Transcription
Okay gang, two million dollar year firm, two full-time employees, three hourly bookkeepers. Scrooge McDuck mode activated. Let's roast to firm, presented by Firm 360.
"You call that a profit margin?" "Yeah, who needs automation when you've got five monitors?" "There is a mouse." "Always." "That's what the client said." "Well, maybe the client should prepare the return then, huh?"
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Let's dig in. So, the party piece here, two million big ones a year. Now, a catch: they're working with mid-market companies and do ERP implementation, so they carry a lot of client software costs. It represents about $500,000 a year in revenue. So, adjusting for that, they're really more like a $1.5 million dollar year firm. Where were we? They only do tax work for accounting clients. So, let's say that's 90% accounting. They're in a mid-sized city and have two full-time employees and three hourly bookkeepers. Yeah, I see you running the 10-key.
Pain points: they've got a problematic bookkeeper, they're struggling to learn new things, and are very reliant upon their peers. The owner doesn't enjoy running client communications or wrote work, and the greatest bottleneck today is the monthly close.
What are they enjoying? They love solving complex system issues and restructuring client processes. They enjoy helping clients implement new tech. Is this a self-roast, right now? And they quote, "love wild cleanup projects." Never mind, this isn't a sell for us. Also, the whole team's very close, but they acknowledge this is both a good thing and a bad thing.
There are any your Cadence is super boring. They see a little bump in January as they're running 1099s, but they only do 1099s for those clients that leverage their bill pay service, so they have control over the W9 collection throughout the year. Smart. The rest of the year, they kind of just do the tax work when they get to it. Not much in the way of OT. Cleanup projects are scheduled in advance when they have availability. All clients are on monthly engagements, and the only real workflow of volatility is that monthly close.
Now, workflow. Core services are performed according to a weekly schedule. Most clients are touched twice a week. They update the bookkeeping and complete any AR or AP tasks. Accounts are reconciled on the statement closed date. So, for example, credit cards could be closed mid-month, with the exception of a couple core programs. They generally work with their client systems. They'll occasionally meet with clients at month-end, but since they're generally in touch week to week, this is more for planning and goal setting than it is for reviewing the month.
Internally, they're using Ignition for proposals and payments, QuickBooks Time, Smart Vault, Trello, Microsoft Office, and Teams. But externally, lots of one-off apps for specific client projects.
Now, pricing. Each engagement is priced independently. All are on fixed monthly fees. Factors include client communication volume and the accessibility of the systems they use. Clients can bring their own programs; it just costs more. Cleanup work is billed 100% up front, with a 50% deposit taken on agreement and the other 50% taken when the work begins. They began taking that deposit because they'd find people would go to another provider if they couldn't start the project right away, but the deposit has mitigated that. They only take new work by referral. They do a one-hour kickoff meeting, and if they look to initially be a fit, they give the client a list of tasks to complete: setting up accounting access, bank access, that sort of thing. Then, if all looks good, they'll draft a proposal.
Okay, before we dig into this, do me a favor. Comment with your emoji reaction to these firm metrics. Comments help the video and the algorithm, and it's kind of funny the different reactions I've seen to this firm. So, this is our fourth firm roast. I will link the playlist below. And as always, a few weeks before this, I put all the details of the firm out on Twitter for public comment, and this is where things always get spicy. So, let's see. Did Twitter rip them to shreds? They're available.
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What is this unicorn? This one, for the first time in the roast series, great job, everybody. I feel like we actually got through this in a civil way. Now, at the end here, I'm gonna share my own three top tips for the firm. But here's a few of them, like the meteor tweets. I really like Luke says, "Clap, fire your bookkeeper. You run the risk of waiting too long to do so and start thinking about your exit." Luke, clearly the guy at the party hanging out by the door. Ashley says, "Take care to ensure that the bookkeeper isn't bringing everyone else down. Been there before. This is usually punishing to your top performers just as much as it is to you." Good one here from Greg: "Who are your visionaries and integrators? Basically, who are going to be your big picture people and your executors? The one in charge of your systems and accountability and all that. Need to balance both." He says, "Join PASBA. Find a community of folks who are also managing bookkeepers. If you're a visionary, consider a mastermind. I'd also extend that to integrators. Develop a scorecard for your bookkeepers and give yourself a big juicy slap on the back."
Now, I also asked a couple of friends for their input. Here's what they had to say: "If this was my firm, 100%, I would be doing a discovery form. I wouldn't meet with anybody for an hour until I at least figured out if they met the base criteria for becoming a client of mine. So, for example, I had a client, a prospective client came to me as a referral, and they seemed perfect, but when they completed my discovery form, they would not allow QBO to connect to their bank feeds, which is a hard no for me." And he actually thanked me that we didn't spend the time in a meeting knowing that our values didn't align on how we work.
So, how do I roast this firm? Well, maybe that number's too big. Only five employees doing two million dollars a year? I'm going to bet that that owner, that partner, is doing a lot of work themselves. And so, can we really call it a business, or is it more of a job? Very highly compensated job. If you're the owner of that firm and you want to build a business where you're not working *in* the business, but you *own* the business and you profit from the business, I'd say double that headcount. Get from five to ten and build a team that can service those clients without you having to be involved.
Good stuff. Now, three tips according to little old me.
One: Find some big brands. You will never learn more than you do when you find a room of people running similar businesses to you. You can keep your consultants, your experts, your think boys. Nobody understands what you do like other people who do what you do. And 95% of firms are not running at this production level, which can make it feel like you're on an island if you don't have somebody to bounce ideas off of. Stealing validated ideas from people who are on your path will always beat figuring it out yourself, and in my experience, cut years off of my learning process. Craig recommended PASBA. I don't really care what the group is, just start sniffing around in them until you find your people.
Two: The bookkeeper was the easy target on Twitter. That is what the person said. Their biggest kind of pain point was right now. But at the end of the day, it's hard to quantify Jim takes up a bunch of Tina's time, and it's just better when you can set a clear expectation of output from your team members. Then you can come alongside them if they can't meet that expectation. I don't know all the details here, but when I've paid people hourly, even when I've paid people salary, I'd find that I was very motivated to do things more efficiently. But oftentimes, team members could take it or leave it. They weren't going to get paid anymore. If anything, they were going to optimize for comfort, regardless of how long a task took. And when that starts happening, it gets really frustrating. Now, not every team member will be wired this way, but you also can't really expect them to not be, because they don't have the same incentives as you: money and time. So, the only true fix to this, in my mind, is to at the very least have high-performance reviews tied to metrics, if not compensation. Then everybody's in alignment. They're executing to the benchmark that you set.
Now, let's run through a really simple framework for how to do this with today's sponsor, Firm 360. A couple of different reports we can leverage in Firm 360 here. I suspect since the bookkeepers are hourly, they're logging time somewhere. I can hop into the realization report, specifically the revenue breakdown. Here, we've got Billings by client, and can group by manager or partner in charge, whatever makes the most sense. What we want to get to is a revenue expectation for each team member. Depending on how many people have their fingers in each project. What's really even better than tying this just to billable hours is to measure their overall engagement workload. So, for this firm, since all their projects are fixed monthly, you could just go down the list of all your engagements, indicate who's in charge, and establish a total threshold for how much each staff person ought to be responsible for. Another cool thing Firm 360 enables, it would actually be great for this firm, is you've got a workload report. So each month, you have an idea of how much work is on their plate and how they're progressing throughout the month on those projects. Is your practice management system that cool? You saw how easy that was. Check out the Firm 360 link in the video description to learn more.
So, in general, always a good idea when those squishy human points of frustration come up, not to personalize. Bring it back to clear, measurable expectations. Now, if they're hitting those targets and still leeching the life from their colleagues, that's a problem. But step one is to ensure that you've got those benchmarks in place.
Three: Follow your own path. That is, decide what's best for you and execute in that direction. If you want to have more fun right now, maybe your new job should be the tech integrator. You take on all the special projects, double down on migrating them to your favorite systems, do all the nerdy stuff. Maybe you want to work less, and you need to start thinking about a manager for those bookkeepers, but they're also your friends. So maybe you enjoy that aspect of it. Maybe you want to make more money, mitigate key man risk, and find a more durable hiring pipeline, so you start investing in an offshore team. There's always a hundred things that you can do, but the most important is the thing that's going to set you on a path that'll make you happy and make you love what you do even more in five years' time, because today, we just can't afford to lose anymore.
Okay, okay, we've got even more roasts on the way. Subscribe so you don't miss them. And do you want to get roasted? Yes, you do. Check out the form in the video description to have your firm roasted. And check out this playlist for a whole, whole crock pot full of roasts. Put it in there about eight hours. Little onion soup mix, smelling it all day, you know what it's like. It's smelling nice. You know what I'm talking about.
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