489 How Long Does It Take To Niche An Accounting Firm?

Today we're getting into the timeline or how much work and effort has to go into niching an accounting firm. I've got some opinions here that I think are much different than what you see out kind of the general conversation about niching any business. Because the reason both people don't niche is they think it's going to take a really long time. And they're like, man, if it's going to take me five years to do that and I'm not even sure I want to do that today, then I'm real unsure I'm going to want to do that five years from now. Right. I got a totally different mindset for this. Whether you're into niching your firm or not. I and this is coming from a guy that used to run a generalist firm that was not bought into it at all. I'm going to run you through my thoughts on this this sort of topic and how they compare to most of the thought leadership you hear today. Let's get into it. Okay. Just at a real high level. A couple things from Geraldine Carter's down to 40 hours book. If you haven't read this yet, we'll link it down in the show Notes. This is like a no brainer read for anybody who runs a firm or is even thinking about running a firm. It is chicken soup for the overworked person's soul. A lot of very good like foundational stuff to be thinking about just at a very high level. This is a short list from the book reasons to niche. Just as a reminder, like what's kind of the accepted or generally thought of as being the upsides of niching down? Deepening expertise. So you're working with similar people all the time. Those conversations inevitably bleed into each other. You learn something on one engagement, it benefits somebody in another engagement. A deep expertise creates more value. More value allows you to increase your price. Not all niches will work this way. They have to value what you do but also have the money to pay you for what you do. We want the niches where they can do both. Right. Increase prices for similar work increases margins. So so a higher margin firm getting paid better for the same work. Those increased margins allow you to reduce client load without reducing revenue. A reduced client load for similar revenue gives you time back. You can feed that time back into optimizing systems further increasing margins. Reinvest it into stuff like deepening expertise. Improving your marketing. Niching your marketing messaging allows you to be more targeted and thus makes that marketing more effective. That's probably the Biggest trap people fall into pulling in a marketing agency, expect them, expecting them to be able to magically bring you clients when if you're serving people just like every other accounting firm, that's very, very hard to do. One big upside to niching that I would add is it makes it easier to find clients not just on the client side, but find employees to come work for you. When you're for something specific, when it's built around a specific interest or a specific type of person attracting employees that are going to be jacked to come and work for you, that becomes much easier for the same reason that that specificity makes it easier for clients to find you. Now, kind of the theme of this episode is, is niching down never looks like doing this sort of YOLO play and like burning the ships as it were, to go after whoever your niche is going to be. Beekeepers, taxidermists. It is much more gradual than that. And so in this book, here's the timeline they give for what niching down looks like for most people. And then I want to share a story with you of a conversation that I had recently at an event and why I think a more niche firm is actually closer than you may realize. So here's the timeline for niching down in the book. We're missing a ton of context around this. Just go pick up the book. Like if you're even thinking about running an accounting firm, this is like important core literature, but basic timeline laid out here in the first three months. This is like once you've gotten yourself over the hump and there's a whole section around escaping the land of indecision, which is where a lot of folks end up paralyzed for a long time. They're like, eh, I kind of get it, but can't really decide. This is once you're over the hump and you've committed to just doing something in the first three months you're testing and learning, you may already have a few clients inside your niche. At six months, you're adding a few new clients inside that niche. You're probably also attracting people who are niche adjacent to whom you may say yes. Once you're at nine months, you're getting around one new client per month inside your niche. You might still be saying yes to clients who are close to your niche, who would make good clients. At nine to 18 months, you begin saying no to clients who aren't squarely in your niche because you're beginning to sense like the efficiency and the simplicity with which you can serve those sort of perfect fit clients. At this point, you might begin offboarding existing clients who are outside your niche. So this is at 9 to 18 months before this. You haven't dumped any of those legacy clients yet. At two years, the vast majority of the clients on your roster are inside your niche. And then three to five years, you're really looking at, like, thought leadership, building an email list, hosting webinars, podcasting, writing, trying to be recognized among the sort of thinkers within this space. This, I think, jives with like, the, the probably the most common framing I see for how to niche down a professional services firm. And I can tell you what I think when I hear that is, I think, oh, three to five. Three to five years, huh? What does the world look like in three to five years? Is there accounting in three to five years? Yes, there will be. But even if I'm looking at, like, what am I going to niche down into? A man, probably. I mean, I in all likelihood is impacting almost every type of business on a three to five year timeline. So that timeline these days for. And maybe it's just my distracted millennial mind, that feels like a long time. I don't know that I want to bet on something that ultimately takes five years. And this is something I talk about very, very commonly as when I meet folks in person. So I've been at a big string, string of events lately, and oftentimes the conversation comes to, I'm running a general firm today and things are going fine, things are going well. And, you know, it's. It's something along the lines of, for me, this is good enough. Like, for me, I'm comfortable with general, I'm enjoying this. I don't understand the push for doing something more specific. And this came up three or four times just in the last couple of week, couple of weeks in conversations with people. And one of these folks I was chatting with, I was like, you know, just tell me about your firm today. Like you, everybody's got A, B, C and D clients. Who's your A client today? Who's your very, very best client? And immediately they were like, creative agencies. Actually, no, immediately they were like agencies. And I was like, what kind of agency? And then we got to creative agency. And eventually we got to, I think it was like web design shops was the bulk of them. But then within that, I'm like, okay, what size? And it was, it was 3 to 10 million. And I'm like, at what state are they coming to you in? Like, what are the problems that they have? And it was like they're trying to get out of the client work to just work on the business. And in the matter of like 30 or 40 seconds, we had a very, very specific avatar that is someone they serve today, that's their very best client. And, and my definition of your very best client is the client that is very, very happily paying top dollar to work with you. That's not because you're doing more than you're doing for all your other clients. This was a trap that I fell into early on as I thought my best clients were the ones that wanted me to do the most. That's not true. Like, my best clients are my most profitable clients that I most enjoy working with. So for this firm, they've already got some of these on this list, on their client list. And to me, niching down, like, if there's one thing I don't like about the, the sort of standard conversation around niching down it is that it'. Binary. You're either a niche firm or you're not a niche firm. I see niche as a spectrum. In fact, I don't even like using the term niche. I like saying it more a specialization because I think that we should actually always be on a journey to serving a more specific type of client for all the benefits that we hear about with niching down our firm. But for, for example, take this firm, does their niche then become agencies? Like what does agencies even mean, right? Does their niche become agencies within a specific revenue band? Is it agencies within a revenue band that are feeling this specific pain? Is it, you know, like say, web design agencies? Is it web design agencies for startups like the power of running an accounting firm in 2025. And all of the reach that we have is being able to go super, super specialized. And the more specialized you go, the bigger the opportunity, in my opinion. But we see that and we look way down that tunnel to the very end of it to something hyper, hyper specialized, which is vastly different than what we do today, which is general. And we look all the way to the end of that tunnel and we're like, I don't know. I don't know that I can trust that all the way down there when the reality is the journey is very, very gradual. And will it take five years to get there? Maybe. But here's the really, really important thing is maybe there's, you know, a five year down the road situation that's much better than where we are today. But I would argue also the version of your business three months down the road, six months down the Road is still better than the version of your business that you have today. So to go back to the example of this firm, they work with agencies, they know what they're a client is. The better version of their firm is the firm that has one more of those clients. And that's like the reality of building a quote unquote niche firm. I don't want to call it a niche firm because that feels too binary. Either your niche or you're not a firm that works with, you know, say, real estate clients. That's not a very specialized firm because there's a million different specializations within what you could call real estate. I think our journey is, or our job is to steer the firm in a more specific, more profitable direction over time. Because every little step you take down this path, you discover, oh wow, there's this type of agency over here and that type of agency over there. These folks have more rare pains that we can solve for them that are more valuable. Maybe we want to go down this direction, maybe there's this other fork over here. And we find we really, really enjoy working with this type of person. So we're going to go down there. You don't know until you take those steps. And so like many things in life, we are can sometimes be distracted by the goal when in reality the more important thing is like what are the daily quarterly annual habits for our firm to take us in the direction of that goal. For me, that looks like being really mindful of that client list and understanding who is our A client today. What are we doing to attract our next A client? That's usually asking today's A clients for referrals, going out and being visible wherever those A clients friends hang out and being willing to cut C and D clients to give us the bandwidth to do so. And then 24 months down the road, some of those A clients, they start becoming C clients and D clients and you've got a new A client and you're now following, you know, whatever that new A client is. To me, that's not like a sprint to get from A to B. That's building a profitable business. And there's going to be little like meandering journeys here and there that sort of get you off path. But that, that's the name of the game. This episode is brought to you in part by Makers Hub, Hot off the presses. We recently did a video on the main YouTube channel. If you've seen it yet, it's kind of like a masterclass for how to automate the accounts, payable department soup to nuts from beginning to end. From how you wrangle all the bills to how you extract the goodies off the bills to how you get them through like an accounting approval that is making sure that the stuff on the invoice is correct and that the correct accounting codes are associated with every single item on a bill to payment approval. Which is completely different because usually a different group of people have the keys to the castle to be able to make payment. But because most systems combine those two approvals, you end up with like the person who can make payments approving like the factual stuff on the bill when it's like they may not even actually know whether that was invoiced correctly or not clear through to like how payments get released, what accounts they're coming from, when they're going out the door. Super cool stuff. This is like the, the area of accounting that AI has most impacted is accounts payable. I did a load of AP management in my firm. Even if you don't do do it, you got clients who do it. I would super recommend actually you share that video we just did with clients that are doing this stuff because it completely changes how you build your in house accounting team. But for you as the firm, if you do this work, it's, it's actually a big time opportunity right now. So get out there and do it. Learn more about makers up. Check out the link down in the show notes. This episode is brought to you in part by Canopy, the practice management system who I'm co hosting some events for over the next few weeks. Totally free events like unrelated to Canopy, just about workflow in general. We're going to be in Dallas, we're going to be in Austin, we're going to be in Minneapolis and we're going to be in Boston. Okay. If you're anywhere near there, I want to see you. I'm going to do a keynote. We're going to end with a Q and A. It's like a half day sort of thing. I think you get a few hours of cpe, they're going to feed you lunch. What more do you need? Going to be some smart conversations, but also just a great hang. Smart spots are pretty limited for these events. I think we're targeting about 70 attendees for each. Those are going to go pretty fast. To learn more about those events, check out the links down in the show notes. Probably the video I'm most proud of which was, you know, there's so many things we can talk about around accounting firm running that are so much More fun than the hard things that will actually impact your business. The fun stuff is tech. The fun stuff is AI. The fun stuff is workflow and automation and integrations and all these different things. When the stuff that we need is everything to do with how do I find my next a client and how do I get the stones to cut the clients I should no longer be serving? Because your, your firm is only ever as good as its client list. And that's what this whole specialization thing comes down to is just the very, very simple math of if I run a 40% margin firm, but I've got a legacy project that I only make 20% margins on. If my next a client is a 60% margin client because they're more profitable, I can pick up that client and cut three legacy. We just got time back. We're having more fun probably because we're making more money. We're solving staffing constraints because we're doing less work. That's the goal. And then that a client in a couple of years time is probably not a client anymore. Like if we're still evolving. So the fear of quote niching down and the time commitment that it's going to take, I think that's largely misguided because the reality of the journey is very step by step. The best argument I can give you for why you should aspire to be a more niche down firm five years from now is that by going through the daily habits and making the trade offs, investing the time the right way to build towards that firm, you will in, in a month, in two months, in three months, have a better firm than you have today. Because I can tell you for myself, like I'm not betting on anything that is five years down the road right now. Like the world is going to look so much different. The work that we do is going to look so much different. But what persists through like changing work and tech and all that stuff? What persists is human relationships and people make buying decisions based on those human relationships. I want to get into those networks. I'm probably, I mean I'm probably going to steer clear of stuff that's like, ooh, that seems like that might be in trouble with where all things are headed. But building those relationships and networks, like that's ultimately going to outlast whatever happens with technology. So I would encourage you to be very intentional about what clients you allow to be referred to to your firm. Oftentimes we take referrals because we're flattered that the person referred them to us, but they're not clients that we actually want. And in general, referrals skew more to B, C and D clients than they do to A clients. Unless we proactively ask A clients for referrals and say no to some of those B, C and D client referrals. Doubling down around those A clients and not being afraid to make hard decisions and let folks go for whom you're no longer a fit, that's taking you on a path to just being a more specialized, more profitable firm now. Like not five years from now, but today, there's a lot of folks that make a lot of money. I mean, there's so many people to listen to this podcast that, you know, we have quote unquote problems and we're making 300 grand a year running a six person small business, but we're running ourselves into the ground and like, really want to find something better. It all starts with the quality of your clients. It's not the fact you can't find that next unicorn hire. Oftentimes hiring is a band aid for a lack of selectivity and our fear of like, releasing some clients into the wild or referring them to another firm that we know. But that's ultimately like the escape from capacity issues, from profitability issues, getting your time back. And a big part of this equation, honestly, is even giving yourself permission to work less. I can't recommend this book enough. That's kind of the crux of Geraldine's down to 40 hours book is not just from a practical standpoint, how to do it, but also from a mental standpoint, how to bring yourself to a allow yourself to do it. For whatever reason, we, we follow the model that we had before us because we don't know anything different. So, like, you know, you think about, am I doing a good job raising my kids? And the only point of reference that we have is, well, I'm doing this and that better than my parents did. And work is very, very similar. Many people go out and launch their own firm or go to work for a modern firm because they worked for a crappy firm in the past and they're like, well, we're doing it better than they did. But when all you have, like, the only mental picture you have of running an accounting firm is just a whole lot of toil and unreasonable work hours and accepting that, say, tax season has to be this absurd, over the top thing like, for goodness sakes, my kids have children's books where they say things like, yeah, no, her mom is an accountant. So tax season is really busy for her like, if that's the only thing we've ever seen, the only model we know, then we often don't give ourselves permission to do something better. But there's a lot of folks out there who are not working overtime year round building a calm business around this stuff. And it all starts with that selectivity around who you'll serve and being willing to continue to evolve the client list. Big part, like a big ingredient there is having people you can refer that work to. Firing a client and letting them figure out next steps on their own hurts a lot more than having a great referral partner for whom your C and D clients are a clients. Not talking about the, the a hole clients that, that you don't want to refer to a friend. Talking about having somebody on a different step of the journey who you can send that work to if you need help with that. It's actually something that we're doing inside of my accountant community right now. Realize we're, we're doing like this sort of quarterly survey now. And part of that process of information gathering is capturing from, you know, about 600 firms now that are in that community. Do you have clients to move and are you even open to clients being moved to you? Because the friction and the fear of letting clients go, in my experience, is very often the thing that stops you from making the time to go after the best clients. I don't have time to go to that trade show or, or do that podcast interview. I don't have time to even think about any of that stuff because I'm working so hard. I'm like on the hamster wheel just trying to take care of the people that we have. Well, that's when we have to like, make the hard decision to cut the bottom of the list. And there's tactful ways to cut the bottom of the list and ways that kind of suck. The best way I've found is like, have a few firms that I know very well that I can send some clients to. The easier we can make letting go clients, the more likely we'll do it and the more likely we'll have bandwidth for going after the very best clients. And some of those can be referrals, but the very best clients out there, they're all not just going to like, just walk in your door. That's a, that's a really easy trap to fall into, is like the pride. And only working with referrals, right Feels really, really good. We've got enough business. Our clients are sending us their friends. But not all of those clients are made equal because you see, and clients are sending you their friends also. And like in my experience, my C and D clients sent us a ton of their friends because they knew they were getting a good deal they couldn't get anywhere else. And all that whole referral business led to as like way more C and D clients and then what we actually wanted to serve. So I'd encourage you to start down that path because of what your firm can look like in three months time, not just in five years time, because you deserve it. Quit working so much, man. If you need referral partners, consider joining my community. Great way to make a bunch of friends who run accounting firms, firms I found that was the help that I needed. A peer group of other people who run accounting firms. As much as I love coaches, the answers that I can get from other firm owners, in my opinion, vastly superior to what you get from coaches and actually a whole lot cheaper too. And come out to some local events. Man, do I have local events coming up. I've met so many of you in the last few months and would love to see more of you. What do we got coming up tomorrow? Tomorrow, I don't know. July 31st, I'm in Austin, Texas. August 1st, I'm in Dallas. It is going to be so hot. Oh, too hot. August 7th, we're going to Minneapolis just to recover from the heat exhaustion. Then August 8th in Boston. If you're around there, would love to see you. Check out Geraldine's book. We'll link that down in the show notes link for my community's down there as well. Thanks for being here. I'll see you in the next one. You look great today. You're doing a great job. Keep up the good work.