265 Turning Around A Firm That Averages $272/Client

Oh, this Firm, they did 600k last year with 2,200 clients. Oh my golly, that works out to 272 bucks of revenue per client. That's a whole lot of relationships to manage. And I'm just gonna, I'll skip ahead. What? They don't enjoy managing a large volume of clients? Ah, you think, hey, we've all been there. We went down a path and realized, ooh, I don't actually enjoy the situation that I'm in anymore. So where do you even start? How do you start steering this ship in a direction that's going to be more fulfilling for you? Hey, we have all made some bad decisions, right? It's about how you bounce back from it. Because you don't always know you're not going to like something until you wade in there and you look around and you realize, oh, this isn't for me anymore. So come on in. We're going to share some ideas for how to get to something better and more sustainable today on Jason Daly. So this firm, it is a retail tax shop. I'm always fascinated by retail tax shops. Somebody, bless their hearts in the US has got to do like the cheap tax work. But as you'll find as we read about this firm, the owner, they don't really want that to be them anymore. So they're trying to think through, like, how do we start transitioning to something that we might have more fun with. So I'm going to share a bunch of details with you about this firm. These details were all shared anonymously with me. Check out the link in the show notes and your firm might be roasted. Little form there where you can submit the goods. Okay, bunch of background about this firm. We have a unique structure where we provide insurance, financial planning, tax and accounting all under one umbrella. But it has four separate legal entities. Tax and accounting historically have been operating as one entity, but it's in the process of splitting into two. As my partner and I have varying interests and skill sets. I enjoy recurring work. She enjoys the benefits of working hard in tax season, then having a bunch of flexibility outside of it. With that, we will now have a retail 1040 practice and then a recurring business services practice is doing write up, payroll, entity returns and all that. Historically, 75% of their revenue has come from personal 1040 tax prep, 10% from business tax prep and 15% from accounting services. Going forward, the retail tax business, 85% of their revenues expected to come from personal tax prep. And then the business services entity, 80% of revenue is gonna come from monthly write up which with fractional CFO taking up another 10% and then tax and other projects the last 10%. So today of this whole joint business they're splitting it into two and I'm just talking about the tax and the ongoing accounting business. Today accounting services is only 15% of those two combined businesses. But it's getting split out and this person wants to run the ongoing like business side. I don't blame you Roll. I'm taking ownership of the business services clients and I'm acting as the solo practitioner of that unit. I'll be doing the accounting consulting Payrol and entity returns. The business services side OH has around 200k in revenue. Okay. It's just the tax side that has 600k in revenue. The business services side has 200k in revenue but it's growing quickly. We're now doing better screening to take on best fit clients rather than taking on new clients just to grow the region. They're in very rural. The largest town in the county is about 10k. Ooh, that is very rural. Historically I've dedicated most of my taxis into prepping returns but I'm transitioning away from that next year because everything on the business services side is just going to be this person solo looking like I may need an additional bookkeeper slash payroll person in the near future. Clients are very small town rural folk with 300k to 3 million in revenue. So on the tax side they've got 2 EAs, 2 admins and 1 to 2 like data input types of folks. But none of those people by the sound of things are going with the business services person. Which boy, doesn't that just point out the difference between those two businesses? They've got five to seven people working on the tax business that does 600k and they're planning on one person working on the business services like cast accounting business that does 200k. That probably shows that both that might be a challenge. They've certainly seen on this like these firm roasts. Plenty of solo folks doing over 200k. But the fact that you need five to seven people to run a 600k retail tax shop seasonally I guess. Right. Those are two very different businesses. Specialization, no real specialization on the business services, but have an unintentional number of fiber optic cable laying companies. Okay, cool. And business services team makeup. It is just this person full time. 50ish hour weeks during tax season, 32 to 40 outside of it. The cadence Historically January is heavy with 1099s and year end payroll reports we begin tax prep the last week of January. February, March and April have been in the past 90% tax prep, with most other projects including monthly accounting work being put aside and caught up after these deadlines. Summer is catch up on accounting work and projects. Fall rolls into tax planning and wrapping up the few extended returns we have before gearing up for another tax season. The hope is by breaking out business services this year, I can maintain the recurring cycle of monthly work and provide timely financials and reporting to our business clients rather than putting that on the back burner and playing catch up. That is easier said than done. I'm going to circle back to that. I too. I mean this is not too dissimilar to what I did. I had a tax practice and then spun a cast practice out of that. Some interesting challenges to doing that. Some great upsides, but some interesting challenges to pricing business services. Monthly accounting services generally in the 400 to 600 range which include monthly write up, 1099 and usually the entity tax return. That's cheap. Owner returns are usually an additional amount based on their own complexity. Payrolls generally generally run around 150 for standard BI weekly payroll of up to 10 employees. That's also cheap. Billing for tax returns paid at the time of pickup. Recurring workers billed after the fact. But we've been pushing clients over to automated ACH over the past year. We try to include all reasonable meetings and correspondence into our quotes so that we can stick to one recurring amount and not have clients feel like we are nickeling and diming them. Yes, do that. If you're doing monthly accounting they gotta be on an auto payment and like that's that really ought to be non negotiable. Sales and Marketing Many referrals come internally from our insurance and investment teams. That's actually really cool, can create some conflicts, but is also really valuable. We also are active in local community events and are generally well perceived in the community. We've done a little true marketing as we're experiencing so many changes that we're trying to manage our growth. We're in the in the works to consolidate from three buildings, one in each local community about 20 minutes apart to one larger centralized office which could impact our presence in the communities. We're leaving Technology Drake Tax Outlook Sick Accountants World for internal write up clients, Payroll Relief for payroll processing, Financial Sense a few legacy clients still holding on to qbd, a few on QBO and lots of Excel spreadsheets. I'm just going to focus on the business services workflow. Client drops off or uploads requested documents. We pull bank activity from a third party, access or in some circumstances record the checks from a register, do reconciliations and journal entries. Print work Paper backup what did you just say? Print work Paper backup Create and review financials and email the client with a brief paragraph highlighting the results and any areas of concern or good trends we see pains Tax Season compression They're at or over capacity but still in demand. Overcoming legacy clients and their perception of change. That's probably a really hard one in this community. I have to imagine small community firms are up against something that's harder to relate to if you're in a bigger market, where if folks want to work with someone locally, they genuinely don't really have many alternatives, if any. If you're in a big market or near a big market, turning people away is completely different than when you're the only shop in town. And if you're not living that, it can be. It can be maybe hard to relate to that reality. More pains the recurring versus the compressed model Challenges State of constant changes we grow but don't always have established systems or processes. Very hard to grow while you're changing. How the sausage gets made Enjoyment I enjoy being a practitioner and advisor. I enjoy developing processes and providing feedback. I don't enjoy the volume of people that come with a retail tax practice and navigating those relationships like grandma getting upset over owing $20 in tax. I'm also not keen on managing a large team, so I don't want to grow to the point where there needs to be more than a small staff. Listen, there's some hard work that has happened to just get to this point spinning out the part of the business that you want to oversee. This is probably a really exciting time. In fact, I can relate to a lot of things here. I got super burned out on tax prep. In fact, I was on my way out of the profession. I went into graduate school and it wasn't until being midway through graduate school that I realized, dang, this whole like cast bookkeeping, back office, whatever you want to call it, the whole let me run your accounting department for you, like managed accounting sort of thing was a pretty freaking good gig. What other type of service provider can walk into a one and a half million dollar small business and command 40 to 80 grand a year in fees? Like the notion that you can be that back office for a client, that's really, really compelling. But this person's done some hard work to maneuver themselves into a spot where they're just overseeing the part of the business that they want to keep plugged into. And that's, that is good. That's great. If you've got advice for this person, if you've ever been in like a, you know, retail tax environment or just a volume sort of thing like that, you have any wisdom to share, man, drop it down in the comments. This person, the submission in the form, I don't think happened very long ago. So there's a very good chance that they will, they will see or hear this. Today's episode is sponsored in part by a Live Flow, the company that puts a wee little button in your Excel, in your Google sheets that lets you connect any old QuickBooks file to your spreadsheets. How would you use this having all that QuickBooks data at hand anytime you're in a spreadsheet? One way, buddy. Month end closes. Hear me out. You can build out a template that is any number of sheets in a workbook. If this workbook is your month end close, that could be a collection of, you know, 30 different worksheets that are all pointing to different reports inside of a QuickBooks file. You build this thing out over time and to set that up for the next month and close, the click of a button, all that stuff loads in immediately for the next month. Think about how much work it is to run those work papers manually. But you set up that template month over month, you pull it in immediately, you got a ton of information all in a single place, right? I bumped into a few folks in the wild now that have switched to using Lifflo for managing. Month end closes. Super interesting use case. They do a bunch of other things, but it just goes to show you, having all that data handy in a spreadsheet, that's really nice, right? That is Live Flow. Put a link in the show notes if you want to learn more. This episode is brought to you in part by Teamup, helping you recruit top Filipino accountants without any ongoing monthly fees. The difference between Teamup and all the other offshoring options. So Team up helps you hire staff directly. No middleman. You work directly with your new hire in the Philippines. Hire the person, not the company. Guys, gals, gang. Here's just a few reasons to hire directly. You have access to higher level talent. Makes sense. You have complete control over team culture and training. They keep 100% of what you pay them and it's a lot more affordable for you. So you can retain your team for the long term. Team up can source accountants with experience working at US or Australian firms familiar with tools like Xerocubio and Dex also recruit specialist roles, team leaders, tax specialists, administrative assistants Thought experiment what if you had an executive assistant for the first time this tax season? Just just throwing it out there. What would they do? Start at that email video I did on the main channel recently. Get help with that stanky old inbox. I digress. Team up recruits these talented folks for a flat one time fee of 4,000 US American dollars. That's it. 4K one time. Somebody at Robert Half just did a spit take. Robert Half reference. We ever going to get Robert Half to sponsor this pod? Not anymore. And they can connect you with an affordable employer of record if you need help with payroll and compliance once you hire that person. Big fan of hiring in the Philippines. You know I did a bunch of that. Check out the link in the description to learn more about Team Up. A few tips from me. 33 thoughts 1. I'm of the opinion that unless you completely separate the team who is doing the seasonal tax work from the ongoing work, that inevitably the quality of your ongoing work is going to take a dive during busy season. The the thing I see when tax folks start doing recurring work is almost inevitably they say we we're going to do our best to keep it all up during tax season while we're also doing tax work. And on the one hand it's it's probably not realistic. On the other hand, it's not fair to your customers either because they're not going to pay you less during tax season. Like they're paying you the Same thing all 12 months and need to get a consistent level of service from you. Now if you're able to spread out the tax work where it's happening from February to September, maybe that's not a big deal and that's just kind of part of the ongoing workload. But I've seen a bunch of examples of folks saying we're going to keep up all the ongoing work during tax season. In fact, it sounds like this may even be something that your team has said before, but when you really get into the thick of it, it gets put on the back burner and then it gets caught up later. Now, in the context of your business, your great customers that you are most excited about are the ongoing business customers, the ones who are paying you a fixed monthly amount every single month. You don't want to jeopardize your relationship with your best customers so that you can get a few more $150 1040s out the door, right? Like that's, that's the risk of putting those people off, in my case, when I started our cast business and non negotiable in the beginning was the team that does this is going to be completely independent of tax work because my clients are going to have needs related to the cast business. I'm just going to call it the cast business. Going forward, my clients are going to have needs specific to the cast business that I have to be responsive to during our busier tax seasons. That's just how it's going to be. And I have to be as responsive to that stuff as I normally am the rest of the year. I can't tell them, sorry, I can't help you much right now because I'm filing tax returns for other people. That's just not like, that's not reasonable. So be sure you have the resources in place to be as hands on with that accounting cast client base even during your busiest seasons. Otherwise I think that can be a real trap. Second tip here, you're in a situation where you have an abundance of clients you could draw from, from the insurance business, from the tax business. What was the other thing? Oh, financial advising. I was in a similar situation where we had I think 800 small business clients that were already clients of ours when I started my cast business. So how do you decide where do I start? Like what clients should I serve first? Do I go out and find new clients? Do I just email all of our business clients and say, we do bookkeeping now this can be a tricky one, especially if you have stakeholders in other parts of the business who will happily tell people, hey, we do bookkeeping now. Just bring your stuff over here and we'll get you taken care of. But that person may not be the type of client that you want to serve. It's worth thinking ahead around how with your partners and the people that run these other businesses, what types of clients you're going to serve in your cast practice and what ones you won't. Because if over on the retail tax side they've got these fiber optic cable layers, but then they've also got auto body shops and you want to do one, but you don't want to do the other. But then you know, in the, the flyer that goes out for, you know, the tax practice, it says, hey, we now do bookkeeping that can create some friction with your partners in the other businesses. I definitely experienced that. To just fling the doors wide open and say, we'll now do bookkeeping for any, any client that these other companies serve. That's gonna be probably a Pretty broad, like wide swath of people in a rural setup like this too, you're gonna have a lot of folks, as you said, writing paper checks, folks who may not even have online access to their bank account. It's okay for you to put some restrictions on what are the qualifiers for us to be willing to do your bookkeeping work for you. The tricky thing when there's other partners involved is they may like project on you. Like, no, if you're going to do bookkeeping, you ought to do bookkeeping for all of our clients, which may not be what you want. And so if that's a conversation you haven't had yet, it's worth thinking through that with your partners and deciding who are the folks that we let into the bookkeeping business and who are the folks that we don't this episode is sponsored in part by Cloud Account and Staffing. I got another resume for you. An example of the super talented accountants in the Philippines that Cloud Account staffing will find for you bring to you to become valuable, valuable members of your team. How about a tax hire? Let's do a tax person today. This one's a CPA and a certified tax technician. That's a, that's actually a Philippines thing. Got their start in audit and you went to tax. Good for you as you should have two years of experience doing tax work for US individuals and companies. Prepared 1040s, 1065, 1120s, 1120s fixed assets. Communicated directly with clients to gather information. Conducted independent research on applicable, applicable tax stuff as needed. Experience with ProConnect Tax RC reports, Corby Tax Planning. Just a few years removed from school. Man, this is the type of person where I would try to sink my teeth into him super early. The hires we made in the Philippines were so, so good, like so capable. We had great luck with it. The way cloud accountant staffing works, they have a call with you, talk about your needs and then their recruiters on the ground in the Philippines will go find great applicants for your role. You decide if you want to interview them and you only pay anything. When you actually hire somebody, it is like win, win. You kind of don't have anything to lose because you're only going to cut a check when you've found somebody that you've fallen in love with that you want to be part of your team. To learn more about cloud account staffing and get some like real life resumes like this, check out the link in the show notes. This episode is sponsored in part by by UNCAT. My 2021 new tool of the year, man. It has just gotten better since then. We recently did a five minute demo of the latest cool new uncap features on my YouTube channel. If you're not familiar with UNCAT, it handles the uncategorized transaction problem. So basically you point uncat at any set of accounts in the client's chart of accounts. Anytime any transaction hits those accounts, like ask my accountant uncategorized, that sort of thing, it gets pulled into uncat and then on a notification schedule that you choose, like once a week your client gets an email notification, says I need you to provide some clarification on these transactions. They click a magic link in that email, don't have to log in or anything like that. It takes them straight into uncat and they provide whatever details you need. Now you can ask them to just give you a text description. You can ask them to try to pick what account it ought to go into to upload a receipt, to pick a class, to pick a location, and you can make any of those things mandatory. So just imagine if you set up some bank rules that put stuff like Amazon transactions sets them to automatically classified uncategorized. You could touch that client's books once a quarter and every single week your client's going to be getting notified of the transactions you need more info of without you even having to get into the accounting file. But wait, there's more. You can add as many client users to a company as you want. Let's say you got five people at the at the clients that have their own credit cards and you got to track all that stuff down every month. You can set all of the transactions specific to payment methods to go to specific users. But they recently rolled out customer quests. They can actually ask for any old thing, questions, documents, whatever via that same uncat experience. And they recently rolled out receipts. They will auto match receipts to transactions that are in the accounting ledger. So the client emails a receipt in, uploads one to uncat, SMS messages a receipt in and uncat will find the transaction that's associated with in ledger. All you gotta do is confirm the match. It'll actually push that receipt into QuickBooks Zero whatever you're using. Super cool tool and easy to start with. A single client like doesn't require changing a whole practice management system or something. You've actually got a free seven day trial. You don't even have to give them your card. Go to UNCAD.com, check that one out. Take it for a spin with your firm. Even to get comfortable with it really Cool tool that's uncat u n c a t like a kitty. But that's kind of the like passive approach to building this business is who do people send my way? Even though this feels counterintuitive, as you're kind of like on the ragged edge, right, Trying to change as quickly as you can while bringing in clients. And I mean, at this stage, let's be real, there's this element of like, ooh, this is my baby now, and I want it to be successful and I want the other people in these sort of adjacent businesses to be impressed and I want to grow it into this big cool thing. Like, those are all very natural feelings to have, especially as you have partners who are watching. As counterintuitive as this is, it is still better to go on the offensive when it comes to asking for referrals. And you do have a phenomenal in with all of these other related companies. But that doesn't mean that you ought to sit back and just see what they send you. I would proactively get an understanding of what types of clients the whole ecosystem is serving and proactively tell just those people, the very best people, hey, we do this stuff now that's giving you control over like cherry picking the very best types of work out of your existing client base rather than just taking anything and everything. And that'll make a massive difference when it comes to the quality of people that you work with, how profitable that whole thing is. It's not too dissimilar to like only relying on referrals. If you just kind of take whatever walks in the door, sometimes that's fine, but also sometimes that can, you can end up like collecting cheap work there because you're not really being selective. You're not deciding who's who's coming in and who isn't. At $400 to $600 a month. I get this is a small market and rural places like this, you can get professional services work unbelievably cheap. But at four to six hundred dollars a month, that's going to be really, really hard to run a successful practice that's doing also the tax work for all of these people. You also mentioned some CFO stuff. What I looked for, and this is getting into my third suggestion here. The most profitable thing I ever did in my accounting services business was all the stuff that wasn't accounting, bookkeeping and accounting and all that. The price to a degree is set because there's a lot of people that know how to do bookkeeping and even more People that think they know how to do bookkeeping. Right. And this has the effect of like anchoring the market value of bookkeeping to be kind of low. But if you can do more adjacent things around that bookkeeping service and be able to frame yourself more as like a accounting department in the box in a box, like a sort of back office for your clients, you, you sidestep the bookkeeping fee conversation, which bookkeeping itself is just a tough thing to make money on. And you can instead frame what you do through the lens of hey, we can take half the work off of Steve's plate here, the stuff that he's doing for you, or you're thinking about making another higher in your business, like what could we take off your plate? On the back office in my firm that looked like doing bill pay, it looked like cash planning for the owner, it looked like payroll, it looked like a little bit of invoicing and actually quite a lot of document management as we've talked about a couple weeks ago. And so I looked at these businesses and the various functions that they had admins doing. By and large these were, these were administrative types of folks. And you look at the skill sets of these people and through no fault of their own, they haven't really done that much of this stuff before. And given the market, they're probably doing it like in pretty manual methods. And the, the advantage that you have is that you do this for a whole bunch of different companies. So you know so much more about what it looks like to build out a tech stack to make a back office hum like to run that more efficiently. You understand the value of digital payments and getting cloud apps to talk to each other. When you're able to do that across 100 different businesses, you may not realize this, but you are able to set this up to work so much more efficiently than some random collection of people who have never done this before. In the next small business you take on. And this is where our cast work became really profitable when we could be the whole back office if we were just doing bookkeeping. I think just doing bookkeeping is a race to the bottom right now. But when we could come in and be an integrated part of the business, we also had the benefit of the business owner seeing us through the lens of FTEs where it's like, well if you didn't have us, we'd have to hire another part time person or you know, this person who I have doing more valuable work would have to come back and do some of this admin. And I don't want them to do that. You're charging 4 to $600 a month right now. So what do we got to do to double those fees? Think of it through the lens of who do I need to displace in my client's business? And it's not to say they're gonna can this person in most cases. There's gonna be plenty of other stuff this person can do. Assuming in this market they're paying an admin, say 16 bucks an hour, another $500 a month of work for you equates to only 31 hours in a month from an admin for the client. So this was a helpful calculation for me when I would talk with my clients, was to say, here's the cost for me to take this on for you, and here's the cost of half of this person's time or half of a new hypothetical person's time. The fully loaded cost with benefits and you having to manage that person. We sometimes forget how expensive people are, particularly when they're. When they're thinking accounting services. Like, you know, a $5,000 accounting engagement to support a 2 million, $3 million business. That may sound like a lot, but that's 60 grand a year. The fully loaded cost of someone at 60 grand a year. So their actual gross is, I don't know, 50, maybe even less than 50. Compare the technical capabilities of somebody like that to the collective technical capabilities of your firm. It is no comparison. Right. But as long as we stick to the services that are kind of getting commoditized, like tax prep, not tax advisory, but tax prep and bookkeeping, then it's really hard to get clients to see your fees through the lens of anything but that. So the more we can frame this through, like, hey, we're now an embedded part of your business. Like, you're actually outsourcing this part of what you do to us so you don't have to manage a team to do it. That change of perspective, like, puts your fees in a totally different lens. And when we're talking about numbers like $500 a month, man, you don't have to weasel your way in too much in that business to justify this is the same as paying an admin less than a week to come do some work for you. Me, your trusted advisor, who you already know, will do this work. Well, we'll come and do this for you. Or you can hire another admin to do one part time, week a month. Which would you rather have? They're going to pick you right now. Don't stop at just adding another 500amonth. There's a lot that you can do for folks. I started at a minimum in my cast practice of I think 400amonth. And in three years time we weren't really taking anything below like 1800amonth. And my practice started just doing bookkeeping. And by the end we wouldn't take just bookkeeping, we were taking that whole back office because we could frame that to be a way more profitable project. Now, big takeaways like what I see when I read this is somebody that's in transition, somebody that's aware of what they're enjoying and not enjoying, and has probably had some hard conversations to get onto a path of something they're going to be more passionate about. And you know what? Good for you. You're on that path now. You're hanging out in places like this where we're all learning and picking up cool little new things every single day. So I think you're gonna be just fine. If you got any relevant experience to this person's story, drop it in the comments. Share a little bit of wisdom down there if you wanna get roasted anonymously links down in the show notes. Check it out and I'll see you in the next one.