Accounting
How accounting firms can overcome the profit plateau
Many accounting firms run up against the dreaded profit plateau for a simple reason: The owner is too involved.
All CPA firms start small, and that ultimately means the business — especially in its early stages — rests on the skill set of the owner. However, for accounting firms, the best way to grow is for owners to remove themselves from the key business processes.
An easy way to understand the role of a CEO or managing partner in a CPA firm is actually to compare it to the restaurant industry. Most restaurants are founded by chefs and cooks who have a slew of great recipes they want to sell. The restaurant starts small with the chef often doing everything: taking orders, cooking, serving, cleaning, managing finances and marketing the business.
Eventually, the business grows enough that some of that role can be delegated to others for pay. Maybe the chef hires a server or two. Maybe she hires a sous chef. But quite often, she’s still in the kitchen, managing the day-to-day business, and still heavily involved.
So, what separates that small mom-and-pop restaurant from some of the more well-known multi-restaurant chefs like Wolfgang Puck? Knowing when it’s time to hand over the day-to-day operations so you can focus on growing the business.
CPA firms are no different. When the MP or CEO’s time is spent on billable hours and working with clients, there’s effectively no one leading growth. And that’s because the CEO’s or MP’s job should be laser-focused on navigating business growth. That’s impossible to do when the CEO is still too involved in the processes that make the business run.
Think of it this way:
- The role of a CEO or MP is to navigate the market and drive business growth through strategic planning.
- The role of everyone else in the firm is to execute the specific operational and functional aspects of the business that are guided by the MP or CEO and the executive team (once you grow large enough).
For that to happen, the owner eventually needs to step away from working leads and opportunities, creating marketing material, and especially doing client work. Those are all things that can be documented, operationalized, trained and delegated.
Examine your task involvement, then delegate and hire appropriately
If you’ve determined that, yes, you’re the bottleneck to growth in your company, it’s time to take stock of exactly why. That begins by examining how deeply involved you are in the day-to-day operation of your firm and exactly what tasks need to be taken off your plate to give you more time to fill the role of a MP or CEO.
You can make that examination by asking yourself the following questions:
- What client- or account-facing tasks am I currently handling that could or should be delegated?
- How much of my time is spent on client work, versus strategic planning and business development?
- Am I the only person in the firm who can perform certain tasks or make specific decisions?
- What are the long-term goals of the firm, and what is my role in achieving them?
- Do I have a clear understanding of the strengths and capabilities of my team?
- What processes or systems can I implement or improve to make the firm more efficient without my direct involvement?
All of these are important questions to ask yourself, let’s give some special attention to two of these.
First: “Am I the only person in the firm who can perform certain tasks or make specific decisions?” If the answer is yes to anything related to sales and client work, that’s a big red flag and a problem you need to solve immediately. If the success of generating new business and working with clients rides completely on your shoulders, you can’t grow. You’ll never have time to do the work of a MP if you don’t have anyone who is trained and capable of doing that work for you.
Second: “What processes or systems can I implement or improve to make the firm more efficient without my direct involvement?” This is your biggest and most important step to getting past the profit plateau that stunts the growth of so many accounting firms.
The next step in this process is the most important and possibly the hardest to do. Once you’ve identified which areas you can delegate, you must make sure everything you do that leads to success is properly documented and operationalized so you can easily step away and allow someone else to handle it.
Maybe that means promoting someone internally. Often, it means hiring someone to do certain tasks and fill certain roles. Keep in mind, nobody in the company’s time is more valuable than yours. So, while it may seem like hiring someone is pulling away from profits, your goal here is getting past the profit plateau. You need to invest in your own time, and that starts by freeing up time to be strategic.
If financial advisors ask clients the rate of return for their rental real estate investment property, they should expect to hear a number at least 5 percentage points higher than the actual one, according to the founder of The Real Estate Whisperer Financial Planning.
That’s because of calculations based on “optimistic assumptions, untracked costs and the absence of formal benchmarking” among many owners, said
“It’s where ownership bias meets the reality of returns,” Arzaga added. “Whatever they say, knock out at least 5%.”
Despite the substantial role of
READ MORE:
A void in the profession?
Instead, more planners should maximize their value to clients by taking them through a realistic cash-flow estimate incorporating every expense that they can then apply to a long-term forecast of their assets in retirement, Arzaga said. Even for high net worth clients in particular who generate tens of thousands of dollars in rental income each year, the risks and costs of a property that isn’t meeting their investment expectations can eat up their holdings over time.
“I want to propose that this is an idea that you can use that will expand your thinking about the way we approach this business,” Arzaga said. “I think the way we approach it now is great, but I still don’t see it in any of the curriculum — whether it be the licensing certifications, none of the designations — none of them focus directly on real estate investments.”
Arzaga shared the case study of two 58-year-old clients from San Francisco he called Kevin and Lynn who had a net worth of $3.6 million and rental income of $75,000 per year through a property that was separate from their residence. Through debt service payments and other expenses, however, their costs on the property amounted to $76,000. If the couple followed through on their plan to retire when they turned 65 while keeping the same quality of life that cost them $312,000 a year, they would run out of their assets by age 84, Arzaga estimated.
“Somebody with a $3.6 million net worth, this is kind of not what they expect, right?” he said. “So that’s why they come to us. And luckily, they came to us.”
READ MORE:
A better course of action
If the couple were to sell the property in a tax-advantaged 1031 exchange for a better-performing asset or simply spin off their rental holding, absorb the taxes and reinvest the holdings into their long-term portfolio strategy, their assets could amass value hundreds of thousands of dollars or even millions higher than their current scenario.
One of the main misunderstandings stems from the cost of maintaining rental properties, according to Arzaga. In his example, the clients mentioned their amount of income and told him that the number included their expenses. He saw that they had miscalculated when he examined their itemized deductions on Schedule A of their tax returns.
Operating expenses include taxes and the preparation of them, insurance premiums, legal fees related to entity filings and other matters and two major areas — maintenance reserves and property management. In terms of maintenance, the owners should build in costs of about $30,000 to $40,000 every decade for concrete, foundation work, a roof replacement or similar upkeep, Arzaga said. Property management poses difficulty as well.
“Most people like to do that on their own. Most people aren’t capable of that,” he said. “It’s important, and it’s a big asset. And some decisions they’re making are because they’re not professionals in this area.”
READ MORE:
Providing value outside investment portfolios
These realities may be tough for the clients to hear, but they usually come around after planners lay out the cold calculation of the costs and risks involved with a lot of small-scale rental properties. Assisting clients in making smarter choices about their real estate is “more significant than beating the S&P 500” and a “much more noble cause,” Arzaga said.
“Understanding how real estate can impact a family’s finances, I think, is essential to being a comprehensive advisor,” he said. “You’ve got to be comfortable talking about these things. You don’t have to be an expert, but addressing them, to do a service for your clients.
Joel Cooperman, cofounder and former CEO of Citrin Cooperman, left the firm on March 31 after over 40 years.
Cooperman founded the firm, alongside Niles Citrin, in 1979 when two English rock bands provided the seed money needed to open shop in a small New York apartment. Now, the Top 25 Firm reports over $870 million in revenue, with 27 offices, 455 partners and 3,190 employees.
“I can assure you that Niles Citrin and I never had any plans to build a firm larger than the two of us and maybe a couple of others,” Cooperman said in a statement. “In the early years, accounting was still viewed primarily as a profession and not as a full business – this never really made sense to me. We felt that for long-term success it was critical to create a culture and environment that our partners and employees would enjoy as we all worked to build a thriving sustainable business.”
Citrin Cooperman
Citrin Cooperman was one of the first instances of a major accounting firm
Cooperman offered advice to those early in their career: “I have always been surprised that so many people do not really understand how much they have to offer, how much potential they have. If I could offer any advice, it would be to figure out what you are good at and what you love to do, make a plan, write it down, and then go after it every day.”
ADP jobs report April 2025:
U.S. economy shrank 0.3% in the first quarter as Trump policy uncertainty weighed on businesses
CAT, SBUX, SMCI, HUM and more
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoDonald Trump wants a certain kind of immigrant: the uber-rich
-
Economics1 week agoTrump tariffs could cause summer economic slump: Chicago Fed president
-
Personal Finance1 week agoConsumers are making different financial choices in response to tariffs
-
Economics7 days agoBusiness already are trying to pass tariff cost onto customers, Fed report says
-
Economics5 days agoECB members say inflation job nearly done but tariff risks loom
-
Accounting5 days agoAt Schellman, AI reshapes a firm’s staffing needs
-
Economics4 days agoAmericans are getting flashbacks to 2008 as tariffs stoke recession fears
-
Economics5 days agoTrump insists bond market tumult didn’t influence tariff pause: ‘I wasn’t worried’