Picture this: You’re running a small accounting practice and consciously decide to reduce your revenue by 20%, trimming the least profitable accounts. At the same time, you eliminate weekend hours in all but a very few cases, and even work fewer Fridays in the summer. From there, you come out making similar money with better work-life balance and a higher average profit margin. As an extra bonus, this transformation positions your practice to be more competitive in many ways going forward.

I know what you’re thinking—is this scenario even possible? Well, I’m here to tell you that the answer is yes, yes, yes—and yes!

Financially, there’s never been a better time in history to be an accountant. The last several years have seen strong gains in earnings for accounting professionals. Public accounting firms have seen double digit revenue (and profit) growth for two years in a row. But with this good comes some bad. We’ve worked harder than ever before, and thanks to a dearth of qualified talent amid strong demand for services, the cycle shows no sign of letting up.

So, let’s take a stab at creating a more sustainable model for the foreseeable future. Here are three steps you should consider to transform your practice’s business model.

1. TRIM YOUR LEAST PROFITABLE CLIENTS

While it may be concerning to deliberately cull clients (and their precious revenue), we all know that not every client is created equal, and not every dollar earned is worth it. You know that by just looking at the work in progress vs. billings—some clients earn a high realization rate (i.e., a better profit margin) and some clients earn a low realization rate. Imagine if your first hour of the week is spent on your high-margin clients but your last hour of the week is spent on your low-margin clients. Well, that’s not your imagination, it’s more likely closer to reality.

Here’s an overly simplified hypothetical to help explain. Let’s imagine that CPA Firm ABC & Co., which is a solo practitioner, has $600,000 in revenue, 1,800 in billable hours, $324,000 in profits (partner income), and a client stratification that fit these profiles:

20% of clients or $180,000 of revenue:

• Average fee $5,000/year with a profit margin of 75% 
• Profits earned from most profitable 20% of clients = $135,000

60% of clients or $360,000 of revenue:

• Average fee $4,000/year with a profit margin of 50% 
• Profits earned from the next 60% of the practice = $162,000

20% of clients or $180,000 of revenue:

• Average fee $3,000/year with a profit margin of 15% 
• Profits earned from the last 20% of the practice = $27,000 

In this scenario, we would trim the least profitable revenue of $180,000 and our profits would go down by only $27,000.

2. REDUCE YOUR BILLABLE HOURS WORKED TO MATCH YOUR SMALLER CLIENT BASE

Remember, we’re starting with 1,800 billable hours. Therefore, cutting 20% ($180,000) of our least profitable work should equate to cutting 20% of your billable hours, or 360 hours from your schedule. With this change, you’re now sitting at a much more comfortable 1,440 billable hours.

To reach this goal, start with cutting the weekend hours during busy season and then cut into the workweek—perhaps the Fridays in July and August. How liberating! Maybe you even add another week of paid time off in the summer. Remember, cutting these 360 hours will only cost you $27,000 in profits. These hours weren’t worth that much to begin with! Notably, some of you might even be satisfied with making a little less in exchange for fewer billable hours. But if you need to get back to your original profit total, continue to step No. 3 below.

3. SPEND MORE NON-BILLABLE TIME ON YOUR HIGH-POTENTIAL CLIENTS

Now that your schedule is much more in balance, take advantage of the opportunity to spend more of your non-billable time (and previously billable time at low margin) with those high-potential clients in the 75% margin bucket. In theory, you’ll likely pick up some special projects and extra work to offset the $27,000 in lost profits. However, since these billable hours will now be at a 75% margin instead of 15%, it’ll take you considerably fewer new billable hours to arrive at the same total profitability as you were before you started the exercise.

Of course, there’s a caveat to the three steps mentioned above—they’re oversimplified scenarios. You should anticipate some pushback. For example, some of your clients may not accept being trimmed, or you may not have the heart to trim some of your clients. Additionally, some of your clients may accept a considerably higher fee to stay even if they remain at a lower than ideal margin. You also may not be able to cut down all weekend hours due to compression of the season. There’s also your recordkeeping, which may not support access to this data. And lastly, your high-margin clients may not need any extra services.

But even in the worst-case scenarios, seeking improvements in these areas will yield results. And the bonus? Your “new” practice will create similar or possibly more profit margin with less hours—and this means you could reinvest your time and profit elsewhere, having a more valuable asset on your hands when retirement looms.

Can you see it more clearly now? Are you ready to head out on this journey with me? I hope your answer is yes, yes, yes—and yes.

According to a straw poll, nine out of 10 managing partners of independent firms define success for succession planning as an internal succession. That is, the firm remains independent and doesn’t merge into another firm. The client base and revenue stream of the senior retiring partner is “bought” by younger partners, which creates deferred compensation for the retiring partner.

But couldn’t there be another definition of success? What if the senior partners run a lean firm, work past traditional retirement ages to maximize earnings, and then wind down the firm when they’re no longer interested in continuing?

The truth is, both paths constitute success but to different degrees and preferences, depending on the firm. So, if all these paths define success, what defines failure?

In business today, you usually have choices. Of course, you may not like the choices, but they’re always there. It’s my view that succession planning failure is most often the result of not making a choice or waiting so long that there are no better choices left.

As a consultant, I often come across firms that have three high-level choices when it comes to succession planning:

1. INVEST IN BUILDING A BENCH OF FUTURE PARTNERS, REMAIN INDEPENDENT

Investing in developing future partners usually translates into stronger recruiting efforts, talent retention programs, better technology, alternative staffing resources to maintain and build capacity, a sound partner buy-in program, and an attractive partner buy-out program.

According to my straw poll, this is the preferred path for most firms. However, it comes with significant effort and considerable investment. With this option, you need a vision, a plan, and accountability. Additionally, firm leaders need to make a commitment to work on the firm as well as in the firm. Many firms that go this route utilize outside resources and consultants to help. It’s been my experience that while many firms start out on this path, they can ultimately become fatigued and opt for another choice at some point. Either the investment proved too large, or the effort needed proved to be unrealistic. But, after a firm embarks on this path, it’s usually better positioned for the future. 

2. MERGE WITH ANOTHER FIRM

This choice is usually the best option when you have a limited appetite for choice No. 1—either in terms of the financial investments or the effort involved. You may also have an aging partner group with a light bench of young or future partners; therefore, merging with another firm is often the best way to preserve deferred compensation for the retiring partners while also providing a bright future for the up-and-coming talent at the firm.

Notably, this option generally preserves staff employment and client relationships, as most, if not all, transition to the new entity.

Of course, there are some undesirable aspects of this choice: loss of control, loss of independence, fear of more accountability, and fear of the buying firm not valuing your clients or staff as much as you did. Though, in my experience, many of these are emotional concerns that don’t pan out to be quite as acute as once feared.

3. MAINTAINING THE STATUS QUO

While it’s easy to understand why a firm may not have the appetite for choice No. 1, some may find it harder to reconcile why they choose to avoid choice No. 2. In some cases, the fear of losing control is front and center, or the firm isn’t attractive to a buyer. It could also be that the firm has few (if any) staff, low rates, no niches, smaller clients, or isn’t particularly profitable. In this case, the best choice (or only choice, depending on how you look at it) is to keep the firm running as is until the partners are ready to close shop.

With this option, the partners can work as long as they want and preserve their annual income to the greatest extent possible. They’re also giving up access to deferred compensation. While that may be seen as a negative, one must remember that the value of deferred compensation ranges greatly based upon the merits of the asset (client base). For example, a practice of mostly 1040s unattached to a business that’s priced below market and heavily concentrated on tax season may only yield deferred compensation equal to or less than one year of income.

In any case, the partner is essentially walking away from the practice, the clients, the team (if there is one), and everything they built with this option—they’re just ready for the next phase in life.

The bottom line—there are pros and cons to each of these succession options. If you want to have the best chance of marking this box as a success, I suggest making sure you understand your options, make a choice, and then follow through with it.

I’ve been fortunate throughout both my personal and professional life to have met so many amazing people. Admittedly, this list of people is quite long, so for the sake of this column, I’ll be mentioning only a handful of very influential individuals who’ve made a huge difference in my life. This handful includes Bob, Sue, Bill, Donna, Zach, Lynn, Marc, Allan, and Colleen.

Here’s a quick rundown on how I met them all: Bob and Bill have been fantastic professional mentors of mine and I’ve gained an immeasurable amount of business wisdom from each of them. Sue and Zach have been my “A” clients who’ve introduced me to other “A” clients. Further, they’ve served as references and helped me build my business when I was still starting out. Donna, who I met at Allan’s conference, introduced me to her partners and it turned into a breakthrough role for me in public accounting. Marc and I have become business partners, and thanks to him, I built upon his idea to expand and grow my business. And Lynn? Well, she introduced me to Colleen, my wife of more than 19 years.

So, you might be wondering how I met all these amazing people. Simple, it was networking.

Don’t get it wrong—I’m not one of those people who walk into a room and spins around like a ballerina chatting up the high rollers. (You know exactly who I’m talking about. We all know someone like this!) For me, it’s quite the opposite as I’m not a natural extrovert. A better description of my approach to networking would be: I tolerate it, I’m decent at it, and I do it because I know it works.

If you’re looking for a magic bullet to networking success, I don’t have one—it’s a process. But I believe with practice and repetition, you can become better at it.

Here are six steps I recommend for improving your networking skills.

1. PLAN AND PREPARE

First, you need to make sure that you’re networking in the right places. Take time to review the audience that’ll be in attendance. Does the audience consist of ideal clients, referral sources, and contacts? When the answer is “yes,” your networking efforts will be more fruitful. But if you’re in the wrong place, your networking efforts will be less successful. Also, make sure that you have your elevator speech ready (you know, the brief, 30-second introduction of who you are, what you do, and some questions). Having this prepared will improve your confidence level when approaching new people. Most importantly, don’t forget to bring a few business cards along with you.

2. APPROACH STRANGERS

It’s much easier to network if you have a buddy with you. Notably, it can be easier to break into a small group of people already networking when you have someone already by your side. Regardless of whether you’re solo or not, it may be helpful to know that most of the people you’ll encounter while networking don’t enjoy it. From my own personal research, I’ve found only about 10% of professionals actually do. This means that most of the people you’ll encounter either tolerate networking (like me) or dislike it altogether. Bottom line, you’re in good company when it comes to your apprehensions about walking up and introducing yourself to someone you don’t know.

3. KNOW YOUR WHO, WHERE, AND HOW

As previously mentioned in step 1, preparing a game plan is critical. Quickly survey the room and see where you may have an easy opportunity to meet someone new. Is it at the bar or the food lines? In my opinion, these often slow-moving lines are great places to strike up a conversation because you already have something in common with them—you’re both thirsty or hungry. And don’t discount the power of other unique places in the room: rescuing someone standing alone, joining a semi-circle of people already talking, chatting up an exhibitor, or finding the host to get you talking.

Once you find your “in,” how do you start that conversation? I find that an appropriate compliment is often warmly welcomed. Maybe you like someone’s watch, briefcase, or notebook. Whatever it may be, just make sure you have a genuine interest in the item you’re complimenting. Also, you should take some caution in who you compliment and how. Other ways to start up the conversation include small talk, comments about the event or venue, and of course—your elevator speech!

4. FIND COMMONALITIES, MAINTAIN CONVERSATION

Some may prefer to lead the conversation toward personal topics, such as weekend plans, upcoming vacations, or personal interests such as pets, food, wine, or travel. Others may lead with professional topics, such as where you work, the kinds of clients you serve, and the kind of work that you do. Both are viable options. Just remember that the more you can find in common with the person, the better this conversation will feel. In addition, be sure to ask great questions and, more importantly, get someone talking about themselves. The key here: be interested, don’t try to be interesting.

5. EXIT THE CONVERSATION

At some point in the conversation, you may decide that this person could be a good contact, referral source, or client. When the conversation has a natural break and you’ve generated some rapport, thank the person, ask for their card, and suggest that you would like to stay in touch. Then, go back into the crowd and repeat the process. Meeting one person during the event is usually not enough. You may also determine the opposite is true of this contact (i.e., they’re not likely valuable to you in the future). In these cases, thank the person and say it was great getting to know them but omit the part about exchanging cards and staying in touch.

6. FOLLOW UP

This final step is possibly the least often executed, which is unfortunate given the effort you put forth in the process up to this point. Plus, you should know that it’s highly unlikely the people you meet will follow up with you. Speaking from personal experience, most of the success I’ve shared in this column wasn’t the result of someone following up with me (that’s right, this includes my wife Colleen). Instead, it was the result of my follow-up. It was as easy as saying, “It was great meeting you last week at ‘XYZ.’ I’d welcome the opportunity to learn more about your business and how we could help each other in the future.”

As you can see, I owe a lot of my life success to networking. It’s made a remarkable difference in my personal, professional, and financial life. Though admittedly, it takes a lot of practice to become proficient at this skill. But once you realize there’s a process and it works, I promise you’ll become hooked on networking.