Back to Basics: Mastering Firm Profitability in a Changing Accounting Landscape
In the rapidly evolving world of professional services, the accounting industry is currently navigating a period of unprecedented transformation. From the integration of generative AI to shifting regulatory landscapes, the pressures on firm leaders are mounting. Yet, amidst the noise of technological disruption, veteran consultant and CPA Bill Pirolli, CPA/CFF/PFS, CGMA, argues that the path to success remains anchored in fundamental business principles.
At the annual AICPA ENGAGE conference in Las Vegas this June, Pirolli marked a milestone, presenting his signature session, "Driving Firm Profitability," for the 10th consecutive year. Since the conference’s inception in 2017, Pirolli has served as a lighthouse for practitioners, reminding them that when the economic climate turns turbulent, the most effective strategy is a return to the basics.
The Evolution of the Accounting Profession
"The profession over the last dozen years has been extremely successful, but now we’ve bumped into some years where it’s harder," Pirolli noted during his presentation. "When things slow down, people go back to the basics."
Pirolli, a former AICPA chair who joined the consulting firm The Succession Institute in 2023, has observed a distinct shift in his audience. In recent years, as younger generations of accounting professionals ascend into leadership roles, the engagement levels in his sessions have surged. The days of distracted attendees scrolling through smartphones have largely vanished; in his most recent session, the room was marked by intense focus and note-taking.
The Role of Technology as an "Eighth Principle"
While Pirolli’s framework is built upon seven core drivers, he recently introduced an unofficial eighth principle: a "tech-forward" mindset. Given the explosion of artificial intelligence, Pirolli chose not to bury technology within a single category, but rather to treat it as an overarching influence.
"Technology is such a big topic with AI that I just put it off to the side because it really touches on everything," Pirolli explained. "I want firms to be tech-forward. Whenever there’s an opportunity or a challenge, try to think of a technological solution first." This proactive stance on innovation serves as the bedrock for the seven principles that follow.
The Seven Pillars of Profitability: A Deep Dive
Pirolli’s methodology is designed to strip away the complexity of firm management and return to the metrics that actually drive a healthy bottom line.
1. Market Forces and Firm Knowledge
Before a firm can optimize its internal operations, it must have a clear understanding of its environment. Pirolli emphasizes that attending industry conferences like ENGAGE is a critical component of professional intelligence. By absorbing insights into broader market trends, practitioners can return to their respective regions and apply those lessons strategically.
Beyond external awareness, Pirolli urges firms to cultivate deep, firm-specific knowledge. This includes an intimate understanding of client demographics, a clear-eyed analysis of the competitive landscape, and a granular view of how various service lines are managed. Without this data, strategic decision-making is merely guesswork.
2. The Power of Radical Transparency
Transparency is often treated as a corporate buzzword, but for Pirolli, it is a strategic imperative. Many firms default to a "need-to-know" basis when sharing financial data with their staff. Pirolli argues this is a mistake that stifles growth.
"I’m a big believer in being transparent with your people," he said. "Giving them more information about how the firm makes money, how much money the firm makes—that empowers employees to take ownership." By sharing the "what," the "how," and the "why" behind the firm’s financial performance, leaders can cultivate a team that understands how their individual contributions impact the overall profitability of the organization.
3. The Art of Client Selection and Termination
One of the most difficult, yet necessary, aspects of firm management is the culling of the client list. "Every firm says they have clients they need to fire," Pirolli observed. "At 49 out of 50, it doesn’t happen."
Pirolli links this failure to a fear of lost revenue, which he terms "voodoo math." The logic that firing a $500 client will automatically result in a $500 loss is flawed because it ignores the opportunity cost of time. "If you lose a $500 tax return, I can guarantee you will make more because you won’t be sitting around doing nothing. You’ll be rendering service to better clients."
He advocates for an compensation system that incentivizes efficiency. "Repetition equals efficiency, and efficiency equals profit," he explained. If a firm provides a specialized service for a single outlier client, it must either scale that service or exit the market.
4. Defining Standards and Service Scope
"Doing the work you are paid to do" is the mantra for this principle. Pirolli cautions against the silent profit-killer known as "scope creep." It is common for firms to absorb additional work—such as taking on bookkeeping tasks when a client’s internal controller leaves—without adjusting their billing.
While CPAs should never compromise on quality, they must distinguish between professional due diligence and uncompensated labor. Failing to define the scope of engagement prevents the firm from operating as a business and instead relegates it to an undervalued utility.
5. Billing and Collections: The "Quarter-Hour" Math
Small inefficiencies in billing can aggregate into significant revenue leaks. Pirolli highlights the disconnect between a staff member logging a "quick" quarter-hour of work and the firm’s overall financial health.
"It’s just 50 bucks, right? But for the math of the firm as a whole, what if everybody at the firm properly billed for that extra quarter of an hour?" Pirolli asks. While the accounting profession continues to grapple with the shift away from hourly billing, he maintains that if a firm chooses to track hours, it must do so with rigor and consistency.
6. Leveraging Existing Assets
Growth is often mistakenly synonymous with acquiring new clients. Pirolli suggests that the most accessible growth resides within the existing client base. "We always put the prize on getting a shiny new client, but all the growth that your firm needs for the next year or two years already exists in your client base," he noted. By auditing service lines and cross-selling relevant solutions, firms can increase profitability without the high acquisition costs associated with bringing in new accounts.
7. Cultivating a Culture of Accountability
The final principle addresses the ownership of client relationships. "Nobody owns a client," Pirolli asserted. "It’s the firm’s client, and you have a fiduciary responsibility to the firm to manage that client in a profitable way."
Pirolli often shares an anecdote from his colleague at The Succession Institute, whose experience in the U.S. Navy provides a perfect blueprint for professional behavior. The naval hierarchy for decision-making is:
- What is best for the ship.
- What is best for the shipmate.
- What is best for yourself.
Pirolli challenges accounting firms to adopt this same structure: "You first do what’s best for the firm, secondly you do what’s best for your colleagues, and lastly, you do what’s best for yourself. We tend to flip that around."
Implications for the Future
The implications of Pirolli’s teachings are clear: the future of accounting firms will not be decided solely by the adoption of AI or the latest software suite. While technology provides the platform for modern work, the sustainability of the business model depends on the discipline of the leadership team.
By fostering transparency, maintaining rigorous standards, and ensuring that every member of the firm understands their role in the "big picture" of profitability, accounting firms can navigate the current economic headwinds. As the industry continues to transform, the firms that will thrive are those that can effectively balance the cutting-edge requirements of the digital age with the timeless, foundational principles of a well-run business.
For the attendees at AICPA ENGAGE, Pirolli’s 10th-anniversary session served as a timely reminder: in an industry defined by change, the most powerful tool for growth is the ability to master the basics.
