Well, and that is right. That is a, that's a key, think we hear a lot about that, that, uh, the role of partners and one, one of the things they can all do is delegate a lot more and a lot more effectively. Um, and too many of them, I think we've mentioned it a couple of different times, too many of them just like to do, uh, the work that got 'em to being a partner, right. They like to, to serve to clients, which is a good thing, right? We all wanna serve clients, make sure they're, they're well served and getting the value that they need. But, um, Dan,
Marc Rosenberg: (
Can I throw out another little nugget on the, the management thing? Uh, you know, this is one of those areas where good idea, but how could we do that? , you know, the partner group looks around at each other eight partners or in a meeting and they see, none of us really are charismatic. natural born leaders. Well, we didn't go to, uh, uh, get an accounting degree, uh, to specialize in being a leader. Uh, but you know, the one, I I'll really date myself here, one of the best books I've ever read, uh, it's called, uh, good, great written by Jim Collins. And he, he debunked this theory or this notion that a great leader needs to be charismatic. He said, uh, I forget the adjectives he did use, but he said, you just sort of a, uh, a sharp person that when, when, when he, or she talks other people listen.
Marc Rosenberg: (
And, uh, uh, there's just so many things that, that make up being a, a good leader, but, you know, CPA firm partners, generally, aren't this really charismatic, unbelievable leader. Uh, but they are when I, when I, you know, over 20 years of consulting and Kristin's getting close to me and in years, but, uh, of consulting, but we've all we've met these great managing partners. And again, they're, they're not life of the party types. They're not Dell. Uh, and they, they're just so smart and they're so innovative and, and deep in their thinking and their ability to get others to follow. Uh, uh, but they don't do it by, you know, being this, uh, you know, charismatic, uh, kind of a person.
Dan Hood: (
Yeah. Well, charisma and a business leader is often, uh, making up for a lack of other scales. right. It's often making up for lack of strategy or vision or determination or drive or decisiveness or all those sorts of things, but everyone just says, well, it doesn't matter that we're failing as a company because he's such a great guy to work for. Um,
Marc Rosenberg: (
Sorry to belabor this. I'll throw out one more real quick one. Uh, I'm a big sports fan and I forget the name of the basketball coach, but he said that, uh, my job as the, as, as the coach is to push the players where they won't go themselves. Uh, and I, you know, does managing partner push the other partners? Maybe there's a better word than that, but again, that's that, that, that accountability and coaching, uh, that's, that's what a good managing partner does.
Dan Hood: (
Excellent. All right. Well, Kristen, I limited you to just, uh, to just one and I'm, uh, I'm, I'm gonna be wildly unfair and I'm gonna let, uh, let mark have a last last looks at this, say mark, any other profitability tips from the book Christian got to name? Just one. It was a good one though. I gotta say super solid, um, about, about the importance of management and leadership. Um, but mark, any others, uh, you wanna bring in anyone you wanna mention as, uh, before we go?
Marc Rosenberg: (
Sure. I think we've, we've probably sort of touched on a few of them, but, uh, God OMI it's, this has never been unimportant, but it's so important today. Haven't developed a well trained, engaged staff. Uh, I don't think any firm truthfully will say they, they, they, they, they don't have problems binding and keeping staff, but, uh, uh, you know, a client of mine here in Chicago, uh, just got named the, the, the ranked the 12th out of a hundred companies as best place to work. Uh, that was all kinds of companies, you know, retail manufacturing, his first was 12th. Uh, so, uh, gosh, and it's not just winning the award. Of course, it's what you did to earn the award and just making this a great place to work where people wanna come to work. And they're so all things related to, uh, developing a great staff, another one would be special specialization and consulting.
Marc Rosenberg: (
Um, and I'll throw wealth management into one of those. As an example, you know, only about, you know, let's say for firms under 20 million in size, only about 30, 40% of firms are into wealth management. And if you look at those firms bottom line, it's amazing. They make more money on the wealth management, you know, per hour or whatever you wanna measure then on the CPA firm work. And again, we talked about this yesterday in our round table meeting, and I asked, right, uh, I named off three firms that aren't doing it and why aren't they doing it? It's a combination of affluence and we're too busy. You know, we're, we're making $630,000 a partner. Do we wanna take out a major new service? And even if we do, do we have the time how, how to look into that? So, uh, that's a form of specialization, but, uh, um, people will, people will pay.
Marc Rosenberg: (
Clients will pay a higher price, they'll pay a premium for an expert or a specialist. Um, here, I'll just give you one more. Um, we just had an example of this, uh, for a firm in the Midwest is a 9,000,003 partner firm. So the revenue per partner, 3 million each is pretty high. They're very, very leveraged. And, um, uh, the founder of, of the firm was just a few years away from, and just a dynamic, unbelievably great managing founding partner. And he's gonna retire in two, three years. So last year or two years ago, he named a 42 year old partner to be the next managing partner. Well, that, that fella is managing 3 million worth of business. How are you gonna do a good job managing a 9 million firm about to be an 11 million firm when you're managing 3 million worth of clients. In other words, our message that to hit this fellow is you've gotta delegate a substantial amount of your clients to have time to make the firm, your number one client. So those are some tried and true, uh, principles that, uh, work every time yet easy for us to say are to do.
Dan Hood: (
Yes, but I'm gonna stop you there though, because we want people to go to get the book, uh, What Really Makes CPA Firms Profitable, as you mentioned, it's, uh, available on the website, do a quick search, it'll pop up, but it's Rosenberg, A-S-S-O-C, is it org, or com, or biz or?
Kristen Rampe: (
.com.com.
Dan Hood: (
Excellent. You can find it there, well worth reading. And as I mentioned, I always, I've mentioned many times in the past, uh, how great I think this monograph series is how useful I think it is for firms and, uh, what a great guide it is for how to be, uh, to be better. And, and in this case to be more profitable. So with that, Marc Rosenberg and Kristen Rampe of Rosenberg Associates, thank you both for joining us.
Marc Rosenberg: (
Thank you.
Kristen Rampe: (
Thank you, Dan.
Dan Hood: (
And thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Kevin Parise. Rate and review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guests, and thanks for listening.