485 The 6 Small Business Traps that Accounting Firms Fall Into

Today we're digging into the most common traps for small business owners that we as accounting firm owners fall into so commonly. And if we're really going to be great advisors for our clients, man, we got to walk the talk. And like when I went through these six things, there were some oofs here where you're like darn it, I know that, but get off my back man. But we're not going to make it hurt. We don't need to be mean about it. Okay, today just going to be that helpful little advisor on your shoulder whispering in your ear, hey, few ideas for you here. Let's get back to the important stuff. Okay, I can tell you a number of these I've gotten fully wrong. But get these things right and you are going to have a vastly more resilient accounting firm that is not one person away from collapse and hopefully not run any end of the ground. Okay, let's get into it. Okay, these six came from modern day philosopher Alex Hermosi. But and before you leave, they're that they're very good. And it's funny how we swing between like oh, running an accounting firm is different. You don't understand what it's like unless you do it. But then we swing all the way back to small business is a small business man. I think like both of those things can be true to a degree. They are different. But also like the traps we get stuck on can also be very similar to most small businesses. So let's get into this. I would encourage you to think about this not only through the lens of your own business, but also through your client's business. Because the more we can let this stuff seep in for ourselves, the better advisor it's going to make us. Okay, number one single point of failure, concentration risks. Most small business owners routinely overlook how fragile their business becomes when any one element is irreplaceable. So four types of concentration risks. One. Key man risk. Do we still call it key man risk? Key person risk. What it looks like founder or one employee holds all the know how, means the business can't scale or sell without them. Solution is to document, delegate, cross train and incentivize a number two real talk. If you're looking at buying an accounting firm, maybe the biggest thing to consider is how plugged into that firm the business owner is. In fact, a lot of us on the course of trying to like build this big successful enterprise, just put ourself right at the center of it, just running on that hamster wheel so hard. But then if you ever actually wanted to sell that thing? It's just a house of cards. When you pull that out, pull yourself out from the middle. So key man risk, that's a biggie. Second risk type, single channel risk. All new customers come from one referral source. Ad platform influencer. Maybe not as big of a deal for firms because most are just like sitting back and waiting for referrals to come in. Key risk number three, key customer risk. Greater than 30% of revenue from one client. Not so much of a thing for most firms. Last single vendor risk, a critical service provider. Customer service shut you down overnight. Boy, you want to think about a spooky one. I don't like that. You know, your Ultra tax or your Drake or your, your QuickBooks are your zero. Hard to imagine, but wouldn't be a great day if something went sideways with those. I mean, as evidenced by like outages of tax platforms leading up to the tax deadline. Yikes. Now those four risks, even just beginning to think about, like, how do I solve for key man risk? This is not a thing that I've put any investment in to date. I. That's a lot of work mitigating one of these, let alone all of these. This to me is like such a big example of the things that we don't even begin to think about until we're able to successfully work on the business instead of in the business. You know, while that's not everybody's journey, for sure, there are folks that are going to go out and start their own firm and they just want to be the technician. They just want to do the work and that's fine, it just comes with trade offs. But when your like subconscious tells you, oh, if I really got out from doing client work, if I really delegated this next thing, what would I even do? My friends in accounting, let me tell you, there's, I mean, almost certainly not going to be a day where you delegate yourself out from under some stuff and there's nothing left to do. And by the way, if that did happen, as unlikely as that seems, would it be the worst thing if you actually found yourself with a bit of time and you're like, hey, I've actually kind of moved everything off my plate. The machine's still running. I think I could go play some pickleball. That would not be the worst thing. But stuff like this, risk mitigation. When you're thinking about the big picture of the business, this is like, if you don't do this stuff, who will, right? And we want to talk key man, risk the person who is, who is the biggest offender here. It's you, man. If your business is just like you walking out the door, hitting the bus, away from crumbling, or more realistic, you get sick, you're down and out for a couple of months. Could happen anytime. Goodness sakes. My wife dropped a table on her foot. She had to go non weight bearing for 30 days. Do you know how many small children I have? A bone on her foot had surgery within a week, then also had shingles. How's your summer going? My summer? My summer's going great. We're past that now. Thank you for your concern. I'm doing great. Everything's good. Kids are more or less intact. Still, if she was running an accounting firm, she'd be totally fine. I mean she was. You can still see the shape on the couch from where she had to spend that whole month. She would just have a laptop in her lap instead of, I don't know, whatever Jennifer Wiener book she's reading. I shouldn't have said that. Now YouTube's not going to serve this video up to anybody, but if you get sick, you're out for a couple of months, man. A couple new. Some people during COVID that got Covid ended up with long Covid. That's a big time risk to the firm. Without zooming out and like having a plan for that stuff, it's not as resilient as it might feel. Right. Because we are not invincible. Or at least we are until we aren't. That's probably a very accountant thing to feel kind of invincible. Like we pride ourselves and just absolutely working our fingers down to the nubbins. So we're probably especially susceptible to like going to get taken out one day. Won't be able to work for a week, for a month, a year. What does that look like in your business? And if you don't do it for yourself, do it for your team because that puts them in a tough spot too. Right? Okay. Small business trap number two, treating learning as doing. Founders like to collect knowledge like Pokemon cards, but never ship or sell. Execution beats information every time. It would actually be interesting if like you could see on your calendar, how much time did I spend consuming and going to this and that and hopping on that vendor webinar versus actually doing or trying something new or changing something to test it out. This is actually something that rise R I Z e. It's like an automated time tracking app. It tracks the apps that you're using but also what you're doing inside of the browser. This could actually be a pretty interesting thing to measure. I'll put a link to rise in the show notes. Today's episode is sponsored in part by cloud accountant staffing who helps you find talented offshore and nearshore accountants to come to work for your firm. It is run by former accountants and a cool thing they just launched is what they're calling a candidate portal. That is you can hop in, see the candidates they found that could come and work with your firm. Filter by years of experience, filter by software experience filter, filter by region. Are they in the Philippines, Latin America, South Africa? That matters. Depending on the role. Is it important that the time zones align? Are they going to be doing anything client facing? But they've now got kind of a self service point portal where you can go in, see the folks book interviews. Like in real time? No, like weird kind of recruiter gatekeeping. Right. And like I mentioned, cloud account staffing. The folks who put this company together and actually still run it to this day, they're former accounting promoters so they actually understand what you do and what it takes to like effectively integrate folks into your team. If you want to learn more about cloud accountant staffing, check out the link down in the show notes. Today's episode is brought to you in part by Mercury, the fintech platform that over 200,000 companies trust for banking and running their financials finances. Because traditional banking websites, banking apps, they what words are we allowed to use here? They're no good, they're very bad. You hop into Mercury you're like oh okay, this is like What a modern SaaS platform for managing this stuff in my business ought to look like. Stuff like being able to invite clients to set up their own accounts, manage multi user stuff, manage access. It's actually pretty fully featured like invoicing, bill, pay card management and all the stuff you need for like moving money around, wires, ach, all that stuff. The before and after of working with a client with a modern platform like Mercury versus a traditional bank. I mean if you're doing bookkeeping it's a tremendous time saver, vastly simplifies the month end close. But oftentimes we don't feel like we're, we don't feel like we can be opinionated about what bank they use. It's actually a great example of when we talk about in say a three tier proposal letting someone just rock up with whatever bank they want to use, that's going to cost them more money for me and at a certain point, honestly that like that may not even be an option. There is an easy solution for cresty old banks and the workflow issues that they create. I encourage you to check out Mercury. Like you will hop in there and be like, okay, you know, I get it. Okay. I can tell you that with confidence because it's what I use. Honest to goodness HTG, you can even get up to $1,000 referral bonus per eligible client. Okay. Disclaimer time. Mercury is a fintech company, not a bank. Terms apply for bonus eligibility. See Show Notes for details. Learn more about Mercury. Yeah, look down there. Check out the Show Notes. AI is a great example of this. Everybody's like, well I need one more, one more webinar, one more conference, one more social media post, whatever it is, to like jump in and start using ChatGPT. It's like man, the way you learn is just, is just by starting, not by buying that course, not by having one more person tell you to do it. Like that is the benefit of action is when you do it, you do something, you learn no matter what. And that sometimes should be the goal. Like in a safe environment where you have permission to fail, not all decisions are made equal. Some are very, very high stakes, but especially the reversible decisions where you can give it a go and it's not a big deal if it doesn't pan out. That is valuable learning as opposed to being, being paralyzed. Not doing it for five years and then you learn nothing and you're no closer to actually making a decision that'll, that'll bring you forward. Um, when we were like peak, what was that elearning platform? I don't know. You've seen the, the statistic where like 80% of the courses or maybe even bigger, 90% of the time when somebody buys like an instructional video, they never actually watch it. We can definitely get sucked into that trap of not actually applying anything that we're learning. And this is coming from a guy that ran a, a daily podcast for two years. Do you know we had a 260 episode streak at one point. Goodness 6 Jason, go outside. I do think about that actually for this podcast. Like is this. Am I creating a distraction for people? The reason that it started and the reason I actually wanted to do it daily initially was, was twofold. One, because I could see a world where AI was making expertise like infinitely accessible. And so part of the volume move was to have like an AI assistant that is a very, very complete reflection of my expertise. The, the podcast started in March of 23, the year after the fall ChatGPT came out. I was doing some testing with, like, using AI to kind of fetch answers from authoritative sources. And I'm like, if the authoritative source can just be my podcast transcript, that's going to be really, really cool. So part of that exercise was like, being the most documented person about my expertise so that we could do cool AI stuff to access that expertise. But also for the future of large language models, which is where increasingly we're all getting our information and making decisions based on who I dare you name a person that has spouted more information onto the web about running accounting firms. I think future LLMs, when you ask it for advice around running accounting firms, stuff like that, it's going to be pulling from what you're listening to right now. Like, that's going to be a really big percentage of it. For goodness sakes. Type anything about accounting firms on YouTube. And I'm sorry, the number of results that you get that are me, it's kind of comes back to, like, my advice around, you know, niching down your accounting firm and becoming the default person in a space like, you want to get to, kind of just being where everybody's mind first goes to. And it's not even. Doesn't even have to be because you're, like, particularly good or the very best expert. You're just very, very visible. And that's just kind of what we've done with the podcast is like just about any conversation in the accounting space. Have we had it at some point? Probably. And a lot of folks, I drive nuts. And whether you like it or not, you're going to bump into my stuff. But that's. That's kind of the point. That's kind of the strategy. Okay, small business trap number three, doing too little volume and misconstruing that as, you know, volatility or a failure. So a story that Hormozi tells quite a bit. Early in his gym running journey, a mentor suggested distributing flyers on car windshields in nearby neighborhoods. These are flyers to, like, go to his gym. Hormozi printed and placed 300 flyers, hoping to generate leads for his gym. After a day, nothing happened. Then he got a phone call. It was from a Mercedes owner who called angry, explaining his car had been scratched by the flyer. That was the only response. He got zero actual leads. When he checked back in with his mentor about the results, the mentor asked, how many did you distribute? Her Mose replied, 300. His mentor says, you only put out 300. It's hard to know if anything works with such a small number. You test with 5,000. Then once you find a winner, as in like a flyer that converts, a flyer that actually works, then you do 5,000 per day, every day for a month. So it wasn't that the strategy was bad, it was that the volume wasn't sufficient. Now examples of this for us, do we take something far enough, social media posts, post a few times for a couple of weeks and you're like, this just isn't working. We've all been there, man, doing podcast interviews, going out and being visible in your, in your space, in your niche, making YouTube videos. I made two videos a week for 18 months while running a 40 person firm. And at the end of that 18 months, I had 500 subscribers. That's the only reason that my videos are, are good now, if you want to call them good. I put more effort and unfortunately more money into making them than anybody else. So now when people see my videos, they say, look at that guy, he's a natural. Wouldn't have said that back then. Writing newsletters, going to trade shows. Do you go to one trade show a year? Are there trade shows happening every month for the type of folks you're trying to work with? Is that stuff happening all around the country? Then why are we just doing once a year? This, I mean, similarly, this comes back to the question of time. I, I can't possibly do this, Jason, because I have all these other responsibilities. I find that that only holds up as long as, like, you don't have a strong enough conviction to be like, okay, this is definitely what my business needs right now. My business definitely needs a better client. And that's not just going to happen. Unless I change my behaviors. It's going to mean making some hard decisions and delegating stuff you maybe never had before, or bringing in a higher level team member than you ever have before. Going back to the conversation about incentivizing a number two. But that's the upside of firing yourself from jobs, is you can work on something new. And I can tell you it's a really fun challenge to learn a new skill to get into something new. Okay, small business trap number four, missing a repeatable customer acquisition system, relying on word of mouth or an occasional launch, and then wondering why revenue is choppy. Another common thing that Hormozi brings up, the goal, the dream here is to have a repeatable system that's reliable. This could be social media, where your posts just organically bring in a few people every single month. The, I mean, the even more powerful version of this is paid, paid Acquisition that is like paid social media posts. The big trap here. I know a lot of accounting firms who will go to a marketing agency and say, here's our budget for doing paid ads on social media and the marketing agency will happily spend your money on that stuff. But it doesn't work. Like, I've heard from so many firms that are like, we've wasted so much money on this. That will never work until you find an organic posting strategy that converts well and then pour money on that. So, for example, high, I mean, the biggest engagement post I think I ever had on LinkedIn was like 18 months ago, we released a practice management study that was a report comparing sort of the 14 leading platforms that ended up with like 1600 comments on LinkedIn, very, very popular. That is what you do. Paid acquisition behind. And it may even look a little different than the original post. So, like, when we posted that, we gave it away for free. And there's a world where like, you could Then go to LinkedIn and run ads around that thing to get it in front of more people and it still be free. But there'd have to be a very logical, like, upsell sequence after that to justify paying for the ad. So, for example, if I had a service where we would help you implement a new practice management system or do kind of a tech stack breakdown or something like that, then this would be a great way to get you in the door. Kind of for me and the team to get on your map is we put out this practice management study. You grab it, you're impressed by it, and then there's an email sequence after that to be like, hey, are you actually considering a new practice management system? We've got a short list of implementers that are really, really good that we can connect you with. Maybe we get a commission every time we refer somebody to that. I don't do that, by the way. I send so many people to implementers right now. We don't take a cut on any of that stuff. But if you're trying to think of what is the value of every person that comes onto my list and gets this practice management report, if I have a $500 offer that is, we'll do this tech stack breakdown for you. And one in every, you know, 50 grabs the practice management report converts to that 500 offer, then we can afford to spend, oh, live math, what would that be? 500 divided by 50. What does that mean? We can afford to then spend $10 to get each person there so we can spend $10 on ads to get somebody to come out and download that free thing. Arguably, you could afford to spend even more than that because there's value of just having those people on your list. You didn't have them before, but that's an example of a repeatable customer acquisition system. And you don't start with the paid ads because the hard thing to do is to find the offer. The people will get excited about the thing that will make them stop scrolling and be like, ooh, I got to get this. Even if I have to give my email address. Juiciest things for me right now, they are my app database. You'll see me post about that a lot on social media, my service library. It's like the best way to productize your accounting firm. As I'm saying this, I'm going to have to link all this in the show notes. This 1040 workflow breakdown that we just did is really good. And then my AI meeting prompts. So 30 prompts you can use with your meetings to pull like really helpful stuff from your meeting transcripts. Like, here's my favorite one. Automatically pulling quotes from your clients, things they said in meetings that could be used as testimonials. Oh, buddy, how sick is that? Those are my four most popular lead magnets right now. So if I was going to run paid ads, that's how you would do it. You have this valuable thing and they, they you may just make them pay for that thing. So we also could have just charged for the Practice Management System report. Depends kind of on what your goals are. But that's how you do paid acquisition. You make the thing that people are excited about. Again, has to be for a very specific type of person to get them excited. The reason that Practice Management System report was such a big deal is we are all terrified of picking the wrong practice management system. Right? It's a big expensive purchase. So we want to make sure we're doing the right thing. You nail that thing for your space, for your beekeepers, for your taxidermist, your phlebotomists, your belly dancers, whoever it is that you want to work with, you nail that thing that is such a huge pain for them. You dump paid ads into that. And I mean the way that companies scale infinitely, like software companies who raise hundreds of millions of dollars, something like 60 to 80% of that money goes straight back into paid ads. And that flywheel works as long as they can acquire a customer that will ultimately pay them more than it costs to acquire that customer. I get this is like super one on one stuff. But we never think about things this way in our accounting firms. If you can crack that, then you have a consistent pipeline of clients coming in the door. Now you got to make sure that they're actually good clients. So what is your A client look like today? How do we build a pipeline that will attract more of those A clients? Because if you looked at your client roster today and all you had was A clients. I mean, you could. For most firms, you would genuinely make double the money in half the time. Like, you could have half as many clients. You would probably have a twice as profitable firm if all of your clients were A clients. And that's kind of the game is always going after that next A client, and then you find the even better client, the A plus client. And now that's the A client. You repeat the cycle until I don't know what happens at the end. Get your team to buy you out, have a stroke at your desk. Sell to private equity or tell your children they can buy it, but then stay around a decade longer than planned. I think those are the four options, the four exit strategies for accounting firms. This episode is brought to you in part by Makers Hub, who's right now using AI to crush all things accounts payable. I was recently at Scaling New Heights in Orlando. Makers Hub kindly let us use their booth to host a meetup. We had over 100 people come out and hang. And it was funny, like the conversations meeting folks, because we were at the Makers Hub booth, a lot of conversations ended up that we talked about Makers Hub. And I was surprised the number of people who have listened to my stuff, watched my stuff, seen the Makers Hub ads, and they're like, yeah, it's actually pretty freaking good. Heard some pretty cool stories about like, really hairy client situations that Makers Hub handled well. And that's kind of their sweet spot is complex accounts payable stuff. Do you do inventory management, receiving? Do you have to fuss with purchase orders? I sure hope you don't. And do you work with vendors that send stupid invoices that have all these different nuances and fiddly things? Mega Sub is the first tool I've seen that is malleable enough to literally, on a vendor by vendor basis, pull those dumb details that ought to impact how an invoice gets processed, even. Even right down to handwritten text, because they're using AI vision models. Really, really cool tool, Makers Hub. Even if you don't do this stuff for your clients, I've got a bunch of videos demoing it on my YouTube channel. If you've got clients with gnarly needs like this. Shoot them one of my videos. They'll be entertained for five to seven minutes and it truly like transforms transforms the entire accounts payable department. Really, really powerful stuff. Learn more about Makers up. Check out the link down in the show notes this episode is brought to you in part by Client Hub ClientHub been one of my recommended practice management systems for a while, but they're doing some really cool stuff. One of the first PMs investing heavily in workflow and if you followed my Maslow's Hierarchy Pyramid food chart of the tech needs of your accounting firm right now the workflow tools are getting super super good, but almost feels wasteful to buy it. In addition to a practice management system that's something ClientHub is working on. So they do all the practice management stuff that you want from the dashboards to track your work tasks that can be assigned to clients. A really good client portal, time tracking, CRM, email integration, all that stuff. But they've also got a really good QuickBooks and Xero integration for stuff like resolving uncategorized expenses, even uncategorized deposits requesting receipts from clients. All like in the same client portal they already use. They're also doing some cool AI stuff quote unquote magic books review Identify expense inconsistencies and other review items across the balance sheet. P and L ClientHub definitely worth checking out if you are a bookkeeping or cast practice. And I love that they're going hard on workflow now. Learn more about them. Check out the link down in the show notes. Okay Small business trap number five Shiny Object Syndrome and Lack of focus Splitting your focus across too many projects perpetually an issue for me. We are we're just capable of focusing on fewer things than we think we can when we should instead work on one thing until it's working. Like not leaving it in this half baked state but when we have so many jobs to do. You're like man, I'm. I'm the business owner. I wear all the hats. That's a choice. That's a decision. Like unless you literally work by yourself, but even working by yourself as a decision. If you're wearing all the hats, it's because you haven't given those hats to anybody else or you haven't found the people that can wear those hats for you. I am amazed at how humongous companies grow big really, really fast. I mean, hiring hundreds of people a week and that just blow your mind. Those companies exist. That's not a skill that probably you or I have to be able to do that. But there is nothing so precious that it cannot be delegated. And boy, like having the peace of mind to just focus on one thing for a whole day, That's a pretty wild drug. I know the last time you got, you got to do that, but I want it for you because that's when we're at our best. We think we can do six different things and keep them all moving forward when the faster path is cranking on that one thing until it's working. Last one, number six, underpricing and weak offers. Many small businesses stay small because they sell the same hamburger as everyone else, just a little cheaper. Oh, did that one hurt? Most people sell the same hamburger as everyone else, just a little cheaper. That's the business strategy. Doing more for less. What the heck, man? Doing more for less can't be the business strategy. We either got to do more for more or do less for less, but don't do both. That's just being a sucker. When you check out at the grocery store and you see a Hershey's bar and a Toblerone, and the Toblerone cost three times as much for the same amount of chocolate, man, I don't want to be the Hershey's bar. And this all comes back to kind of how juicy that offer is. Like, have we found a really painful pain people will pay top dollar for? But then are we actually stacking things like, you know, scarcity and urgency? We talked about this the other day. To make that incremental difference when it comes time to make the decision. Because there's only seven of this package left. Well, that made that person jump to that package then when they wouldn't have otherwise. These may seem like really small, trivial things. These are the very most important things in the firm. The price that they agree to. Like the whole firm it is that. And the optimized way of pricing projects is never sending someone a single price and hoping they say yes. Because everybody has different abilities to pay. They have different willingnesses to pay. This is why three tier proposals are like a must have. Getting strategic about how we price things. Doing upfront projects to get them excited about working with you before they commit to the recurring monthly rate, rather than just taking them straight in at the flat monthly fee when they're scared. And there's risk in this buying decision for them. So that risk pushes down the price they're willing to pay. Pre dazzle them with an upfront project where they're like, well now I Can't imagine working with anybody else. That project's starting at a minimum 20% higher than it would have otherwise. Do that on every single client in a 40% margin firm. If you're taking work in at 20% more, your profit just increased 50%. This stuff makes a big difference. Like most of us are closer to a wildly more profitable firm than we realize just by like dialing some of these things in just a little bit. But I would say the reason that we don't is they're these incremental. These are the additional things that we don't have time for because we're doing all the other stuff right? Because we're not willing enough to fire ourselves from all the jobs that are standing in the way of us doing these bigger picture things for the health of the business as a whole. Super easy trap to fall into, man. I mean, I do my own version of all these things now, but our clients, man, they fall into these traps too. If this is stuff that we can kind of absorb and work into our business, the byproduct of that is you're a better advisor for the folks that you work with as well. Any thoughts? You want to fight me on any of this? Put that stuff in the comments. I love it. And wouldn't you know it, tomorrow I'm in the Big Wendy. If you're listening to this the day it comes out, I'm in Chicago doing a one day AI conference. Later this week I'm in Atlanta, Georgia. So Chicago, July 22nd, Atlanta July 25th, July 31st I'm in Austin, Texas. We're doing a back to backer 31st in Texas and August 1st in Dallas. August 7th I'm in Minneapolis, August 8th in Boston. Get tickets, learn more about these events. Head over to Jason on firms slash events. Got eight of these events going on in 30 days and I can't tell you how many people who are devout podcast listeners are coming and hanging out. Also coming and meeting each other. Very, very cool. It's a ton of fun, man. In person stuff is just, is just the best. Want to see you there. Thanks for coming and hanging today. I'll catch you in the next one.