The Transformative Power of Strategic Data Analytics for CPA Firms

By Steve McDonald, CPA

The business world has extolled the “power of data” for nearly a decade. Yet few small to mid-sized businesses have actually found a way to harness it. Many simply don’t have the time or expertise to devote to making use of their data. This is particularly true for CPA firms.

We should know. A few years ago, we were in the same boat.

In 2019, we set out to design and build a strategic data analytics solution for our firm. Here’s how it’s transformed the way we do business.

The Problem

No one enjoys a cumbersome reporting process. We sure didn’t, and we knew many other CPA firms felt the same way.

For years, our reporting process required managers to regularly export data from our practice management system, analyze it, and run reports on it. This rigmarole took an inordinate amount of time, and the reports didn’t always provide the insights we needed. We knew there had to be a better way, but we couldn’t find anything that was built specifically for CPA firms. We dreamed of having a one-click data visualization that would deliver the practice management data we needed—no manual reporting required.

The Solution

With this vision in mind, we handpicked a team from our own ranks to design a solution. Our team included CPAs who were trained in Microsoft Power BI as well as data analytics expert Dan Alstrup, who later joined our firm.

Our first order of business was to determine the key questions we wanted our data to answer, specifically in the areas of productivity, billing and realization, cash receipts, and profitability.

Here are a few of the questions we came up with:

• In which departments do we have excess capacity? Where could we balance staff and hours across departments?
• How many hours and dollars have we billed clients each month, and how do these amounts compare to the same period in the previous year?
• What types of projects and work are most profitable?
• How do cash receipts by department and line of business compare to our targets, by month and year to date?

As you can see, none of these questions is earth-shattering on its own. Collectively, however, (we compiled roughly 20) they could give us unprecedented insight into the workings of our firm.

Over the next several months, we used Power BI to build a strategic data analytics solution that could help us answer these questions. We designed it to use CCH Practice Management or CCH Axcess data as the primary data source. We made sure it would also incorporate data from other software applications to provide additional context.

The Results

We launched our strategic data analytics solution–Compass–in June 2020. It turned out to be everything we had hoped for: an easy-to-use tool that lets us visualize what’s happening within our firm in real time.

A clearer, more meaningful picture of our firm

Now, we can easily get a snapshot of utilization across departments or even job titles. At a glance, we’re able to see who our biggest clients are as well as their increase or decrease in work year over year. We can swiftly analyze employees by skill level, group, office. We can rank clients by increase in revenue with a simple click.

Improved utilization

When we analyzed our capacity by department, we saw a huge gap in the hours staff members in one department were working compared to our target. Using our data visualization, we were able to find more hours for people and address utilization issues. With this insight, we calculated that a 1% point increase in utilization would translate to a $250,000 increase in fees.

Ability to nip issues in the bud

We’ve also been able to get to the root of issues more quickly. For example, one visualization in our solution allows us to identify groups of clients where issues are present. This has been especially helpful during busy season. Previously, we had to monitor work progress through system reporting. Now, we can quickly see if work is off track and correct the problem immediately.

We’ve also been able to identify patterns in write-offs. Doing so has allowed us to ascertain whether the write-off was a result of our audit approach or staffing configuration, which makes implementing a solution much easier.

An estimated $200,000 cost-benefit

This is what everyone wants to know: Can a strategic data analytics solution pay for itself? The answer is a resounding yes. In fact, since we implemented our solution in mid-2020, our firm has seen an estimated $200,000 cost-benefit. We achieved this not only by improving utilization in some areas or increasing rate per hour through efficiencies but also by reducing the amount of time staff members spend on compiling reports, communicating issues, and reacting to issues.

How could strategic data analytics transform your firm?

Leveraging data isn’t something you can do with a snap of your fingers. It requires time, resources, and, in many cases, specialized expertise. But the benefits of it are undeniable.

To help other CPA firms harness the power of data, we’ve made our strategic data analytics solution–Compass–available via a subscription service. If you have questions or would like to explore how it could benefit your firm, reach out to us today.

 

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