Page 471 - TaxAdviser_2022

CPA firm billing practices

Source: AICPA & CIMA PCPS Firm Practice Management Section.

review several tax planning ideas. restructuring and maximizing business planning is transformational, but what
You mention a SEP-IRA or other and personal tax deductions (based on does it cost you timewise? Assume
type of retirement plan the client the particular client situation). At this that the time spent by the partner and
can set up, discuss an S corporation point, you determine a value-priced fee a staff member is double, when looking
election, and conduct a reasonable- upfront to complete this work for the at the profit margin. Even if the time the
compensation analysis. You also plan client of $15,000. This method of tax partner and staff member are spending
for accelerating the depreciation on
business assets and explore the idea Comparison of hourly and value pricing
of the client’s children being hired
to work in the business. The client
Hourly work Value pricing
leaves with some interesting ideas
Client fees $2,550 $15,000
but never implements them because
it is unclear who is doing what and
for what price. You often might Partner hours 3 6
wonder whether it was worth the
Partner rate $250 $250
time of the meeting, and it seems
$750 $1,500
hard to quantify what value you ac-
tually provided. Partner cost one-third of $250 $500
billable rate
The traditional and safe method
of pricing this engagement would be
Staff hours 12 24
hourly, fixed pricing, or a per-tax-form
fee. Using the most common method, Billable rate $150 $150
based on time spent and hourly rates, $1,800 $3,600
the engagement would total $2,550 in
Staff cost one-third of
billing for three hours of a partner’s time $600 $1,200
billable rate
and 12 hours of a staff member’s time,
giving the firm a profit margin of 67%
and a net profit of $1,700. Net profit $1,700 $13,300
Now take this same example and
value-price the engagement. This per-
Net profit margin 67% 89%
ceived value is a combination of several
Value identified Unknown $45,000
factors, including the estimated return
on investment (ROI) in tax savings and Tangible ROI Unknown 300%
your competitive advantages as a firm. Hourly income of owner $567 $2,217
In this example, you determine there (partner hours)
would be $45,000 of estimated tax
savings per year to the client for entity

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