November 2023

Is Your Goal More Revenue or More Profit? Your Next Hire May Tell

According to BVR’s 2023 Business Valuation Firm Benchmarking Survey, the demographics say you, dear reader, most likely run your firm as a solo (24 percent of respondents), are in a firm with one or two employees (21 percent), or are heading up a small valuation practice in a traditional CPA firm. In this article, Rod Burkert shares his thoughts on factors you may want to consider if you are thinking of growing your firm and the reasons for pursing this growth.

According to BVR’s 2023 Business Valuation Firm Benchmarking Survey, the demographics say you, dear reader, most likely run your firm as a solo (24 percent of respondents), are in a firm with one or two employees (21 percent), or are heading up a small valuation practice in a traditional CPA firm.

I believe the number of solo and small practices is under-reported here; primarily due to the time required to complete BVR’s survey and their owners’ lack of those hours.

Let us assume you are a solo for a minute. And, of course, you aim to grow your revenue and profit each year. To get to the next level, what is your best new hire option?

If you are running a solo practice and are at the upper limit of what you can (sell and) produce, who is your next person in, professional or administrative?

This is an intriguing question because BVR’s data also indicate that most sole practitioners will hire another BV professional before they bring on administrative help.

Is This an Optimal Staffing Arrangement?

The answer may depend on whether you are judged based on revenue or profit. For example, if you are a solo looking for more of a lifestyle practice, you are definitely interested in more profit. But if you are a small practice and want to grow so a larger firm will acquire you, you probably want more revenue. And if you are a valuation firm in a CPA practice, you will likely be rewarded for revenue over profit.

Let’s say that you are doing 20 valuations a year as a solo. If you hire another equally competent professional, maybe now you can do 40 valuations a year. Your revenue doubles, but do not expect your profit to do the same.

That’s because, assuming you can find that equally competent professional, the salary you offer (or the profit split you give) must be competitive with what the new hire could earn working in someone else’s firm. And the cost of the hire must be funded by the 20 new valuation jobs your practice completes every year.

Or you could hire one support person and train him/her to perform all of the firm and engagement administration you previously did PLUS spread historic financials, download third-party databases, and perform economic and industry research. With the new back-office efficiency, you can now do 30 valuations a year.

Your revenue increases by 50 percent; I would not be surprised if your profit goes up by a greater factor. Because with the administrative person, who also is in more plentiful supply, their much lower salary is paid from the incremental 10 valuation jobs your practice completes every year.

So What?

Depending on your goal of more revenue or more profit, the relative cost of the hires, and how profitable your practice is, the better option may be to go with the administrative person—which is not the solution solo practices reach for, according to BVR’s survey.

Reminds me of the adage: It’s not what you make; it’s what you keep that matters.

In Real Life

I am not saying there is a right or wrong answer here. Just that you need to run the numbers to see which option puts “more” in your pocket—more time, more money, and more freedom.

When we worked in Philadelphia, Amy and I pursued the lifestyle aspects of our practice, so we went the administrative person route to grow our profit. We hired a personal assistant … she morphed into our house manager and then into our office manager/research analyst. Definitely the right move for our practice at that time.

What’s the right move for yours?

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Everyone has a different idea of what a successful practice is. The practice you want is personal because it is based on what “successful” means to you. I help practitioners focus on the strategies and tactics to build/grow their versions of successful practices. If you want some help with that, e mail me at rod@rodburkert.com.