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Accounting Practice Management Hub

How cutting operating costs can increase profitability for your accounting firm

Accounting can be a lucrative business. The median profit margin for private firms before partner/owner compensation and draws is more than 35%, according to a recent report from the American Institute of Certified Public Accountants. Yet many small and midsized accounting practices struggle to make money. Of course, cutting your operating expenses can improve an accounting firm’s profitability. But you need to be careful not to cut in areas that might compromise service quality or limit future growth opportunities. That requires a delicate balance. At Padgett, we’ve supported hundreds of accounting firm owners across the U.S. as part of our franchise network. Whether through growth, retirement, or business transitions, Padgett’s long-standing presence in the industry has enabled us to offer proven strategies to help firms navigate challenges and thrive. Here, we explain how strategic cuts in operating costs can help your accounting practice succeed over the long run.

Treat your practice like a client

Accountants routinely advise their clients on how to trim costs to boost profits. But ironically, accounting firm owners may be so focused on existing client work and selling new business that they lose sight of their own practice management. Take a step back and look at your firm as if it’s your client. Which operating costs are essential to your practice’s growth and where can changes be made to lower expenses?

Effective accounting practice management starts with doing what you do best — tracking down every dollar and figuring out exactly what it’s being spent on. Once you’ve compiled a comprehensive budget, review your practice’s operating expenses, line item by line item, to identify cost-cutting measures that will work over the long run.

Operating costs are just one part of the profitability equation. Making cuts that impair service quality or growth will lower future revenue — the other component of firm profitability. So always consider the long-term effects of proposed cost cutting measures.

For example, eliminating all marketing and advertising expenses might enhance profits over the short run, but could adversely affect your practice’s ability to grow. A more strategic approach might be to break down the department’s budget and compute the return on investment for each major advertising campaign and marketing initiative. Eliminate line items from the budget that seem excessive based on their returns but keep those that are generating new business.

Cost cutting measures should strike a balance between competing practice management objectives: how to maximize profits vs. how to grow an accounting firm. Excessive spending is wasteful, but strategic spending on items that you expect to generate additional revenue, such as technology tools and staff training, can help your firm build long-term value.

Strategies for cutting operating costs for accounting practices

Expenses matter for any business — and accounting firms are certainly no exception. But strategies that work for retailers, dental practices or manufacturers may be less relevant for accounting firm management. Consider taking these steps to reduce operating costs:

Review your technology and implement smarter solutions

Technology can be a great way to save time and money. Indeed, integrating advanced accounting software and automation tools can significantly reduce the time and labor associated with manual tasks. It may also enhance accuracy and efficiency. At the same time, you should review any tech you are already paying for (software and hardware) to make sure that it’s the most cost-effective, secure solution and that it isn’t duplicative. For example, you might realize that you’re paying for two overlapping cloud-based storage services. Eliminating one of them could reduce tech-related operating costs without impacting client service. A big part of your accounting practice management plan should focus on using the right technology and providing your staff with ample training to maximize its potential. Beware: The use of technology without adequate security measures can led to data breaches that could harm your firm’s reputation and impair its future growth.

Optimize office space and office resources

With the rise of remote work, reevaluating the need for physical office space could potentially result in substantial savings on rent, utilities, and office supplies. Some firms may benefit from transitioning to hybrid or fully remote models that can potentially lead to a smaller, lower-cost workspaces.

Consider outsourcing

Not everything needs to be done in-house, especially for small or midsized accounting practices. By hiring contractors during busy season or outsourcing certain specialized tasks year-round — such as IT services — you may be able to covert some fixed costs (such as salaries and benefits for full-time staff) into costs that vary based on your firm’s operating needs. For most businesses, focusing on core competencies and client service is the most cost-effective approach.

Review and renegotiate vendor contracts

What types of ongoing contracts does your accounting practice have with vendors and suppliers? Periodically review existing contracts and shop around for better deals. Then use those offers as negotiating tools for existing contracts. When vendor and supplier relationships aren’t reviewed, operating costs can easily balloon over time. Accounting firm owners need to know exactly what they’re spending each month to be sure that they’re not overpaying for goods and services.

Join a Padgett franchise

Becoming part of a larger accounting franchise can offer numerous advantages, including reducing operating costs. In fact, it’s one of the most effective accounting firm management strategies. You’ll have access to established systems, marketing support, and bulk purchasing discounts. With Padgett, accounting practice owners don’t need to worry about selecting the best technology for their business. Our team already has a tested, proven tech stack for accounting practices. We also provide proven business models and software that can streamline operations. It’s an arrangement that can lead to reduced marketing and client-acquisition costs, too.

How Padgett makes accounting firm practice management easier than ever before

Padgett makes owning an accounting firm easier than ever before. We have a nationwide network, and we work closely with local business owners to give them access to all the resources that they need to thrive. A benifit of franchising with Padgett. is that we can help to improve your practice’s operational efficiency and profitability. Our team offers comprehensive business support, a tested tech stack, marketing and branding services, top-tier accounting firm practice management, and proven systems that you can trust for major savings for your accounting practice.

Learn more about joining Padgett today

At Padgett, we are committed to helping accounting practice owners grow and expand their businesses. If you have any questions about how franchising opportunities can reduce your operating costs and improve your profitability, we’re here to help.

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