How to Use Accounting Firm Analytics to Improve Performance
When you run an accounting firm, you’re in the business of helping others analyze their financial risks and conundrums and manage their accounts. You may handle all accounting-related tasks, from financial analysis to payroll to tax preparation. But one of your main tasks is to analyze your client’s financial information and provide sound advice and guidance that will lead them towards a more successful future. And you may do a great job of helping your clients. However, who or what is helping you evaluate your own firm’s financial performance?
It’s easy to get lost in the weeds and fail to accurately gauge your own performance. You’re likely worried about all of the other tasks related to growing a business, such as attracting new clients and improving your customer service. But if you don’t have a reliable system in place for gathering and analyzing your firm’s performance data, you won’t know if you’re meeting the mark or not.If you don’t have a reliable system in place for gathering and analyzing your accounting firm’s performance data, you won’t know if you’re meeting the mark or not. Click To Tweet
In this article, we’ll discuss the most important key performance indicators to track in your accounting firm. You can use these metrics to determine if you’re on the track towards profitability or if it’s time to correct course.
What is an Accounting Key Performance Indicator?
An accounting key performance indicator (or KPI for short) is a metric used to measure your firm’s performance. Your KPIs are best viewed in light of your business objectives. If you establish specific, measurable, actionable, realistic, and time-based goals (i.e. SMART goals), you can use your performance data to identify if you’re on the right path towards hitting your goals or not. You can consider each KPI as a compass that tells you where you are on the map towards your end goal.
As an accounting firm, you’ll gain a lot of benefits from tracking key performance indicators. Here’s a quick overview of the main reasons why you should track your accounting firm’s performance:
Identify Your Firm’s Strengths and Weaknesses
The data doesn’t lie. When you start monitoring your performance, you see a true snapshot of what’s working and what’s not.
Set More Accurate Goals
After you start analyzing your data, you can set more specific and realistic plans for the future.
Reduce Business Expenses
Knowing your KPIs can clarify how much you spend on unnecessary tasks that aren’t benefiting your business. You can use your KPIs to identify and eliminate wasteful expenses.
Top Key Performance Indicators to Track With Your Accounting Firm Software
Here’s a roundup of the top metrics to track. Use this information to improve your firm’s performance:
Accounts receivable is the money that your clients owe to you. Obviously, your goal is to keep this amount as close to zero as possible. You’ll do this by encouraging and even incentivizing your clients to pay early whenever possible. By monitoring your accounts receivable data, you’ll reduce the risk of running out of cash to operate your business.
It’s also important to track which of your clients consistently pay late. It’s crucial to know how many unpaid invoices you have at all times. The data to look for here is known as accounts receivable aging. You can use information to guide your dunning (or even your pre-dunning) bill collection process.
Client Lifetime Value
When you look at your client’s lifetime value data, you should be analyzing how much value your client brings to your firm during their time with you. This metric can help you determine if your cost of acquisition is optimized for the average value that you’ll gain from a typical client. In addition to calculating how much revenue you’ve generated from your top clients, you can use this data to determine if you’ve offered your clients new and/or additional services that can increase their value to your firm.
Client Retention Rate
How many clients are you able to keep over the long haul? It’s impossible to keep all of your clients. But the goal is to keep much more than you lose. Client retention indicates satisfaction. And loyal clients tend to be great evangelists for your accounting firm. They’ll recommend your services to others, which is free advertising for you.
Cost of Client Acquisition
How much does it cost for you to get a new client? It’s estimated that it costs between six to seven times as much to acquire a new client than to retain the clients that you currently have. It’s important to know how much it costs you to effectively find and convert a prospect into a paying client. Use this information to determine if your acquisition costs are sustainable or if you need to make changes to the way you generate and convert leads.
Monthly Recurring Revenue (MRR)
Your monthly recurring revenue is the predictable revenue that you expect to receive each month. You can use your MRR to accurately predict your future growth. It also helps with budgeting when you can forecast how much you’ll have each month.
Your realization rate is the difference between the hours you worked versus the hours you were paid by the client. To effectively measure your realization data, you must regularly use time tracking software. This way, you’ll how much work goes into each task (whether it’s billable or not). This can help you improve your productivity and eliminate or otherwise delegate low-level tasks.
Write Up and Write Down Rate
What’s the difference between how much your client is billed versus how much time you’ve spent working on the client? Hours billed isn’t always equal to the amount of hours worked. You should track both, even if it’s only for internal purposes. This information can help you understand if you and your staff are being productive or if you need to revisit your standard processes and procedures in an effort to improve your profitability.
Also identify which clients may be causing the most write ups to determine if you may need to revise your business relationship moving forward.
Get a Performance Accounting Software
These are just some of the many KPIs that you can use to measure your accounting firm’s performance. If you decide to monitor other KPIs when evaluating your performance, be sure to choose indicators that are:
- Simple to understand
- Easy to quantify
- Provide clarity on your goals
Mango’s firm performance software provides a comprehensive look at your data to help you see where you are on your path towards profitability. Use our software to analyze employee performance and identify the top performers on your staff. You can use this information to support and reward your team as necessary.
Our software also gives insight into your client data, allowing you to spot which clients are the most profitable for your firm so that you can focus your efforts towards retention and increased satisfaction.
Additionally, our reports will help you visualize key data such as your expenses, billable hours, and profits (current and previous years). This can empower you to make smarter financial decisions that will grow your accounting firm immediately.
Learn more about our accounting firm performance software here.
If you’re hoping to make your accounting firm more profitable by this year’s end, start tracking the above accounting KPIs. These metrics will give you insight into whether you’re on the right track or you need to correct your course. If you don’t track your performance data on a regular basis, you won’t be able to successfully grow your accounting firm or your profits.
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