162 Don't Watch This One It's About Timesheets

This just in. Hourly billing, gang.

It's super, super cool again.

And to tell you all about it.

Oops. No. Chad Davis. Say hello, Chad.

Hi, everybody. That's not true. But it's sort of true, I think. Let's figure this out.

We're going to talk about Chad's experience.

Ebbing and flowing through various versions of this and I don't know, probably challenge some, some assumptions along the way.

Come on in, let's. Okay, Chad, you've been on the podcast before.

Wait, what's a shashumption?

I suspect most folks know you past mayor of Automation Town, but for folks who don't, you want to do like a 30 second intro.

Yeah, that was fun. Automation Town. I listened to another episode a little a couple weeks ago and it just reminded me of the good old days. That was fun. Jason, 30 seconds. Hi, my name's Chad, I'm from Canada. Have a CPA for firm there called Live Ca, which I started with my business partner Josh, which I'll be mentioning throughout today, I guess. And I've had some fun playing around in the tech side of, of accounting over the last decade and met this guy a few years ago and happy to call him a friend. So what are we talking about today, Jason?

So we're talking about the shirt you're wearing that says I love time sheets. Just he's not really.

It's a, it's a tattoo.

It's a tattoo. It's a shirt that's tatt tattooed on his skin. So Chad's firm has like taken a kajillion different forms over the years. You were, weren't you like the first straight up purely virtual firm in Canada?

I think there's lots of people that were on their own, not in an office for many years before us, but definitely one of the first, I think, you know, 20 in Canada. It was actually illegal for you to operate like that. So we kind of worked with the governing body to make it legal. Took a few years, but yeah, we were some of the first ones to do that. There's a group of a bunch of us that kind of came out of the woodwork around 2012, 2013.

Yep. And even though these are all Canadian firms, I mean, we still talk about them like they're full accounting firms even though they're not American. When. When was still.

They're called CPAs. Just don't know if it's an accountant thing maybe, but either way.

When did you start?

Americans did it too.

When did you start this firm?

2013. This iteration of it and I had a, had a company before that. But we're losing people. Jason, let's get to the meat.

Okay, so you have ebbed and flowed. Started with just you and your business partner. I know you had a whole bunch of employees. How many employees do you have now?

It was at its peak a little over 110 and then today it's right around 60. So there's a big old story around that and happy to share that. And I think that's, that's part of the reason why we. Here's the bump. We like timesheets and tracking time. That's going to upset a lot of people.

How dare you.

But okay, there you go.

So for the people that listen to this who are at all these various stages in the journey from very early, maybe not early, but small, too big. And kind of every step along the way, I'm curious specifically around how you have build what you do and tracked profitability and stuff like that. What is the evolution from the super caveman basic way you started and the sort of steps down that journey?

Sure. Bullet points. Shout out to Jason Blummer and Thrival. We were one of the members back in 2013, really, really leaned into the three tiered pricing, which we kind of learned from him. And from there it was pretty much our first couple clients. We were doing the three tiered pricing, the unlimited support, the not tracking time thing. Fast forward a few years, we realized we were like lacking some insights or lacking other things that I know a lot of pro value pricers are going to say I'm doing wrong. But regardless of that, we started time tracking but not for clients, mostly for our own internal purposes to get an estimate of like what a price floor would look like and time floor would look like for different services. And that evolved into something that we're using today, which is completely different than the three options, than the unlimited support, the subscription pricing. We are now, you know, 10, 11 years later using a system that is sort of using the floor, but we called it budgeted hours. And this is something my business partner and I, you know, came kind of recognized that it was necessary because at certain sizes of the firm there were always issues and there were very different issues for different times. But one common thread was that we couldn't really see more than a year or two down the road at something that was incredibly sustainable. There's a lot of unknowns. So today we're working in a place of like knowns and it's more, it's more comfortable and it's less ambiguous. And here's the. Here's the kicker. We're actually, like, more profitable, have higher engagement ratings from our team. Customers are more aware of what they're paying for. And it's just something that we lacked, I think, for the last decade, for better or worse.

So what about the previous approach made it hardest, hard to see this, like, into the future?

Sure. So if I think of, like, one example, we. Most firms have seasonality issues, and the way that we got around that was by over hiring. So we just had enough people that we kind of masked our own problems. But that created a problem from a financial perspective where we were having higher prices and costs for our team members than maybe what the optimal mix for the company was. So we had always wanted to go down the route of offering a lot more perks and more retreats. And like, we used to do epic retreats that would cost hundreds of thousands of dollars. And it was really fun.

For real.

Hundreds of thousands of dollars.

Yeah. I'll show.

I'll send you a video. There's the link. We went. We, like, did private planes to bear camp in the middle of British camp. It's a good video link. Do the thing where you do, like, link above.

What's a bear camp?

Exactly? It's literally a place in Canada where you can take a private plane. You fly in and you have these hu. Yurts on the water. And it's a bear kind of sanctuary thing where there's just a bunch of bears and. Yes.

And they put you on the water so the bears can't get you.

There's a. There's a. There's a thing that you can go up. I'm sure bears could climb. So there's rules around it. But yes, that's how Canada works. You're just not necessarily afraid of bears too much.

There's rules for you or rules for the bears?

Oh, for us, we're good. Let's get off the bear top for a little bit and get back to. You want to go down the retreat thing, don't you?

I'm just always fascinated by a Canadian accounting firm. So this is great context.

Let's throw. Let's throw some of the videos in notes because, yeah, we had a lot of fun and, like, we wanted to bring that back. But when you put essentially all the extra money into people in terms of like, I won't say padding, but just having a lot more hours to do the work to kind of mask the real underlying issues. Yeah, that was. That was it for us. So Scope creep. Even though we had some of the tightest scopes very like well laid out, there were still like bleeds where it wasn't really sure if like this thing was part of it or not. And the effort of repricing was higher than it really should have been. So being able to reduce the effort and put in a system that is more mechanistic and can be well received with clients when things are in and out of scope, that's kind of where we're living today. So hopefully that answers the question.

Yeah, bunch of questions in there. One on, let's just say the re scoping conversation with clients. What about how you had that re scoping conversation before was harder than now? Is it that it's like grounded in something that's easier for them to understand or.

One of the changes we made was we operated on the three tier model, right? Everything inclusive for each option and we moved to per service pricing. So now it's hey, your CPA relationship is this many hours, this is the price. Your bookkeeping is this many hours, this is the price rate times hours equals price essentially. And now that we had one number before and we have multiple numbers now, that conversation is pretty easy when it comes time to changing anything because if bookkeeping has changed, you just change the bookkeeping hour number. And again, there's firms that have done this for decades and it's worked and there's no right or wrong way. But I can tell you that those types of conversations when you're talking about a specific service for a specific amount and is a lot easier on both of us when we've set the expectations early. And there's going to be all kinds of arguments against this and we've thought of as many as we could. But this new rigor around attaching hours to services and then using that as a mechanism for like an annual renewal or a six month check in has created an opportunity that we didn't have before in our data to do like really good capacity planning. And that's the nugget that I took from this whole exercise, is that if we didn't do capacity planning like this, we would still operate like we did, which wouldn't give the clarity to the team members as much as they could have. So I know it was the whole 180 from how we operated before and spoke so highly about it. But I think as your firm progresses, you're presented with new information, with new types of customers, with new market information, and it's okay to question beliefs that you had in the beginning. And this may be the wrong answer for us in 10 years or 15 years or an iteration of it might be. But the results so far, like a year in have been happier team, happier clients, more profit, not more revenue, but more profit. And now we have a system and a mechanism to grow the company should we want to. Before it was a little bit flimsy.

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More.

Well, let me throw, let me throw those like the usual questions at you. The counter arguments for where people usually tear this down. You were tracking time before we were. So on the subject of capacity planning, what about changing how you priced? Assuming you were tracking hours before and after, what about changing in how you price impacted how you capacity plan?

I don't know. Be more specific. You say, like, couldn't we have. Couldn't we do the same thing essentially before?

Yeah, if you already were tracking one.

Thing that was not. Here's the thing. Every firm operates a little differently at different sizes. And we don't know what it's like to operate a firm above 110 people. But I know that I don't like it at 110, I really like it at 60 and using this process. So it's about as much as it is setting expectations with your customers about how price changes as it is about the system that's in place. So you could absolutely do everything you talk about. However, what I've found is the more customers you have and the more employees you have and the more people that are in the process, the greater the possibility of scope creep lead into what you have so eloquently put together. It still is a call, it still is an issue depending on the type of firm makeup you have. Maybe it's an email, maybe it's automatic, who knows? The answer is like, yes, it could absolutely work for any type of firm in any type of situation. We just couldn't because we had essentially not a big enough sales team or a process around making those changes anytime scope creep popped in. So it was a production essentially every time we needed to convince somebody that their $3,000 a month plan is now 3,600, even to them, nothing's changed except for bookkeeping. So now here's a weird thing. That 3600 might be $200 of bookkeeping increases, $200 of a new tax form or something and whatever. But if you're only presenting one price and throwing this stuff in, how do they know what is what? And it's okay to operate like that. We've operated like that for a really long time and have been able to have good conversations about this and made sure that there was profit at the end of the day. But that variability of the financial model when we weren't as rigorous was a real issue and you know, probably happened at around 60 to 80 people when it, when it really kind of went off the rails a bit.

The, the whole, the scalability of like sales and re scoping. That's something that I've heard Brandon hall talk about. I've heard Matthew May talk about this quite a bit at Acuity as they have a more usage based pricing approach. So it sounds like a big change has been reducing friction in what rescoping looks like and the ease of communicating that with clients. Has it? I know historically like one of the few things you've always kept involved in in the firm is, is sales. Has that simplification enabled you to pull a different type of person into the sales process and all that?

Yeah, I think there's, there's going to be a theme and there already is a theme of like, you know, how in any company there's like account management and it's a little bit different for, for everyone. But you know, some people have onboarding. Like we had an onboarding team before. We essentially had a tax team. It was important for us to have like that dedicated resource to bring on people and to do customer service work outside of like, for like billing changes and things. However, like for SaaS companies or like American Express or some other places, like they have true account management. And yes, you get an email every three weeks that you have a new account manager somewhere. However, that could be an element that we pull the trigger on next year to kind of streamline sales and account management. I know it's something my business partner is spending a lot of time on with the team, but the short answer is I'm no longer the linchpin in sales because this new process allows for estimates, revisions, monitoring matter of fact outcomes. And before it took a lot of effort to convince somebody to spend $2,000 more a month with us than with someone else when it was based on one price and not a whole bunch of things for them to try to try to rationalize. Could be I'm a horrible salesperson too, so everything to its own.

Well, and that's interesting to me too. So Michael Gurdley on Twitter often talks and he's on a whole bunch of different companies and he's, he talks quite a bit about how he's built companies oftentimes around the capabilities of the people that he has. Whereas most wisdom is like build the system and then plug the people into it. But he kind of goes the other way around do you think? And kind of on the subject of the right answer being maybe Very firm dependent. If you had five more chads or if, if you were the problem and if you were better at this or something like that, do you think it would change what the right answer is if maybe you had the right people to have those re scoping conversations? Is it people skill dependent?

No, like you said, any, any, anything could work with the right circumstances. But we're trying to get away from things that fail easier at scale without the right systems around it. So specifically we've been in very consultative sales and it took a long time to work through a new customer and to get them on board. Our new sort of approach is hey, we know enough about the services. Anybody on a sales team can go through and do this. And I know that's kind of like the Matthew May approach. The systems that are put in place, I would much rather have simplistic and less consultative. So much so that as we got bigger and again there are thousands of firms bigger than us. However, like as we kind of reach that hundred person mark, we started finding that the like the sales process was the hindrance. Like having a call for every single time you needed to do this or even an email created a lot of friction. An email has the capability of like pissing somebody off and making them want to run without context. A long call might help, but it's not scalable. So we're trying to get out of a lot of the services that are based off of individual people skills and going back to more of a well run controllership model. That to me is easier to digest for a lot of the team members who want sort of calmness in their life after the last three or four years of chaos and being able to stand up and say yes, we are building a calmer experience for accountants to be able to do their work in 40 hours a week or if they're part time, less. And here's how we're offering this and here's how your support will act is a lot. It lands better with me because I feel like that's the type of company we want to build, at least for the next few years. Obviously with everything in life you see how it goes, but initial signs are that people are happier and so are the clients. I know you could pull on that for a second, but I'm curious, you're no slouch to this kind of stuff too. Do you have any parallels between like when you put in that CAS division in your firm versus the history, you know, sort of the hourly people before and how that kind of lines up with this experience.

Yeah. So my background was I bought an 80 year old tax practice that was all hourly billing and everything you would expect from a legacy firm and then launched a remote distributed CAS practice. So tax was in an office, CAS was distributed. And we always track time. We had almost like a time tracking as a mechanism of kind of sounding an alarm bell. I also, in my opinion, especially when you're working in a distributed environment where some stuff isn't as apparent as if somebody's obviously visibly struggling or something like that, I think that I have a hard time pretending that time doesn't exist. Of all of the factors and the ways that I can care for my people and all of that. And like we did, we did like stand ups. Like we did daily standups, we did check ins 1 on ones every single week. We did all that stuff. The reality is even there where like a big argument against tracking time is like getting away from the gaming of the time system. Like even moving away from that. Like people are still going to put up the front that they think they want their employer want to see. And oftentimes you only find out that that was a front when they leave and they've been working their butts off because they didn't have the support that they needed but were not willing to like tell anybody about that or raise their hand or. So it's, you know, time is never the only metric, but it also feels really incomplete to just pretend that shouldn't be a metric. Now if I had a really small team and like I was the manager and I was the boss and I was, I mean it was not a huge number of people, I think that answer looks different. I never got to the point where so we were about 40 people when I left. And so I just, I oversee oversaw sales myself and I think delegating the sales and the scoping conversations, actually the, those, the as I was leaving the first year of renewals where the team managed all of that was as I was headed out the door. So I don't, I feel like in general we, we value price but then tracked time as a way of ensuring stuff was still on the rails. And then anytime we had a new client coming in, we would sort of budget what we thought that would look like as a floor of what we were willing to do. But then we would try to value price above that. That being said, like I was the only one in the entire firm that I had confidence in, in doing that. And that's what, that's what like got me to the question of Is it a skills thing? Is it a capability thing? Like, if we all had. If we all had not to call anybody out in particular, if we all had 10 Ron Bakers working for us, would the right answer be different? Like, because you have people with different types of capabilities and you had an abundance of folks that could have those scoping conversations really eloquently. I don't know.

I don't know either. But it would fix the problem that we had with it taking a while when there was a bottleneck. Yeah, yeah. I like what you said about the. Yeah, it sounds like you have gone through that. And I just want to be very clear, because when you said, you know, we track time and that creates a floor, and then we try to value price, like, we've been in the exact same situation. That's our whole firm. And when we switch to, okay, here's the hours, but we're not going to bill you every month based on the time. We're going to look at it only if there's a 30% deviation for three months in a row. We're also going to meet with you three or four months in and check our estimates against how things are going, give them a guarantee when they come on board. I still really love the ideas of guarantees, especially with new clients and with existing ones. And then being able to encourage the team so much so to track time, so much so that, like, it's in their best interest to protect their work schedules. So we have people that are like, oh, I forgot a couple extra hours on that. I need to go. I need to go update that. Because the link between their calm week and month is directly related to those inputs and how we, like, manage the whole system. And you will always have gaming of the system in some elements. Someone who really doesn't want to do a lot, they might inflate their hours, but that gets thrown through the wringer, too, because then the price has to be higher and it's way above market. And that alone will be enough for the client to question if they want to stay. So we have to have our own sort of expectations. And that's where having bookkeeping managers and AP managers and payroll managers and control customer service managers overseeing the sort of product is still really, really important. This isn't just a time exercise. You still have to pull every lever to make it a viable service. Right. I forget what. Saw something on Twitter today. I think it was Luke that posted it. Luke Temple. He goes. It was a book about Jerry Seinfeld. He's like, the best way to make a better joke is to just have a better joke. The second best way is to write every day for 15 minutes and get better at writing jokes.

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It out on the main YouTube channel. And thanks to Lifflo for sponsoring the pod. All right, one thing you touched on a bit that I'm interested in. I Think when we have something that we kind of recoil at, it's because we've only ever seen versions of it that were bad and hosed people. And I think that's when, when people think of hourly billing and I think of firms getting larger in our head, we all have this, this view of like the just the machine, you know, the mega firms and how that just kind of churns through people. What is the difference? And obviously there's 100 differences probably. But like ultimately then what separates you from this sort of meat market approach to like just grinding through Arbitragin and like the kind of environments you see in these super unhealthy firms versus oh no, like we actually worked out a way to make a healthy environment that still uses this time based stuff.

Yeah, like you said, there's a hundred ways. I think what we're really working towards is a minimum profit percentage that's reasonable. You know how some firms carry a badge of like, oh, we're at 70% gross margin and 50% net. It's like, I don't know who you are, but I've never met anybody that's like that unless they're like really, really reaming their. The idea of being not greedy is front and center for me. I'd like to have a firm that is making enough money to pay for all the app increases that are coming through every three months from app partners that can afford a reasonable salary increase for everybody every year, where benefits can continually get better every year. And when you set your sights on a lower net income percentage and say anything above that can be used for all these other things, you're like really working with your team to create an environment where they're getting something that is wanted, which is calm environment to work in. Calmer than those factories you talked about. And also where there's upside for them. And they know that as they work through this change, it's like working with any firm at any size under 100. You are, you are always changing regardless if you want to or not. And you just, you can choose what you want to focus on. So we've kind of focused on a model that's not greedy and that has upside for the people in the, in the team. And you can accomplish that a whole bunch of ways. But that's sort of where my head goes when, when you ask that question. Did you have a, another take on that? Because there are so many levers to pull.

I think we, I think it's, we fixate on the whole like billing and Pricing methodology probably too much when there's like bigger factors at play, like, what can my team actually get behind and what's going to lead to having a just positive experience and. Well, I mean, similar to what you're saying, a really helpful conversation with me running a firm was just considering and getting explicit about what exactly do we want out of the firm, what's the expected profit that we need to hit this year, and then how do we back into the most enjoyable way to get there, basically. And some of that was like price increases and doing more work for less money. But the, the helpful part of that construct for us was we could also back into like, how much work do we need to expect from everybody on the team and how much can we pay them and is everybody aligned on all of those things? And then it feels a little to your point, it feels much more controlled and as though everybody's operating with the same understanding as opposed to pursuing this sort of uncapped, I don't know, ideal that's maybe a little harder to get your arms around. That being said, we still do. We still did it. We still value priced a lot of stuff that was great on the upside. And then we value priced a lot of stuff that we totally took a bath on too, that we just got totally wrong. But I, yeah, I do think it's one of those things I think we probably fixate on when there's a lot of other factors. Like, you know, I think a lot of the whole hourly billing being bad thing came from the pressures of how you track time and fact that it was only ever punished. Right. It was realization above this. Yeah, right.

It's like a surprise bill. It's like all the things that make commerce bad, but when you double down on the things that make it good, which is aligning an ideal customer with what you're providing services for in a way that is attractive and like, good for them. That's the beauty of the different ways you can run a firm. There's different apps that perform the same functions. You can pick the app that makes the most sense for the way that you want to work and the budget that you want to work it in. Same thing with CPA firms. There will never be a shortage of. Well, I guess there is a shortage of them, but there will be lots of them where people can try to become a new client. Try to be careful with the words, because I know we're all in that place of being full right now, but there are lots of options when it comes to business models for people to purchase from a CPA firm. And I'm just. I guess the message here is it's okay to question what you've done in the past and it's okay to change. It's okay to try something new as long as it doesn't hurt somebody.

Even if it's going to get you super canceled.

Or eaten by a bear.

Or eaten by a bear. I. So one last thing I want to ask you about, because I think it's. I don't think it's hard to visualize building a really healthy environment for your team and how maybe the explicitness of that and things being tracked maybe make it easier to build boundaries around ensuring that folks aren't stretched too thin and too much is not asked of them. As long as, like, you are not cracking the whip on the hours, it is like, no. A helpful feedback loop. I. I can see that. On the internal side, what do you say to managing the big issue of ultimately productivity not being associated with time? Right. So is there a concern that accountant A is wildly less efficient than accountant B, say, and that may not necessarily be evident simply by looking at time?

Yeah, absolutely. I mean, you're hitting all the nails in the head. And I wanted to share a story. There was a client that had this conversation with and he's like, cool, I get this. We're doing something similar in our company now. And they were like an agency of some sort that essentially does projects for creative stuff. And he's like, this is really interesting because you're not charging me by the hour, but you're saying that bookkeeping is taking 10 hours. How do I know that's even real? I said, well, part of it is trusting us that we've tracked time on this file for two years and we know the average is 10 hours. But what's most important is that the price that you're paying for the bookkeeping, how does that sit? And compared to other options, you essentially have three options. You can keep it, you can try to reduce the hours, or you can leave really three only options in that circumstance, increasing. It wasn't an option. And he's like, you know what? He's like, you're right. Like, I don't know what 10 hours is. Like, what actually is it? So having the team being able to say, here's what we do within the 10 hours prior to having these calls was so important. So I can list off all the things they're doing and I can say, look, if the price isn't in line with, again, the value Pricing isn't in line with the value that you have for the service. What area do you want to be in? He's like, oh, I want to be in the seven hour. I want to pay this much money for it. And you're like, cool. So part of this whole process, which is my favorite part of the process, is now we're getting people in that price range that they want to be in per service. And we're going back to the team and saying, okay, how can we cut three hours? And then they go and they work with the client and they say, okay, here are a bunch of things. Hey, stop reopening payroll. Only one, we're not going to reopen stuff for expensify things that aren't open for payroll. We're going to charge you extra if you need an off cycle run. We're going to be doing all these extra things and they're like, oh yeah, I don't need all these urgent payments or I don't need all these deferred revenues calculations monthly. I can do them annually, that's no problem. And you're like, oh great. Now we're actually creating room for these three hours that gets pushed back for that bookkeeper into their capacity. And when we look on a per person and a per service level, anytime we're thinking about taking on new clients, we can see exactly where the time is and how it's working and what companies are in limbo going from 10 to 7 that we need to confirm before we truly give back those three hours. And I'm in love with those types of conversations with clients because it kind of is value pricing. You're just using a different mechanism with more controls.

Yeah, I mean all this makes you think none of this really matters. This is all so inside baseball.

Like if you could so inside baseball.

If you could have all of your clients give you a net promoter score and it was a real net promoter score and not just your promoters doing it. If you could have all of your employees do the same thing and say, how happy are they ultimately? Aren't those the things that matter? And however you get there, even if it's non traditional, it doesn't really matter.

Yeah, job completion rates, retention rates for your teams, the ability to give them raises every year. Clients not self selecting out. Yeah, pizza parties. Or was it coffee cake? No, that was my business partner one year. My business partner's boss when he was in public accounting gave the entire office a coffee cake after working every Saturday for four months.

I got bacon one time and the year before, we got cash, and our boss thought it was hilarious. He's like. He's like, check it out. I got you these giant things of bacon. And he just thought it was the funniest thing. And we're like, can I just have money like I did last year?

Retention rate.

Yeah.

Next year. Anyway, this was. This was fun. There's a lot more stuff that went into this that we didn't get to cover, but I think the general notion is, like, you will always end up talking pricing with accountants. This is, like, the thing to talk about. There's a hundred different ways to skin that cat. And there's. I think the only people that are wrong are essentially the people that say there's only one way to do it, and that's just not how the world works.

Awesome. Thanks for doing this, Chad. If people want to go tell you how wrong you are online, where can they find you?

So you can find me on Twitter at jstatscpa. All the comments on that thread, please. Yeah, it was fun. Yeah, Twitter's fine. At Chad Davis.

Okay. And we'll. We'll find that bear video and put that in the show notes.

Oh, you could. You should just start with it and just play with it. People won't even know what they're watching.

Play with it. Play it in the podcast.

Yeah, yeah, we'll play it. We'll play it in the. In the YouTube video. Anyway, thanks, Jason. See you later.

Thank you, Chad. Thanks for coming. Hanging today. I'll see you all.

Sam.