Spring 2025

CPA firm owners are proud of the quality of their services and the loyalty of their clients. Now, inspired by growing interest from private equity firms and other nontraditional buyers, CPA firm owners are becoming equally proud of the significant value that their firms can attain.

Every CPA firm has its own strengths and weaknesses, and every firm has its own unique features. To enhance your firm’s value, no matter its size, you must be aware of your firm’s potential and have an accurate quantification of your competitive positioning.

Optimizing your firm’s value is a constant process, facilitated by concentrating on the right kinds of metrics. This column includes 10 important factors to watch and bolster if you can.

Profit by service line – Your first priority should be identifying and understanding which service lines are your most profitable. Pinpoint opportunities for improvement in your strongest areas and other service lines. Reward your team members for meaningful improvement so they are motivated to strengthen financial performance.

Achieved hourly rate – The output of your firm’s “engine” is calculated by your achieved hourly rate. By setting billing rates to reflect value and managing engagements within budget, you can improve the achieved hourly rate. Typically, a higher achieved rate leads to a stronger bottom line and a higher value. Be sure that your time management software provides you with the right information to track and improve achieved hourly rates.

Average compensation/production for accounting staff – Profitability is heavily influenced by personnel expenses. Your costs will be impacted by the level of sophistication of your team (which affects salaries) or having senior staff underperforming in their roles. Achieving the optimal return on investment is crucial, whether or not you are aiming for an M&A transaction. But if M&A is in your future, prospective merger partners will scrutinize this when examining revenue per full-time equivalent and individual performance achievements.

Average fee by service line – Every firm should be aware of its average fees for 1040 clients, audits, and other services provided. If there are opportunities to work less and earn more, analyzing the average fee can guide that research. Higher average fees tend to foster a more significant level of prestige and appeal.

Days receivable – An increase in days receivable or days sales outstanding indicates that clients are taking longer to pay their invoices. This could suggest clients are dissatisfied with your services or they are experiencing financial difficulties. It could also signal inefficiencies in your collections process. The quicker receivables turn, the healthier the cash flow and the more valuable the firm.

Revenue concentration – Successful businesses understand their primary sources of revenue. Identifying the most common fee ranges for the firm at large, by service line, and by niche helps define the ideal client and optimize profit margins. Firms that experience revenue concentration at fee levels that allow for managing fewer clients, along with heightened efficiency and expertise, carry a higher value.

Realization percentage – Every CPA firm is challenged by inefficiencies and market pressures. The realization percentage serves as a key metric for assessing the efficiency of performance and can also help evaluate rates and fees. Realization percentages need to be further dissected based upon where billing rates stand in relation to the market rate. Realization rates in excess of 95% often indicate rates are too low. Realization rates are a relevant gauge to address profitability and, in turn, value.

Referrals – Firms must monitor and analyze client referrals and the revenue they generate. An increase in client referrals suggests a strengthening future revenue stream. But referrals are reciprocal; you must give to receive. Promote outgoing referrals and keep detailed records. High outgoing referral rates may indicate a need to establish better terms with a provider or the consideration of how your firm might provide the services you are referring out. A very active referral pattern is a pathway to increased value.

Pipeline conversion – Evaluating the time it takes to close new client opportunities and the success rate by opportunity type is essential for maintaining strong business operations. This insight helps you strengthen areas of excellence, which creates firm value and adds competitive advantage. Be sure to measure and evaluate your pipeline conversion.

Intelligence – Implement a grading system to evaluate client service satisfaction and your clients’ needs. Successful businesses strive to excel in areas where clients recognize their strengths, work to minimize their weaknesses, and lead in providing highly valued products and services. The better you mine the intelligence you gather from clients and the more responsive you are, the easier it will be to increase firm value.

Stronger firm value will give you more options to hire or acquire resources, merge, sell, or buy a business, and successfully compete. Optimizing the above 10 factors will help do more than just enhance value; it will generate the ability to pay higher compensation and enjoy greater entrepreneurial happiness. 

Ira S. Rosenbloom, CPA (inactive), is chief operating executive at Optimum Strategies in Spring House and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at ira@optimumstrategies.com.

CPA firm owners are proud of the quality of their services and the loyalty of their clients. Now, inspired by growing interest from private equity firms and other nontraditional buyers, CPA firm owners are becoming equally proud of the significant value that their firms can attain.

Every CPA firm has its own strengths and weaknesses, and every firm has its own unique features. To enhance your firm’s value, no matter its size, you must be aware of your firm’s potential and have an accurate quantification of your competitive positioning.

Optimizing your firm’s value is a constant process, facilitated by concentrating on the right kinds of metrics. This column includes 10 important factors to watch and bolster if you can.

Profit by service line – Your first priority should be identifying and understanding which service lines are your most profitable. Pinpoint opportunities for improvement in your strongest areas and other service lines. Reward your team members for meaningful improvement so they are motivated to strengthen financial performance.

Achieved hourly rate – The output of your firm’s “engine” is calculated by your achieved hourly rate. By setting billing rates to reflect value and managing engagements within budget, you can improve the achieved hourly rate. Typically, a higher achieved rate leads to a stronger bottom line and a higher value. Be sure that your time management software provides you with the right information to track and improve achieved hourly rates.

Average compensation/production for accounting staff – Profitability is heavily influenced by personnel expenses. Your costs will be impacted by the level of sophistication of your team (which affects salaries) or having senior staff underperforming in their roles. Achieving the optimal return on investment is crucial, whether or not you are aiming for an M&A transaction. But if M&A is in your future, prospective merger partners will scrutinize this when examining revenue per full-time equivalent and individual performance achievements.

Average fee by service line – Every firm should be aware of its average fees for 1040 clients, audits, and other services provided. If there are opportunities to work less and earn more, analyzing the average fee can guide that research. Higher average fees tend to foster a more significant level of prestige and appeal.

Days receivable – An increase in days receivable or days sales outstanding indicates that clients are taking longer to pay their invoices. This could suggest clients are dissatisfied with your services or they are experiencing financial difficulties. It could also signal inefficiencies in your collections process. The quicker receivables turn, the healthier the cash flow and the more valuable the firm.

Revenue concentration – Successful businesses understand their primary sources of revenue. Identifying the most common fee ranges for the firm at large, by service line, and by niche helps define the ideal client and optimize profit margins. Firms that experience revenue concentration at fee levels that allow for managing fewer clients, along with heightened efficiency and expertise, carry a higher value.

Realization percentage – Every CPA firm is challenged by inefficiencies and market pressures. The realization percentage serves as a key metric for assessing the efficiency of performance and can also help evaluate rates and fees. Realization percentages need to be further dissected based upon where billing rates stand in relation to the market rate. Realization rates in excess of 95% often indicate rates are too low. Realization rates are a relevant gauge to address profitability and, in turn, value.

Referrals – Firms must monitor and analyze client referrals and the revenue they generate. An increase in client referrals suggests a strengthening future revenue stream. But referrals are reciprocal; you must give to receive. Promote outgoing referrals and keep detailed records. High outgoing referral rates may indicate a need to establish better terms with a provider or the consideration of how your firm might provide the services you are referring out. A very active referral pattern is a pathway to increased value.

Pipeline conversion – Evaluating the time it takes to close new client opportunities and the success rate by opportunity type is essential for maintaining strong business operations. This insight helps you strengthen areas of excellence, which creates firm value and adds competitive advantage. Be sure to measure and evaluate your pipeline conversion.

Intelligence – Implement a grading system to evaluate client service satisfaction and your clients’ needs. Successful businesses strive to excel in areas where clients recognize their strengths, work to minimize their weaknesses, and lead in providing highly valued products and services. The better you mine the intelligence you gather from clients and the more responsive you are, the easier it will be to increase firm value.

Stronger firm value will give you more options to hire or acquire resources, merge, sell, or buy a business, and successfully compete. Optimizing the above 10 factors will help do more than just enhance value; it will generate the ability to pay higher compensation and enjoy greater entrepreneurial happiness. 

Ira S. Rosenbloom, CPA (inactive), is chief operating executive at Optimum Strategies in Spring House and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at ira@optimumstrategies.com.