385 The Best Way To DOUBLE Profits In Your Firm

Let's be real, let's not big brain this any more than we need to. The problem, like the solution for most of the problems in your accounting firm, not most all, is having a more profitable firm. I don't want to sound like Scrooge McDuck here, okay? But work that pays me better, man, that lets me get off to the golf course. Yeah, take that. Take that golf course. People whose feelings I hurt in the past. Get to the golf course, see my kids and be on a first name basis with them for the first time. Have the power to say no to clients and not have to take in work that I don't really want. Doesn't that sound nice? Well, it's all unlocked by just running a more profitable firm. And there's various different ways that we can do this, but some, some are juicier than others. Today we're talking through a few different strategies. Also some commentary from social media on each strategy. A strategy that I want to dig into. So come on in. When you leave today, let me tell you, you're going to be a changed person. Changed. It's going to happen. We got this. All right. I posted this on Social last week and I wanted to go through some of the responses because I think it's an interesting discussion. It was a poll that said three ways to double the profits in your firm. One, double your work hours. Two 2X your staff count and client load. Or three, increase prices by 35%. All right. About 80% of folks went with increasing prices by 35%. And it didn't take long until somebody on Twitter fell into the trap that I kind of expected. 35 price increase won't double my bottom line. I might slightly reduce the hours worked though, which would be nice. That'd be a win. Okay, where did I pull that 35% from a 35% price increase, doubling your firm's profit, that's like the average margin of a small firm is 35%. I know we're super smart and stuff, and I don't know that. That I don't think this is what this person was saying. Oftentimes we forget we don't have to double prices to double profit. It's much, much less than that. And if you double profit, I mean that, what are you going to do with that? You literally work half as much as you do right now. That's why I always kind of come back to this as being the North Star. I believe what this commenter was, was getting at is, well, it's very easy to like flex and be like, no, I run an incredibly high margin small accounting firm like you can run. So let's just talk numbers. Let's say you run a $300,000 top line firm that makes 100 grand a year, you're running 66% margins. Buster. Here's the problem is somebody that can run a $300,000 firm and make 200k, at the end of the day, you can go to a whole lot of firms if you are that person and make a lot more than 200k under somebody else's employee. And so we don't factor in like the value of us, like what you're capable of into this sort of margin in our business. And what I think that keeps us from doing is making investments in the business itself and the ability of the business to make money independent of you, which is ultimately the goal. The because you, you don't want a job, you left your job to do your own thing. So don't create a job. What I want to invest in is like, how do I get this thing to make money with me providing fewer inputs to it. So if you run a small firm and you're like, well what, like ultimately, what does that mean my margin is? And the example I just gave the whole 300,000 and you're making 200 grand a year, I would argue your margin is nothing like you're basically taking, you know, 200k and pay. But if I'm going to come in and buy your firm, I'm probably not going to make any money on that work because I'm going to have to hire somebody to do everything that you're doing. Right. And they're not going to cost much less than 200 grand unless I've got fundamentally better systems and I can sort of descale the work that you're doing down to a less costly level, which is 100% a thing like the different skill levels firms use to do the same work. There's a massive spectrum there. But I think us small firm owners, we can often do this and say like, no, I run a super high margin firm, but it's a one partner shop and that's because you're working your buns off and you can't find anybody else that will actually do that work. But if that's a $5 million firm, the answer isn't for the owner to do more work. Right. And I mean this is an argument to me of like, why prices are so important is it is admittedly hard to like, it's hard to build the business itself in a way that makes money on its own without a bunch of inputs from you. But price increases, don't care. That's making the work that you do more profitable. And the rest of your team across the board. Another comment that I got here, I'd love to 2x my prices, but it's never going to happen in my market. My brothers and sisters in accounting in 2024, if the clients you serve and the staff that you employ are subject to your market, you got to realize that's a decision, that's a choice. I'm not going to say it's a bad choice. I think local firms are actually rad. Like maybe this is me shooting videos in a garage for two years speaking, but my preference is actually like in office work, like I just enjoy being around other human beings. It's not that I don't like my kids, it's mainly my wife. And so running a, running a local firm, it's cool. I like to, to come into the office and do all of that. Being able to serve clients locally, I know they appreciate that. Like if I can, if I could walk across the street to my account, like that'd be super cool. You, you just gotta acknowledge the trade offs that come with that. And so if you are at the ceiling of what's possible within that specific market, then you either gotta kind of readdress what really is the ceiling. Because I think oftentimes we falsely believe that a plateau is a ceiling. I mean, I would, if I may be so bold, I think that I have defined the ceiling of like what a creator business in our vertical can look like. But then I think we actually continue to like redefine what that ceiling is. And so you can hit a plateau for sure. And in my case, for, for my business, a plateau was the brands in our space don't have influencer marketing budgets. And so we actually have to educate them on the value of what we do and why it's, it's a better ROI than all of their other marketing opportunities for certain types of brands, not for everyone. And so we plateaued when they were like, yeah, no, we usually just throw a few bones to like firm owners who can do a quick little thing for us. That's not what I do. Like the production value, everything that we do, the level of trust that we have, it's way beyond that. Right. So we hit that plateau but then we figured out how to overcome it. What feels like a ceiling is actually a plateau. So there may still be more that you can do within your market, but don't be a victim to that. If you don't like that, rip that band aid off. Start working with clients around the world, Start employing people around the world. Or if you love working in office, work with people in office and serve clients around the world. It ought to go without saying, but it's a choice. And back when we were doing roast to firms, honestly that was one of the most common things that you would see is a great emphasis on here's the market and what the market will allow for and how I run my firm. And you certainly can just run a firm within a market. Just know there's a ton of trade offs to doing that right now. One person, and I'm only going to call this out because I think it's a trap that can trick us into not doing the right thing. They said, and it's because this is Twitter. They said 2x clients and, and automate. Yeah buddy, just keep, just keep magically automating that work away and adding clients. Problem solved. Just keep doing like this recursive thing to where the work never gets bigger, but you just keep adding and adding clients. If this were possible, we would have seen a productized accounting solution like a scale factor or a bench or something like that, you know, go to the moon. But because they haven't figured it out yet, I would hazard a guess to think that you probably will not. It's not you. I'm just saying the seed of wisdom there is in this comment is, but don't you kind of think that sometimes, right? Maybe not to that degree, but you're like, huh, this new practice management system is pretty juicy. I bet it's gonna save us some time on getting more work done so we actually can serve the people who we served last year when we were over capacity. Because I think we got the tech worked out now, so we don't need to let any of them go. We don't need to increase prices. In fact, I would feel bad increasing prices because we were so over capacity that we didn't take very good care of them. This is that one hitting a little too close to home. There's a version of this, this is the extreme version, but there's a version of this where we can trick ourselves into thinking like, oh yeah, no, our, we're going to workflow our way out of this. But it's worth acknowledging one, that we are drawn to workflow much more than we are drawn to having hard conversations. And so that is our natural state. It's why I can make tech videos. And those are always like, it's always the most viewed content because there's this element of fomo and it's fun, honestly, it's more fun for me. And then there's the medicine people actually need. Nobody cares about that stuff. They don't want to hear it. In fact, most of us already know it. You get out of bed and you know exactly what we need to do. But workflow is a lot more fun, so that's worth being aware of. But also, your workflow is entirely, and like your cost structure is entirely separate from what people will pay you. People don't give a hoot what your cost structure is or how the sausage gets made. People assign a value to what you do for them based on their perception of your expertise and what you can do specifically for their business that ultimately dictates what they will pay you. Not have you automated it or not? I could automate everything. Let's say you could automate everything behind the scenes. Does that mean your price should go to zero? No. If everybody else that looks and acts like you as an accounting firm automates their stuff and they reduce their prices to zero, then you don't have a choice. But ultimately, how we hold ourselves out externally, that has absolutely nothing to do with what it costs to get that work done. There's going to be times where like maybe profits getting tight force you to do something uncomfortable. But I would argue, if that's possible, it's something you should have already done. So don't let you. Don't. Don't trick yourself into thinking, well, let's see, I could, I could talk to this client that we're way over budget on, or I could trust that this new tax workflow tool we found will actually solve that problem and make it more profitable. Treat them as two different things. What's the value of the work that you're doing for somebody? There's going to be a lot of people out there who you can't serve profitably. Don't try to either, because they're super disorganized. They're not in your niche. Maybe they're not capable of using the tools that you use to serve your clients. And I'm not an advocate of like cutting loose people that can't use digital tools. But if somebody's coming in the door and they can't use that, probably don't start. But don't, don't conflate the value of what you do for somebody with how the work gets done. How the sausage gets made. This episode is sponsored in part by Teamup who helps you hire talented Filipino accountants directly. Let me just run you through what they did in the last week. I think you'll be impressed. Just kicked off two new recruiterments looking for a senior tax accountant and a staff level accountant. Both for firms who are returning to team up for more hires. MO hires Active projects they've got in the works. Man. I got access to the mainframe here. Not really. They send me a weekly report now they've got 23 active projects going. Just over 50% of those are with new firms. The rest are with with firms who are coming back for more hires. And they've got five new hires that are kind of in the early stages. Pre recruiting. The positions executive assistant, senior tax accountant, senior accountant, senior tax account and accountant. For those five are firms who are coming back to team up to do another hire. And you know what that means. Means they didn't regret it the first time. You know, I mean I know I said it like that. Learn more about Team Up. Check out the link down in the show notes. This episode is sponsored in part by True Prep. True Prep is like a cool almost like a chat GPT like experience for tax firms that lets you query your actual client tax data to be like I don't know we're gonna do some tax planning. Show me, show me every 1040 that had over 5000 in tax penalties last year. Like you can literally do that returns the whole list. That'll even let you drill into the detail. Does some other cool stuff now too like basic tax research. Like they've built IRS publications some background information into the platform. Client asks a quick question you wanted to draft a little memo like draft response to the client. It's a great starting point. Also they've even got like a very basic kind of built in year over year projection tool now. So let's say your W2 is going to double but your withholdings won't. Like what will that look like year over year? True Prep's even getting into stuff like that. It's the closest thing to like an open ended chat resource for your tax firm. Very cool. Worth checking out. Learn more about True Prep at the link down the show notes Benkins and I think Ben's been listens to this. I'm. I'm curious other people's take on this. He said curious if this poll is meant for everyone or more targeted at old school slash legacy firms. We've done some competitive benchmarking in our niche and we're already priced at the top of the market. Yes, the math works on a 35% increase, but I feel like retention would plummet. We had this conversation a bit with Brandon hall who came on the podcast and he was like, I'm not that interested in the pricing conversation. I'm interested in scale. And I'm like, what do you mean you see what people charge for work. What do you mean you're not interested in the pricing conversation? And he said that you get to a point where it's like your pricing is basically what the market will allow. And, and at that point where you ought to invest is in making more sausages, not making better sausages. And I don't come down hard enough on this to like be fully convinced of one side or the other. Cause I think both are true. But let me make a counter argument to that. Acknowledging that I'm super biased because I have been red pilled to the power of being perceived as a thought leader and being perceived as like one of one for a specific type of person. I think in my opinion, as evidenced by, you know, the biggest brain thought leaders, your Bill Campbell's, your Tony Robbins, your Tim Ferriss, I don't think that there is a ceiling on how valuable someone could perceive your time to be. What do you think Alex Hermosi makes for coming out and doing any sort of talk? I know about a year ago it started at 100k like that you could, to have a conversation like you at least had to be there. And to bring it back to my example of like what I do in the accounting space, you know, what we charge for sponsorships that hit a ceiling really, really fast and we're in like 5x what that ceiling was. Now ultimately, do they, do they value you enough to pay you more or not? And if you're comparing yourself to competitors, like baked into that is the assumption that we do the same thing as the competitors. So have you found something juicy enough that's different and differentiated to where if you did charge 35% more than your competitors, people would be like, but yeah, that's, that's Jason. Or they do this other thing for me that I'm not gonna get from this other service? Right. And I think as accountants we're a little bit allergic to that because like, let's be real, there's, there's some narcissism in that. The notion that I could ever employ as a strategy, being the best or being a thought leader or, or being one of one, like I think we Kind of get blocked by, by our fears of like being visible and holding ourselves out that way because of this like virtue signaling that is baked into most accountants where we just want to be the minders. We, we just want to do that stuff for people, help out the community. This, that and the other thing. I, I, you know, really strong point made in Ron Baker's value pricing stuff is anything can be decommoditized. If you think something is a commodity, there is always a path out of being a commodity. If, if, whether your prices are at the top or whether your prices are at the bottom and you look at the similar solutions and you're in line with them. If you got to that point, it's, it's a little bit giving into the notion that you are at that level, commoditized, that it's, it's about price, right? Which is kind of like when you're a commodity, then it becomes about price. If you get anything out of the value pricing literature. I mean, toilet paper can be decommoditized. Like there's a bunch of examples of, you know, toothpaste, very, very basic things where it's like it has a fixed price, yet somebody finds a way to come to the market with something that is twice as much that people get really excited about, right? There's examples of that absolutely everywhere. I think it's possible in service businesses as well, particularly as we can be more visible than ever before online. And micro niching has never been easier due to algorithms finding people with specific pains, like more specific pains than we've ever been able to find before. That might actually be the easiest path to pushing through a ceiling is like, let's say you work with quote, unquote, real estate. Well, there's a million different things in real estate, right? Or you work with quote, unquote health or doctors or something like that. Pushing through that ceiling might mean finding a subset within that where there's a more painful problem that you can solve. And because of algorithms and social media and all that stuff, podcasts, you can find easier than ever before. The people with that more specific, specific. And so as they're comparing service providers, there may a, maybe a bunch of firms that serve dental clinics, but you're the only one that serves endodontists that are doing fee for service or, you know, something very, very specific. That's an example to me of like how we can challenge what that ceiling is, honestly, in a way that I think you can kind of, kind of do forever. I don't know. Within Reason I'm curious your take on that, though. I get that's not a natural thing for accountants, though, so we kind of shy away from that idea, I think. Another comment, While it sucks, I currently have only one option out of those three. I asked to clarify why they've only been on their own for two months. Is that true or is that something that we can feel has kind of been enforced upon us? I really try to push back on any sort of feelings you have like this that are kind of a restriction on your agency. You are not a flag flapping in the wind. Ultimately, you have total control over this. And so the point that I really want to drive home today, while this is an interesting discussion, is the obvious answer here is increase prices. And we all probably already knew that. But increasing prices, for most of us, this may not actually be true. Increasing prices in a normal environment doesn't happen with a snap of the finger where you just get over yourself and value yourself more. And everybody says, oh yeah, you really were worth that along the way. Now, I may not agree with that because there's so many firms that underprice what they do. And how many firms have you talked to who increased their prices? 35% and nobody left? I mean, that's like. That is a unbelievably common tale, which is just a signal that we have perpetually undervalued the work that we do. But to bring this back to first principles and ultimately deriving our capability to be worth more, maybe you feel that you're trapped and that the actual value of what you do today is just that. How do we start planting some seeds so that maybe next renewal you could do a 30% bump? And everybody's like, I'm good. Like, you crushed it this year. I'm totally fine with that. A few thoughts here. One, if you agree that this is ultimately the biggest thing in your firm, is driving profitability as the solution to not finding enough staff and having more flexibility. Like all these things are solved by greater profitability. If you agree, then look at your calendar this week, look at the appointments that are there, and consider which of those three paths are those appointments in service of. Are those appointments in service of doubling your work hours, of doubling your client and your staff headcount, or in service of increasing your prices? Over 80% of people said increasing prices, that is the path forward. But do you have a single calendar appointment this week that is planting the seeds of what will allow you to increase prices? And I'm. I'm not talking like one on one client stuff where they'll be happy so they'll pay more. I'm thinking your business as a machine. How is that machine becoming more worthwhile to a more specific type of person? This episode is sponsored in part by Cloud Accountant Staffing, who will help you find wicked smart accountants in the Philippines. As you know, this is what I did in my firm. My last four hires were Filipino accountants and they were absolute rough rock stars. How can cloud accountant staffing help you? Well, they can help you with all the questions that you're too embarrassed to ask if you've never done it before. And you're going to have a lot of them. And that's totally normal. The people who crap on offshore hiring online are the people who haven't done it. There's a reason that these businesses are a thing and that they're growing really, really fast. The world is getting smaller and there's a ton of really smart accountants in the Philippines. I know because I did it myself. Now, what's the difference with Cloud accountant staffing? Different sort of staffing groups have different approaches. We basically work with two different groups in my content that will help you find sponsors in the Philippines. They have slightly different approaches to how they help facilitate the ongoing relationship with those hires. Two different flavors, One more direct, one more hands on. I actually recommend that you talk with both if that's something you want to explore. Having a conversation with these groups, man, it is free. You're going to learn a bunch. I recommend doing that no matter what. So to learn more about Cloud Accountant staffing, check out the link down in the show notes. This episode is sponsored in part by Live Flow. I had the opportunity recently to give it a talk at a like a Live Flow leadership sort of retreat where they actually pulled together 30 like thought leader accountants sort of folks into a single space for a couple of days. And I watched in amazement as they ran these sessions, getting feedback from folks of everything that they want to change about the product to big thing, from big things to little tiny things to. Then on the second day I turned up early for my session and they were wrapping up a thing previously where they were outlining literally all of the changes that they had made in the product overnight according to the things that the accountants had told them the day before. And this gang is the value of vendors that are actually plugged into our ecosystem and showing up at conferences. Live Flow raised a series A a couple months back and most of the time that money just gets poured into web ads. But to see them investing it in like creating a space and literally like flying people out and saying, tell us everything that you think about our product and how we can make it better. Actual accountants, man, that is really cool. And that is the way to do it. Live Flow if you're not familiar, it's a tool to sync QuickBooks and zero data either to your spreadsheets, Excel or Google sheets, but also now to these live updating dashboards that are pretty cool. We did a demo of it recently on the YouTube channel. Learn more about Life Flow. Check out the link down in the show notes. A few ideas here for how to become more in tune with this and hopefully invest more time into the meaning of running an accounting firm. How can it be more valuable to the folks that give me money to do their stuff? Like, that's kind of what it all boils down to. One thought. Experience your service as if you were the client. Go through it from beginning to end and don't take shortcuts and don't skip the hard stuff. Go through it from beginning to end. It will probably drive you nuts and you will identify countless improvements along the way. In fact, don't just have you do it. Have everybody in your firm do it. We're so out of touch, honestly, with what we ask of clients, and we get bent out of shape when they act inconvenienced when 100% of the client experience is that it's not your workflow, tools and all the stuff behind the scenes. They don't care what whether a tool makes your job easier or not. Their entire perception of the value of what you do is based on the experience that they have going through those steps. Yet we give that stuff like very little care or attention. You make the habit of going through that stuff and putting your team through that stuff. You will refine the experience which is the biggest driver of how they perceive the value of what you do. They don't understand all the technical stuff, and so how they perceive what you do is their reality. Even if a firm sucks at the technical stuff, which I hate, it drives you nuts. We want to go to another cpe. Meanwhile, your clients think you're a knucklehead because you can't call them back. So being mindful of that client experience and actually being willing to go through it yourself, if you're about to ask a thousand clients to go through it, it's not too much to ask yourself to go through the same thing once, right? If you're looking for places to put investment, put that investment into client touch. Points. Oftentimes we will spend 20 hours on a project and deliver it with an email that takes three minutes to write. With the clients on the other side of all of the stuff that you do and their perception being totally formed by their touch points with you. If you're looking for a, a high ROI place to just put a little bit more time, it is in any time there is a deliverable. Anytime you are kicking off a project, design some really premium touchpoints that will dazzle them and that will have a really imbalance, like really valuable impact on their perception of the experience. I mean the best example we have of what we did on this is all of our monthly accounting clients. As a rule we had to send them a 3 minute video going through the financial statements and this took 10 minutes or less, 5 minutes in most cases for our team to do and was the product of oftentimes 20 plus hours of work to get to that month end close. And so when you know, if we're tracking time in the accounting firm and you're looking at a pie chart of all of the time that went into the project, the time that went into delivery was infinitesimally small. The actual touch points with the client were microscopic as opposed to the doing of the work on the client side. What does their pie chart look like for their perception of the experience? It's maybe the touch points you had gathering information from them and then it's however you deliver that work. How do they assign value to the things in that pie chart? Right. Well, my point is like it looks very different to the ways that we spend our time. When we started doing these three minute videos, people absolutely adored them and the value of all of the work that we did for them, like those videos, this isn't an exaggeration, probably increased the value of our service to them by 50% but it was something that took virtually no time but drastically increase the perception of the work that we did for them. Next point here, surprise and delight clients. When's the last time they've been dazzled by anything from a professional services firm? This is honestly this was kind of their reaction to those videos was wow, you put in so much work to this. And gang, we got an advantage here because people don't expect much from accountants. Like it's not bad coming up from the bottom. We when they don't think that you're going to do anything particularly impressive and oftentimes sometimes we use that as the pass to be boring and uninteresting and not have anything to say because we are accountants, you don't expect that. Find a way to surprise and delight. That may be a birthday card. It may be like a free resource, some sort of course you developed. Those surprises go a long ways. Next one, operate at 80% capacity rather than 100% capacity. So many of the frustrations that our clients have with us stem from simply being spread too thin and not being able to be responsive enough. If you think of the total value of the engagement to the client and how that can undermine the whole thing. Handling 20% less business, but having a very happy 80% who will be along for price increases and stuff like that, that's the way to do it. It's also how you better lean into process improvement and actually being at your best and all that. Like, you cannot do that at 100% cap. Staying on top of the work that you're committed to. We've all had that oh crap moment at renewal time where you're like, I think I'm going to increase the price on this client. And then you're going through the service terms and you're like, oh crap, we didn't do half of this stuff and the client didn't notice. Now I'm going to send them a renewal. Calling out all the things we're supposed to be doing that we're not doing. How could I ever increase prices on them? So you either don't send the renewal or you don't increase prices is another thing that kind of falls off the table when you're over capacity. We got to stay on top of the work that we're supposed to be doing. Otherwise it's going to be very hard to like, ask for more. Got two more here. Set crystal clear expectations because clients appreciate that delivery timetables for your tax returns. This is the single best argument for fully scheduled work. Heard from a lot of you. Tax firms that are transitioning to scheduled work. I love it. We did a week on this on the podcast earlier this year where you explicitly schedule when clients have to have all their information in and exactly when they're going to get the return out the door. Either, you know, in a week, in a specific day, kind of organize clients into cohorts and that increased transparency. While we are afraid that clients won't like that rigidity, most of them just want to know when it's coming and if you can actually deliver on that. They super appreciate it. And then keeping in touch with your clients, maintaining a communication schedule with clients to ensure that they're hearing from you on some recurring frequency. Maybe that's monthly, quarterly, weekly, whatever it is, if nothing else than to simply check in. It goes a really long ways. Because the way that most clients feel is that they're inconveniencing you and you don't want that. The very worst thing for a client is to feel forgotten. That sucks. Like, you want to be the apple of somebody's eye. And even if you're just following in to say, like, hey, Steve, anything new? How are things going? That goes a mile with them. It oftentimes leads to more work. And I would argue the biggest reason why we don't do this is we don't want more work because we're over capacity. So yet again, another argument to be operating at 80% rather than a hundred percent. I can tell you, in my experience, I had a notion of what a hundred percent was, and then when I dialed that back to 80%, that actually became a hundred percent again because we were doing all the work we were supposed to do and we were coming up with more work because we had more time and attention to give people. And so we had to chop that again to like go another 80%. But that is a good exercise. Like that's. That may feel like financially going backwards, it isn't like you can charge way more than that for all that additional work. And actually being hands on. Most clients today, if we are not serving them well, they are paying your rates in a annoyed state where if they weren't annoyed, they would happily pay more because they're paying what they pay now in an annoyed state. And so our fear of scaling back and that hurting profits, that's where I think that's normally going to be misplaced, is because we can serve them better, they're ultimately happy to pay more. And you're like, you're doing a better job by them. Like, you're actually delivering what you ought to be delivering, something that you can actually be proud of. Right? So be thinking about how you can build into your calendar, planting the seeds that will allow for a firm that charges more money. Because if the only things that are on your calendar right now is just the ephemeral stuff and getting the work out the door, then the only thing that's changing the prices you can charge is the passing of time and something that falls into your lap that you don't have any control over. Right. Like, I would much rather go out and strategically find how can we position ourselves as a firm that will charge more because that's just going to be better quality of life for all of us. You can do it. I got any ideas on that subject, drop a comment below. Thanks for coming and hanging today. We'll see you in the next one. Sa.