Accounting firms need one chart: a capacity plan that compares available hours or revenue against client demand. Break it by role, account for PTO and meetings, and run what-if scenarios to decide whether to hire, reduce work, or add clients to a waiting list.
Accounting firms are constantly juggling 2 questions. Do we have enough time to do all of this work? And do we have enough work to keep our team busy? And it was always kind of a back and forth between them as you grow. So in this video, I want to share the one chart I believe every single firm should put in place to know when their team can take on more clients, when they should hire next, which role to hire for, and whether as a firm owner or as a team owner, team, they should be focused on sales or operations. Let's get into it. So what's this mystical chart? It's simple. It's a capacity plan. And what a capacity plan is, it's effectively a forecast of your supply of talent versus your demand for your services. We do believe internally that there are 2 versions of that, and that are worth distinguishing and making different exercises. The one, uh, one, it's a long-term capacity plan where you're looking ahead 3, 6 months out, And the other one is a much short-term, we like to call resource plan, that's looking ahead just a few weeks out. Now, why we believe this should be 2 different exercises? Well, the first thing is like they're answering different questions. When you're planning your resources in the short term, you're really trying to figure out who can do this work and when so that we can continue to move forward. Versus trying to answer the question of should should we hire to build our capacity? In essence, the long-term plan is based on assumptions. The short-term plan is based on commitments. The long-term plan is about the pipeline, the possibility, the opportunities we currently have that might close, the clients that might leave, the talent that we might have to bring on, versus the short-term plan, which is around the effective— the work we've sold and committed to already. That's why I also believe the level of granularity between those 2 different plans is different. The long-term plan should be much less granular and be focused on roles as opposed to the short-term plan where you have to get specific and talk about the specific work and the specific client and the specific person who's gonna do it. Now, I know what you might be thinking. I know for a lot of people, they start to hear about capacity planning, time estimates, and all of this, and they're like, we don't track time. I'm here to assure you that even if you don't, you can still benefit from a capacity plan because it's just based on estimates. I would suggest that if you do have the time data, that can help you then validate or try to improve those estimates, but you can still do this regardless. And as a development firm, we've actually created or developed a simple app to help firms plan their capacity. I'm going to show you what it looks like as I walk you through some of the other things we believe a capacity plan should have. Okay, so here's what the final chart should look like roughly, where you're going to have how many hours you have of capacity. In this case, we're using hours. I'll talk about that in a little bit. And how much work do we have? This is the supply and the demand. Those can be based on different units as well, which I'll talk in a second. However, I do believe that the main limiter on your team, regardless of what you think, Regardless of who you, you know, how you like to measure capacity, which some firms might do on a revenue, like on a dollar amount, time is always the constraint, right? So I do believe that as we think about team, your team members in particular, you should be thinking about a couple of things. One, it's, as we mentioned, what's their role? You want to know Get clarity on that. You want to know what's their gross capacity, meaning how many hours did we hire this person for? But we know that we have internal meetings, paid time off, potentially management time if they are a mid-level manager or above. So how many hours do I actually expect them to be doing work on clients? Because this is actually the supply I'll be able to provide. For clients to fill up, to fill them in. As I mentioned earlier, however, some people might want to think about their capacity in dollar amounts instead, and that's where this billing rate comes in. Even if you don't bill by the hour, this is suggesting that, hey, if I have someone working 120 hours and let's just say that I put 100 hours as a billing rate, I expect them to produce, in this case, $12,000 of work. Revenue in that time they invest. Going back to our forecast chart though, the important thing to keep in mind here, it's knowing how many hours you have committed of the supply you currently have. And in this particular tool we've developed, you have the opportunity to do this by role. So for example, here I'm looking at the entire or all the roles of the company, but if I wanted to look for specifically bookkeepers, and kind of can get a sense of how busy bookkeepers are, or controllers, for example, and seeing kind of month to month in which month might we need additional resources for that specific role. Just as an example, if I see controllers as an example are almost 80% capacity, if I were to add a new client that this would be going to the past, but let's just say that from July to December, and I know it's going to need 30 controller hours but only 10 bookkeeper hours, just as an example. You can see how this updates to now account for— oh shoot, looks like this coming month we might be a little bit redlining our controller team, and we might want to consider Either reducing commitments, potentially, if we expect this will be sustainable long-term, we'll increase looking into filling out a role for that particular hire, or looking for a hire for that particular role. Now, doing this exercise creates clarity. As I said earlier, even if you don't have precise time tracking, it allows you to see when you might be overcommitting for the resources you have and help you justify that hiring decision, as well as give you warnings when demand's going to exceed so you can either hire in advance or depending on how you do it, maybe you might have a process to put clients or potential clients on a waiting list if that works for you. Now here's the thing, capacity planning on its own can be a little theoretical. You can plan all you want, but if you're not tracking the right KPIs, you'll never know if the plan you set out to do is actually working. And we believe that KPIs are the way where you connect strategy to reality and see like what actually happened. Looking backwards. That's why I suggest you watch this next video, with this next video, where I'll show you exactly which KPIs have proven to be helpful in our experience for accounting firms to run a high-performing practice. Click through and see how that tracks success the right way. And until then, stay efficient.
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