363 Building a BETTER Checklist in your Accounting Firm

Ugh. Just about the most boring thing imaginable. A checklist, really? You think you can harness the magic that is my abilities, my decades of experience in a checklist? Think again, bad boy. I just want to. I want to challenge you. Open your mind just a bit. Just crack it open just a wee sliver, so that today, quite possibly, you might find a small source of inspiration. A dash of. Oh, yeah, I do have that problem. And three quarters of a tablespoon of gosh dang it. Jason just gave me another thing to do in my firm. Come on in. Let's talk checklists. Okay, I. I shared recently I've been going through the Checklist Manifesto. Highly recommend the book. Um, I highly recommend you go through it. But then I also highly recommend you go through it with your team. One of the coolest things I ever did in my firm was, like, this little quasi book club. In fact, we may even do a standalone episode on how to book club. This is one of those things that on the outside seems really dumb, kind of pointless, like, really in 2024. And I'm like. I'm like, new ag automate, whatever you can. Guy through and through, right? But on the outside, it's this really kind of dumb analog concept where when you bring it to your team, they're gonna be, like, not seeing it, buddy. No, thanks. And it's gonna take, like. You know why I'm really excited about this right now is the book. I just went through the book. It's gonna take that context, probably to get the rest of your team on board with it as well. But, man, super cool book. Some amazing stories of how, like, medical systems, a whole bunch of examples, lean really hard into checklists and. And how adoption of checklists and arguably one of the most resistant applications you could imagine a doctor working on human bodies and everything they got going on with them. An understandably resistant use case for checklists actually led to some unbelievable improvements in outcomes. Huge reduction in issues coming up during surgery, like, literally tying it down to a big reduction in deaths from surgery. Some examples around infections, different scenarios where they rolled out these checklists and ran up against every type of resistance that you would reasonably expect to bump up against a big one being this sort of hero complex that, let's just say doctors, because that feels less personal right now. We'll start there. Think about the hero complex a surgeon has who understands the body from. From tip to toe and are. I've kind of historically been framed almost as like, this sort of maverick, right? Where they can. They can get anything done, they can kind of work miracles. It's arguably the least like the last person you could imagine getting excited about a checklist. Right. Another example from the book, sort of the other end of the spectrum, when you do something really big that involves a ton of people. So building a skyscraper, for example, where you have 400 people on site every sing, how do you ensure that all those people are working in the same direction? In the end you're actually going to have a building that doesn't fall over. It all boils back to a couple of things. One, I think everybody's domain of expertise is, is more complex than it looks like on the exterior is actually a really funny trend with AI right now. How everyone's like, oh yeah, is going to replace all that stuff over there, but it won't replace what I do because it's so, it's so nuanced, you know, in a way that nobody else's work is. The reality is everybody's work is as nuanced. We all have that kind of external naivety, naivete. We don't know enough to know how hard it is. And everyone has inside them kind of this notion that like, no, no, no, what I, what I do cannot be distilled to a checklist. But if we instead accept the reality that we're all flawed. And in the example they come back to a lot is pilots and aviation stuff, it's drilled into them very, very early on that you are imperfect. And ultimately your job is to operate in a machine like manner and root out all the possible sources of imperfection. You know all this stuff, you know how to fly the plane, you know how to do all this stuff. More important is how do we decrease the likelihood of mistakes. And all these analogies tie back very well, I think, to accountants. Whether you're a tax bro, whether you're a cfo, whether you're in charge of making sure the financial statements go out the door correctly. Everybody is going to make mistakes. And it's interesting, different professions are more realistic about that fact than others. And in our profession, the filter for who's allowed to bless that thing before it goes out the door, unfortunately is usually years experience. And while that is a reasonably good proxy of how good of a job are they going to do at that, the reality is as long as it is a human, there's gonna be mistakes. Sometimes really obvious mistakes, embarrassing mistakes that you then have to come back from. But we're not doctors for whom making mistakes can be people dying in surgery due to an accident. They went through a bunch of statistics in the book where there's actually a huge percentage of surgeries have mistakes and have skipped steps that increase risk. Like, we're talking tens of percentages. Like, and mistakes happen all the time. And it's actually really interesting. I would hazard a guess that the same applies for us. There's actually a pretty big percentage of work that goes out the door with mistakes. And what we do is a little bit more forgiving. I would argue that most tax returns that go out the door with mistakes, those mistakes are never caught. Like, they're not most. The most mistakes are not going to trigger an audit or a notice. Some are. And it's funny, those things actually get a little bit more attention from us because we're like, oh, well, they sent us all these 1099s, like, we're not reporting that much income. We gotta do something here so that you don't then get that notice. But most of the things that would go out the door in air are not gonna trigger a notice. And the client doesn't know what to look at to know if that is a mistake. Great. Right. So even if it is a thing that, you know, same for financial statements, because lord knows the client doesn't know how to make sense of that. Or didn't even open your email to begin with. That was, that was a little too close to home. I'm sorry. All that being said, everybody's gonna make mistakes. Like, even if you have a preparer or reviewer, like, as long as they are human, they will make mistakes. But when we think about checklists, oftentimes they can be kind of this inhuman thing that's almost insulting to put in front of an expert. And we think of all the bad versions of checklists because there are absolutely bad, like, wrong ways to do it. So checklists being set up to cover everything imaginable, like, way too long. Right. Way too time consuming. Maybe there's a version of that longer list that an admin does or an AI does. Or interestingly, like, we're. We are more willing to put that responsibility onto somebody that's not perceived as quite as much of an expert. And a common theme in the book, actually is when you bring this idea to someone universally, people will say, I honestly can't see how this helps me, but I can see how it helps everybody else. So, yeah, let's do it. And then they actually get into it and they track the before and the after and they actually realize, oh, like going through this checklist, having this extra conversation it actually does save your bacon pretty frequently. But coming into it, we all have this notion that I think like it's just part of the human condition. We think we are more perfect than we actually are because we don't see our own mistakes. Because for whatever reason, for most of us, it's easier to see the mistakes of other people than those of our own. And this is how oftentimes, begrudgingly, people will baby step into a checklist. This is not for them, it's for everybody else around them. This episode is sponsored in part by Live Flow. A lot of folks using the new Live Flow dashboard features for all sorts of stuff. Among them actual internal dashboards that are connected to your clients ledgers. What? Excuse me? So normally you think about a dashboard being like a client facing thing where they can get some sort of insights, make decisions based on it, but you can also do the same thing for your internal bookkeeping team. Maybe you are monitoring bookkeeping that is kind of led by the client, or maybe you're using it for quality assurance, like a single dashboard to see the station status of that company's books because Live Flow will keep pulling in live data coming in from the ledger every single day. Or alternatively, you create that dashboard as a snapshot, more like a work paper that is like a view of it at a point in time. I know firms that use Live Flow for managing the month end closes for all of their clients because it's just more efficient than having to click around inside the ledger itself and like generate PDF work papers, all that, right? Interesting use case for dashboards. Learn more about Lifelo. Check out the link down in the show notes. This episode is sponsored in part by Team Up Boy. Team up helps you find talented offshore accounts in the Philippines that you can hire directly, add them to your team just like anybody else that you would hire remotely. I was talking with somebody the other day who recently launched a solo firm. They're growing, they kind of want to hire, but the cost of making that first hire feels really burdensome. What do you think I told them? Hire offshore whether the cost is burdensome or not. That's where I'd start. In fact, when I drafted my first 20 employees in that podcast episode a couple months ago, first two or three were all offshore. Talk with another firm owner who bought a firm from a partner who's in the process of phasing out along with another one of their biggest producers. And she's like, I gotta backfill this, I gotta hire all this work somehow. The former managing partner and their most senior producer. What do I do? I'm like, you're rebuilding a completely different firm from scratch, basically. And the way that I would do it, the way that I would keep getting the work done, I would hire onshore people to be client facing. But I'd start making offshore hires now because I can find them quick and they're really stinking good. That was my experience anyways, for the last five hires I made in my firm were offshore. Obvious cost benefits. But you know what, they're capable of doing just about anything that anybody in your firm can do. I'd encourage you to learn more, ask the embarrassing questions, get on a call with Team Up. Just learn. Because it's increasingly becoming the norm. I'm hearing from people almost every, honestly, almost every week now that are like, you convinced me I'm doing it. I'm excited about it. And the only two offshore like placement groups we work with on this podcast, super, super vetted, talked with a lot of people that were blown away by the good experience they had. So if you're thinking about it, check out Team up link down in the show notes now. The right way to do a checklist is short, simple, to the point, quick, like 10 items or less. There's a whole art form to getting to the most mission critical things that ought to be on that checklist. So for example, pilots and airplanes, they have, you know, digital versions of these checklists now, but they also have a backup notebook. And we've probably all seen the person in our professional environment that is three ring binder person, where it's like just page after page of Microsoft Word screenshot and then a little Times New Roman 12 point font, just until the end of time. Every single selection that you need to make. You think that's what the notebooks look like in a 737. They sure don't. It is like, I think it's even shorter than 10, six items or less. Basically, you have the recurring checklists that you use a bunch. So every single time before you taxi to the Runway, every single time before, before you like pull onto the Runway to take off, every single time before you approach a Runway to land, you have the checklist that you use every single time. But then most of the book is checklists for all these different scenarios. A specific warning light coming on, a landing gear not coming down, engine failure, something like that. In fact, they went through the story of whatever his name is, Sully, the, the guy that put the plane in the Hudson. It crashed and everybody, everybody survived, basically. They took this plane off, it had at least three bird strikes into both engines. It was a two engine airplane and they didn't have enough airspeed basically to get back to, to the airport. And so very quickly. And if you've ever heard the, the cockpit audio, it's like there's virtually nothing happening, like very quiet, next to no communication, basically solely who is the co pilot says it's my, you know, my plane or something like that. And the co pilot confirms and the copilot immediately is digging into checklists. Like that's what they go straight to as procedure. It's not, let me, you know, through my swashbuckling ways, let me figure out what I got to do. Like no, it's immediately into the handbook. And so they had basically three minutes of time where they could glide the plane and had some somehow figure out a, a plan in that time frame. So the first thing he goes to is the engine failure checklist. He goes through that for both engines to try to restore power to either engine. If he can get either one back up, then they'll be fine and they can get back to a Runway that doesn't work. So he goes to a checklist for preparing for a water landing. They land and then there's a whole other checklist of something to do with like preventing you know, fires and issues specific to a water landing. But the pilot's job isn't like he's not sitting there smoking cigarettes and there's like a really cool guy that can do anything. In fact all the press with solely afterwards. Like everything he's doing is deflecting to the crew and to the process. And it's like we literally just like our job is to follow the checklist to a T. And if you think about the way that accounting firms are run today, they're a little more swashbuckling like flying planes were in, you know, the 60s, 70s and 80s. And they got some interesting stories there too where in the case of flight accidents, oftentimes there was a lack of following procedure. You would have similar to you know, a surgeon speaking over a nurse or something like that who like doesn't have, doesn't have their respect in the context of working on a patient. They're like, no, no, we just skip through that stuff. Doesn't matter. That sort of old school, more swashbuckling approach arguably is how we run our small firms today. Right. And I, I think for most of us it's just because we don't know how. Like how, how do you actually Create a version of a checklist that is helpful here. So interesting stuff from the book. Two different types of checklists that they talk about. One is called a DO D o confirm checklist. That means you do all the stuff that you normally do, but then you only come back to the checklist to go through it and make sure that you did all of the things that you were supposed to do. Interestingly here they talk about checklists. In my mind, the function of a checklist is to check every single box, but in most cases, they're not actually doing that. And this may be kind of one misconception that stems from the nature of how our tools work right now is if I build a checklist into my practice management system, it means somebody's going through and checking off every single one that they did all of those things. That's not necessarily something that you have to do every time. You certainly could, or it could even be in aggregate. Yes. I reviewed this checklist, like a single check or something like that. So it doesn't necessarily have to be that linear, like physically checking through a list. So first checklist type was do confirm. Second checklist type was read do. And that's one where it's so important that you follow it just the right way that you read that full item, you do it, and then you check that, and then you read the full item, you do it, and then you check that. In most cases, I think what we would probably use is more akin to a do confirm checklist. Now, maybe there's something where it's very mission critical that the steps are followed just right, done one by one. Like, you know, making a tax payment on the IRS website for a client. That's something where somebody has to be really careful that they're doing each step right. But if we. If we think about all the different things that we do in our accounting firm, where would a checklist be appropriate? Not to, like, nail down every single fiddly little detail and not to squeeze out the value of expertise and your ability to read between the lines and all that stuff. But to avoid the painful mistakes, the mistakes that are gonna kill somebody, cost somebody a bunch of tax, create some big issue. Right. So a few examples of where a checklist totally makes sense. Assembling a tax return, delivering a set of financial statements, preparing for a meeting. A few weeks back, we did some stuff around, like how to make meetings more systematized. Meetings need to have a certain type which standardizes the prep before a meeting and what happens after a meeting for a Meeting like that, if anybody's doing prep for it. Having a checklist to ensure everything's ready before you go, Absolutely worthwhile. And then some more obvious ones. Reviewing a set of financial statements, reviewing a tax return, identifying who's responsible to do that. Checklist. Is there a checklist that happens at the end of the prep process? Is it, Is there one that happens in detail review versus technical review? If those are two separate things in your firm? Just like, you know, thinking in a more detailed way about one of these, let's pull one of these examples. Uh, let's say reviewing a set of financial statements. So a super detailed version of this is like telling you how to navigate every single account that you ought to look into. But is that necessary? Like, what's, what's the 20% version of this that will capture 80% of the important mistakes at the end of the day? Honestly, most of the time I don't really care that much if an expense like got posted to the wrong expense account. Sometimes that'll matter if like one's deductible or partially deductible or something like that, but most of the time it doesn't. So what are the biggies that we need to be looking out for here? Well, probably the stuff that's more like drivers of business decisions. So that may be like payroll expense accounts, probably the cash accounts, ensuring that the financials themselves don't have any errors and were like, printed in the correct format. Like delete total assets equal to total liabilities plus equity. Is it a cash basis report? Like, that's probably the most common one where somebody, maybe you rerun it last minute and you just forget to set the toggle right. And you don't really do a last review after you rerun that report and it's an accrual report and it kind of confuses the client and just kind of creates an embarrassing conversation you'd rather avoid. You can make a big old long list, and maybe it's helpful to make a big old long list of like 20 to, you know, 50 different things, but then abstract from that. Are there simple checks that you could make that would resolve maybe a number of those things, or just what are the spiciest ones, what are going to create actual problems in a subsequent tax filing and how you advise the client that sort of thing? It doesn't mean that there isn't a place in certain situations for more detailed checklists, but what we're trying to do is like, avoid the most common human errors. And it's, it's honestly going to be probably pretty rudimentary stuff like, did you update the project status so that we know it's actually gone out? Did somebody actually send it to the client, upload it to their portal, whatever that step is, Lock the period in the accounting file. Oh, there's a good one, right? This episode is sponsored in part by Client Hub. Recently did my practice management system recommendations for 2025. Guess who was on the list. Better believe Client Hub was there. Kleinhub. They've got a four step framework for picking your next practice management system. The four Cs. We're not talking about no diamonds. The third C you're talking about today. Clarity. Because there's massive value in how clear and approachable that platform is. Client Hub is nice. It's actually a nice place to be. You know, some software platforms you kind of vibe with, you get in, you're like, I can imagine spending time here. Client Hub is designed to make everything as simple as possible for the firm owner, their clients and their team. Well organized, super clean, clear layout features are powerful, yet simple. Means you spend less time having to support your team on questions, your clients on questions. Oh, ever had to train a thousand clients on a new client portal? It's not good, that Clarity. It is delivered by Client Hub. If that sounds like something you may be in the market for, check out the link down in the show notes. This episode is sponsored in part by Ignition. Come, come, come, come, come. Here's the thing. Here's the thing about client billing. You can't bill for the time you spend billing. You can't. You can't. It is pure waste. And we're bad at billing because it's, it's icky. You let things slide. You don't get paid. You waste time. Waste time chasing people for money. That's not what I did. I would just. I didn't want to waste time chasing them. And so I would just. I just eat it. Don't do that. This is where Ignition comes in. The leading revenue generation platform for accounts and professional services. When I was running my firm, Ignition wiped out our ar, it's true. And significantly reduced the time spent billing clients. Saving our partners over a thousand hours in the first year because they didn't have to bill all that stuff manually. Man with the condition. We won more business with impressive online proposals. No more hustling, hustle and PDFs and Word docs. We automatically pulled payment upfront or at the end of a job when it was done. No more dial in for dollars we transitioned our firm to more recurring revenue and better managed scope creep. No more leaving money on the table. Ignition is making thousands of firms more money and genuinely made us more profitable. Check out over 7,000 of the smartest businesses run on ignition@ignition app.com put a link in the show notes. Now, if you think about, you know, compare what we do to surgery and all the different things that somebody can rock up at an emergency room with, like all the different potential issues. There's, there's something like, I don't know if it's the World Health Organized Organization or who. It was they'd classified like, you know, 1250 different types of surgeries that surgeons are regularly asked to do. And similarly, inside of an accounting firm, like, there's so many different things that we're regularly asked to do. Maybe the notion of building something out for all those is hard, but if we go back to the aviation example, you're going to have your general checklists that you use a lot that cover like the most common everyday things, but then you're gonna have checklists for the less frequent stuff. You know, the handoff to like an issue comes up. Maybe this thing that you don't do very frequently. And honestly, those are the riskier things because you don't have the same level of muscle memory. Or maybe it's a team member doing that thing for the very first time. That checklist is even more valuable for them because it's not the sort of thing that you just cruise through and don't even think about what you're doing. Right. Kind of do it in your sleep. Now, like many things in our accounting firm, there's probably value in having this and it will probably save us from, from making some mistakes. But what it gives us is something that's improvable. So a mistake does slip through, something does happen, something ugly. Who do we go back to then? Because if we're fully reliant just on humans doing things perfectly every single time, like, that's, that's just, that's building a business around humans rather than building a business around systems. And the reality is you have to do both. But the more we can lean into systems, the more that's an asset of your business that you can plug other people into and make them productive right away. But when something comes up, now we've got something that can actually serve as like a feedback loop to better inform how that checklist ought to instruct people. I would say this is not to be confused with SOPs. SOPs to me have to get pretty granular. It's like, what are the things specific to how we deliver this service for a specific client? Kind of two levels of SOPs. What are the exceptions? And how we deliver the service for this client. But then more generally for a, you know, a bookkeeping to engagement, how do we do that more end to end for a total newbie coming into the firm? That is the value of SOPs to me, showing people how to do that work. But the issue with SOPs is eventually you do that a couple of times, you never go back to the SOP again. And so the checklist is what is like the, what are the flight checks that ensure that we don't get into trouble here? The checklists are probably the things that show up in the recurring project in your practice management system to either say, did you review this checklist? Or here's the actual items. I mean, if you've ever worked with your team on sops, you have had the frustration before of we went through all the work of building out this super detailed sop. How did somebody make a mistake? Well, it's because the SOP's so long and super detailed. They don't go through it every single time. Cause they feel like they've got the muscle memory. And that's like, that's kind of the friction people always bunk, bump, bump up against with SOPs. I mean, take this back to the aviation analogy. Can you fly a 737 on off a checklist? No. You absolutely can. It requires a whole bunch more skill and a whole bunch more training than that. Right. Like you go through a bunch of training on specific aircraft to ever be able to even fly that aircraft. The checklist is not the replacement of that, that, that training and that need for expertise. The checklist is how you come through afterwards and dodge the most painful mistakes you could make. And so for any given context of, you know, say, preparing a tax return, what are the most common things that come up? Payments not matching what that tax jurisdiction had on file. So like in my firm, Oregon had a really good portal where you could log in and get client access and see their payment details for that period. And it wasn't always right. Sometimes the state would apply payments differently than we wanted them to be applied, but that if it was wrong, would always trigger a notice which the perception of the client is like, that's a scary thing, potentially an error, potentially some kind of issue, whether it's our fault or not. And you think about the percentage of issues that come up from filing a tax return. That's one of the biggest ones. And so that's probably just a single checklist item that says, know, confirm Oregon Payments with Department of Revenue online. Those are the sort of, like, best bang for your buck ones that you're looking for that can kind of bubble up to the top. The 20% of things that cause 80% of the issues. Right. Hardest thing here, as you may suspect, is going to be buy in. And you may already be thinking, like, is this actually, like, worthwhile for me? But then if you think about the most common mistakes, the most common issues you bump into with clients, the hard phone calls that you've had to make, if you can imagine a set of checks that would have prevented those, you're going to look at everybody else in your firm and you're going to say, yeah, like, if I had this, this person wouldn't have done this. This person wouldn't have done that. I would actually argue maybe the even bigger value of checklists is the mistakes that you never see. Like, I'm. I'm thankful that I'm not a surgeon. Like, if I accidentally drop a Junior Mint into a patient or while I'm operating on them and that creates some sort of medical issue down the road, that's a big issue, right? If I make a mistake in most of the accounting work that I do, it can be a big issue. But I would argue actually most of them, nobody ever knows about, and they're not a big deal in the end. And as, like, pedantic as that can feel and how it can feel, you know, like a waste of time. Arguably, there is no more important system in an accounting firm than your quality assurance system, because that's ultimately the filter that dictates the quality of the stuff that goes out the door. And if you are a true practitioner, as I would say I was, can I say am, I don't know then what you pride yourself most in at the end of the day is probably the quality of the work, even though that, like, is largely disconnected from how profitable business you can run. And that sort of thing we pride ourselves in, did we save them as much tax as we possibly could? Was that financial statement, like, perfect and technically correct in every way? Was the advice I gave them super sound. Are they going to be able to take that execute on it and, you know, enable something for themselves personally or in their business? That's how we generally assess ourselves. And the only thing that can ensure everything goes out the door at, like, the level of quality it needs to is a solid QA system. And in a business that's largely dependent on just all the people having the conversations and making the inputs and all that stuff, a QA system is largely just about the only real asset you can build inside of an accounting firm. Really smart people that come to your firm can contribute to it. And if they leave that, like, their legacy is captured in the contributions they made to that quality assurance system. I wish this was something that was a little more centralized, a little more shared, where we had really good versions of this that we could pull off the shelf. Unfortunately, it's not really the case. But oftentimes staff will make mistakes. I'll say staff, we make mistakes too. But let's just talk about the rest of your team. Oftentimes the team will make mistakes. And I don't want to make it sound like everybody's got the same level of attention to detail because that's just a really hard thing in the accounting perfection one, assessing somebody's quote, unquote attention to detail beforehand, like before you hire them, but also to the fact that, you know, you've worked with people, you know, the average person does not have sufficient attention to detail to be successful. And in accounting. And folks fall on a, on a huge spectrum of how consistently they will do a given process. But wouldn't it be nice if there was a way where we could kind of raise the bar for everybody, acknowledge the reality that we are all going to make mistakes and maybe like, hopefully depersonalize this just a little bit, rather than somebody making a mistake and being like, hey, Steve, don't make that mistake next time? Like, that's not like, what are you doing? Scaring them into not making the same mistake next time so they don't lose their job. This feels a little more constructive to me than that. It also gives Steve the opportunity to speak into like, hey, how can we improve upon this checklist so that we don't do that same thing again, don't make that same mistake. Actually think like in a world where everybody's shouting at you to create more SOPs. I actually think oftentimes what we really need, which is way lower friction than an sop, is a checklist. Something that hits on the biggest exposures to your business within a given process so that we tick those boxes without requiring somebody to go like, elbows deep into some, you know, SOP that they've seen 100 times. Also, like, when you're ultimately going to be blocked by adoption and getting people to use it, the easier you can make it, the more concise you can make it, the more realistic it is that somebody's actually going to pull that thing in every time they're doing a process right. Highly recommend Checklist Manifesto. I'm a big audible guy. Audiobooks, walking, running, working out, that sort of thing. Obviously if you're hanging here, you probably passively listen to things even if you don't run a team. Highly like highly recommend you check this book out. It kind of opened my mind to a bunch of applications in my own life where this would be valuable and the stuff we do with the team now. And the nice thing is, is it like totally addresses head on why everybody thinks this is dumb. Like why that's a completely natural reaction to have. But then it pulls in examples from, I would argue professions that are maybe a lot sexier and feel a lot more mavericky than what we do to say like, yeah, I could totally see how they would be blocked by that. But if they found great success not being blocked by that, surely there's a version of this that could work for me. That was ultimately, ultimately my takeaway from that book. Encourage you to go check it out. That's the Checklist Manifesto. You got any wisdom on this checklist in general where they bump up against SOPs for you would love to see that stuff in the comments and thanks for coming and hanging.