Treat Profit Centers Differently Than Cost Centers
Profit centers are parts of a company that generates revenue in excess of its expenses. Usually, profit centers are separated for accounting purposes so that management can monitor how much profit each center contributes to the overall organization. In some companies, management will organize the profit centers by business type, retail store, brand, and sales organization.
Conversely, cost centers are parts of a company that generates expenses with no responsibility for creating revenue and profits.
All companies, no matter what size, have both cost and profit centers. For example, large companies often have human resources, accounting and purchasing departments which are strictly cost centers. The company has to spend money to operate functional units and accomplish these functions cost effectively.
When operating a small accounting practice, it may not be practical to use the profit center concept literally because the business is so small. However, the idea of identifying the profit-generating components of your practice for increased investment can be beneficial, while treating cost center activities as necessary functions on a cost-effective manner. For example, tax software and staffing support are key components to running a small accounting practice. However, both of these examples are cost center activities and should be treated accordingly. Conversely, investing more resources into profit center activities for profit maximization, rather than focusing on cost across the board, can pay big dividends to your practice.
So what are the profit center opportunities worthy of considering for profit maximization?
- Adding Higher Margin Services to Your Practice
- Partner/Staff Incentives for Closing New Clients
- Accounting Practice Development Programs
- Internet Marketing
- Opening a New Office Location
- Creating a Niche in Your Practice
In a soft economy, it pays to approach profit center opportunities differently than cost center activities. Take a sharp pencil to cost center activities in your practice and invest in profit center activities.
By Hugh Duffy
Hugh Duffy is the Chief Marketing Officer and Co-Founder of Build Your Firm, a practice development and marketing provider for accounting firms. They work with small and medium sized accounting firms. They offer a free e-book for new accounting startups. Download Critical Steps for Starting a New Accounting Practice