Many firms suffer from being all things to all people. When a firm is in its infancy it does whatever it needs to do to generate revenue and pay bills. That is, they take on individual clients, business clients, possibly some bookkeeping, project work and advisory.
An old way of measuring a firm is utilization. That is, keep people busy, even if that means taking on summer work (yuk). This mindset and philosophy has not served our profession well. Firms run from deadline to deadline with the hope of having “space” after the deadline only to find themselves playing catch up.
This model drives people out of our industry. The team is expected to work “tax season” hours then grind and keep their “billables” up when it isn’t crunch time. In the words of Dr. Phil, “how is that working for ya?”. In short, it isn’t.
There is a better way. At Renew, we call it the 40 Hour Firm©. That is, you work 40 hours a week all year round. You do this by getting hyper focused on target clients, commanding premium pricing and serving clients (in a sustainable way) all year round.
You also do this by eliminating clients that are once a year clients. No more 1040s that aren’t connected to a business.
It takes time to get there. We call the destination the Succession Phase and the journey towards it starts with a top down exercise we call the Model Firm©. We want you to wave your magic wand and design your Model Firm©. The exercise includes quantitative and qualitative measures.
This model depicts the lifecycle of an accounting firm and how you can get to the succession phase.
Infancy: The goal is survival. The firm is characterized by being all things to all people. The firm is typically heavy on 1040s. They also may have one large client that they are revenue dependent on and as a result have a service provider relationship as opposed to a trusted advisor relationship. Further, when we dig into the profitability these large clients are often the least profitable in the firm. The partner role is cash management, solo technician and doing it all.
Bill Gurley, successful venture capitalist stated it well: “If someone starts a company (firm) because they think it will provide a good lifestyle, they are in for a rude awakening.”
Growth: Firms that survive the Infancy phase transition to the Growth phase. The firm starts getting referrals, hires some people and grows at double digit clips. The firm continues to say yes to almost all types of work and is often reactive playing “whack a mole.” The partner role is cost/expense management, technician, making technology decisions and trying to keep people busy.
The Growth phase typically reaches a point of overwhelm and the firm decides there has to a better way. Reminder, emotion equals action.
Maturing: In the Maturing phase of the firm, there is typically a shift to Make the Firm the #1 Client (key Renew mindset principle). The principle states that to create value for the right stakeholders we must put on our own oxygen mask first. Similar, to when the flight attendant during the safety demonstration on a flights says, before you try to save your family or friends put on your own oxygen mask first.
As a result, the firm starts to say no to certain type of work, starts to productize their services and price upfront. One of the challenges is the firm has multiple business models under one roof. That is, a 1040 practice, corporate work, bookkeeping (CAS if you must), advisory and maybe some compilations/reviews.
The partner role is characterized by reactive planning, juggling models, how to provide quality work in different areas of discipline and living in the gap of “what needs to be done.” In our experience, these firms are profitable, but quality of life isn’t great.
The firm struggles to find successors and must make changes to increase the likelihood of the firm surviving the current partner group.
Succession: The mindset shifts to get to the Succession phase are the world is one of unconditional abundance and playing to win. The principle of unconditional abundance states there is plenty of work to go around (true that!). Playing to win is, we aren’t just here to survive yet we are here to win.
The great thing about public accounting is if you create a winning model, everyone wins. You, your team, your clients and your community. A firm in the Succession phase is focused and intentional, they command premium pricing, lead with advisory and serve only target clients.
The business model is typically a subscription model where the firm is proactive driving a service model for their target clients. The partner is out of the day-to-day role of technician. The partner focuses on strategic issues such as growth and succession planning.
Let’s focus on creating your Model Firm©. Achieving success is a journey that requires dedication and the right mindset. One key principle of the Renew mindset is focusing on success, and at the core of this principle lies the importance of maintaining a positive attitude. In order to truly transform your firm and reach your goals, cultivating a positive mindset is essential.
“Most people, by default, because they don’t think big, don’t aim high, and end up developing very average or below average habits. They under-develop.” — Gary Keller
Let’s begin with the end in mind. Think big. The Model Firm© brings this philosophy to life.
Start by figuring out where you are now, then compare each metric to the target shown and identify your gaps. Then, prioritize the low-hanging fruit and determine your actions.
You can’t hit every target in year 1, but with focus and discipline and by working on a small number of things at a time, you will find yourself advancing toward your Model Firm each year.
Put another way, it took years or decades to create the model (some may say mess) you have and it takes a few tax seasons to fix it. But you CAN advance it straight away and there are always plenty of quick wins in year 1.
You also will want to consider your qualitative goals. What services will you offer (and not offer), who is your target client, will you have a niche, what role do you want to play and what is your time frame.
You must also consider this Renew Business Model question:
Where are we getting leverage? This happens in only 3 places in our industry: People, Price or Technology.
The goal seeking exercise is drive profits up and hours down. Of course, these quantitative and qualitative variables will help you lead a better life and also pay your team members more while enhancing their quality of life.
Below is an example of a firm we worked with in Sacramento California who has achieved what we call the 40 Hour Firm:
When you're ready, we'd love to talk about how we can help you. Feel free to book a call with us.