Practice Management Reporting Tips for CPAs and Accountants

“Firms don’t recognize the single biggest controllable cost to the CPA firms is work-in-process write-offs.” –Rosenburg, M. L. (1994), The 10 Biggest Mistakes CPA Firms Make. The Journal of Accountancy, 177(1), 105-108.

Stark statement?  Yes.  A prosaic one too?  Possibly, but a metric that matters intensely nonetheless.  Excessive write-offs and write-downs can lead to the outright failure of a firm, even in a robust economy. A more common occurrence is reduced profitability that escapes detection and/or correction during good times but becomes a potentially fatal vulnerability to the firm during economic downturns. Effective practice management reporting helps to avoid this situation.

There are three main lines of analysis that help to ensure the firm has adequate understanding and control of write-offs and write-downs along with client and staff performance:

  • Realization and contribution reporting – the comparison of recorded time to amounts invoiced. Contribution reporting measures the staff’s total contribution to firm revenue, i.e. a staff with average realization may compensate by contributing more revenue through recording more chargeable time.
  • Collections – invoice write-offs and bad debts.
  • Non-chargeable – excessive time spent on administrative functions that could be handled more efficiently.

Realization Reporting Should be Looked at from 4 Angles

  • Realization and contribution reporting by employee and partner
  • Client Realization reporting
  • Realization ratio by type of business
  • Trend reporting – is performance improving or declining over time?

Graphical Depiction of Realization by Partner and Staff

The ImagineTime graphical analysis that follows illustrates the kind of practice management reporting needed to allow effective review of realization ratios for employees individually and as a group.  It depicts the total chargeable time and net realization percentage by employee grouped by partner for one year. In this example three partners are shown.  This type of presentation lets you get a quick idea of much each employee produces for each partner. The first two columns for each partner grouping shows the total time and realization for the employee “FOL”. It quickly becomes apparent which partner “FOL” works for the most and his contribution in total time and realization.

Graphical Depiction of Realization by Partner and Staff

Staff Time Activity by Code

The report example below is prepared to show performance totals by work code for a quarter and year but you can review this information for time periods you specify. The report shows the ratio of chargeable to non-chargeable time and for chargeable time the amounts realized and effective rate per hour.

In this example, the employee had approximately 2,000 chargeable hours of time and additional 400 hours of non-chargeable time – a hard worker. Although this employee has quite a bit of non-chargeable time is hasn’t hurt efficiency – the amount realized of $173,192 as a ratio of the total time at standard rates is almost 95%.

Another useful report would show the hours and ratio of chargeable to non-chargeable time over a user specified range of months and years.

report that shows the hours and ratio of chargeable to non-chargeable time over a user specified range

Practice Management Reporting: Staff Time Activity by Client

Another variation of the previous report shows the same information by client – rather than work code allowing you to quickly determine from among the two presentations the staff’s more profitable work areas and the clients that perform the best under his management.

Practice Management Report

Staff Chargeable Hours by Month and Year

This report can be used as a good indicator of consistent, deteriorating or improving trends with respect to reported chargeable time. When evaluating the hourly information as a performance indicator you should to be aware of the staff realization trends during the same periods.

Practice Management Report

Invoiced Realization by Client grouped by Staff and Partner

This report shows the time at standard and the amount of billing adjustments recorded for a particular staff within the amounts invoiced for a selected date range.  You should also be able to filter this type of report for a particular partner. The total hours, rate per hour and realization percentage are also shown.

Another variation of this report (not shown) would depict the realization statistics for paid invoices in a selected period which allows firm management to base compensation and bonus programs on paid rather than invoiced performance.

Practice Management Report

Practice Management Reporting – Client Snapshot by Partner

During the early 1980’s I managed a local CPA firm in Fort Lauderdale with three partners.  It was very important to know how much each partner contributed to the firm billings. Other information such as realization on invoicing was unavailable. A sample report from the “good old days” follows:

Practice Management Report

Time and billing software has made it possible to show comparative performance of numerous partner performance metrics. Hence, the next report example shows the performance statistics for a particular type of client or line of business.  The report is filtered by partner and sorted by descending realization percentage. Shown here is information about the realization rate, collection experience and the amount of receivable and work in progress carry for this partner and client type. It also shows the average days to collect an outstanding invoice. Consequently, the realization ratio becomes much less important when the client takes over six months to pay an invoice!

Practice Management Report

Client Invoiced Amounts for Selected Periods

Many CPAs and accountants want to know specifics about client performance. For example, what clients contribute the most revenue, which areas of work are most profitable and what staff worked on specific clients. The first example that follows lists invoiced clients for a selected period showing useful information such as amounts invoiced, billing adjustments, labor costs, total hours, net realization and other information. You should also, at your option, be able to view this information by work code.

Practice Management Report

Client Time Slip Activity and Realization by Work Code

Which areas of client work are most profitable along with the responsible staff?  The following report shows client metrics by work code along with the staff responsible for performing the work. Essential information required for effective decision-making!

Practice Management Report

Practice Management Reporting – Client Performance Trends

This report helps to determine the profitability trend for a particular client. The following report example shows recorded chargeable time compared to amounts billed, write-offs and receipts for a 24 month range.

Practice Management Report

Firm management should check graphs and reports similar to these on a monthly basis at a minimum in order to spot problems quickly.  It’s also helpful to look at these figures on a quarterly and yearly basis.  This helps to identify inconsistencies and seasonal trends.

Author: Carl Coe, CEO


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