550 The Uncomfortable Truth That Makes Accounting Firms More Profitable

Today on the podcast, how to know when your accounting firm is over delivering too high quality of work. What. What does that even mean? This applies to tax work, it applies to bookkeeping work, even advisory work. The fact that quality is. It's not a switch. It's not either good enough or not good enough quality. It's more of a dial, it's more of a spectrum. But most of us, if you're running a small firm, you started out being the one that you signed off on everything, right? And so the way that we've thought of quality is, is this how I would have done it or not? But that way of thinking, it's a very hard way of thinking to scale. And as soon as you're trying to pull in other people to be decision makers or maybe sign off on things for the first time, then you have to start getting your head around. And this is a very unpopular thing among many people. We have to start getting our head around the math of what is good enough. Because that bar, that is your bar. Here's how good I would do it. That is not an absolute bar. That's like our perception of the world and what we think the bar needs to be for somebody else. That bar is something completely different. When I hire somebody new, their bar may be down here. If I hire somebody even smarter than myself, their bar is up here. So what bar is the right bar? And how do we divorce ourselves of this notion that my bar is the absolute bar? Just said bar a lot of times. But today we're getting into the question of how do you know when good enough is good enough? Foreign.

If you're new here, welcome to the Jason Firms Podcast where we talk about all things running. Accounting firms on the road today in Chicago just hosted a live event here. As you're hearing this, we are in our final week of live events this year. The events in D.C. philadelphia, Boston, and New York City having a ton of fun. And I'm not losing my voice. You're losing your voice. Okay. What we're talking about today, I think is a foreign concept for a lot of folks that run smaller firms. And so rather than thinking about our own accounting firm, like, let's think of this through the lens of somebody else's business, because sometimes that's an easier place to start. We're talking about what they're doing. Run. Talking about what I'm doing. So you run a manufacturing plant and you are shipping. Shipping widgets, right? Ship 100 widgets every day. You got all manufacturing process. You also have a Quality assurance process. And there's a level at which you optimize both of those things. Quality of manufacturing, how much effort you put into quality assurance. There's a level where you optimize how good it has to be for profits. Right. And this is easier to understand maybe around physical goods where it's like, you know, you talk about, say, Lego, like Lego, there's some, like, insane level of precision and how the LEGO bricks are created because they have to be able to interlock just right. But if I'm making plungers, probably don't need the same level of precision and how we make plungers, right? Whatever that thing is, there's a level of quality or perfection that is good enough. And the right answer is usually going to be dependent upon the application. Like, if we are creating nuts and bolts for aeronautic applications for rockets, there's going to be a different level of scrutiny and a different level of quality that's required. Right. So obviously, this is a sliding scale. Quality is not a light switch. It's not either good enough or. Or bad. It is a spectrum. And we have to apply, like, the correct spot on that spectrum to the problem that we're solving, to the service that we're delivering. And all of this is equally applicable to service businesses, to professional services. The stuff that we do. And this is, can be a tough lesson to learn. Like when you start building a bigger firm and even our staff will struggle with this. Like if you launched your own firm, like the way that that started was, you sign off on everything. Like in day one, you were doing all the work, you were signing off on all the work. That work was you. As you build a team, those folks are doing more of the work. But at the end of the day, you're still signing off on the work as that team outgrows what you can just do. You have to trust other people to sign off on the work for the first time. But this is a hard thing for accountants, both owners and staff alike, to always get our arms around the notion that if it's not done the way that I would do it, then it's not good enough. When in reality. And it's. And it's maybe only auditors that have to, like, face this. There's a level of materiality from a business standpoint, there's a level of effort where if I'm deploying, you know, $300 of effort to mitigate $50 of risk, is that a worthwhile trade? And you may hear that, and you'll be like, $50 of risk. Like, I can't have any dollars of risk in my firm. But let's. Again, let's think about that more. Let's take a step back. Talking about deploying $300 of effort to mitigate $50 of risk. If we're making plungers, we would probably make that calculation. Like, okay, if I'm deploying $300 of effort, it just needs to mitigate $299 of risk. Right. But for some reason, we can't do this same thing when it comes to, like, professional services and the work that we do. And this is because, I would say, accountants, what we pride ourselves in most is the technical stuff, as in what we know when we talk with other accountants. Like, we pride ourselves in our craft and the level at which we're able to do this. And this is what makes running the business of an accounting firm very tricky. Is the client, honestly, they say they care. Like, they're like, yeah, no, I want the person that's the best and the smartest at all this stuff. But the reality is they don't know. Like, they can't benchmark accountant A against accountant B. So they'll make buying decisions based on the only aspects of the process that they do understand. Will the person call me back? Do they respond to my emails? Are they enjoyable to talk to? Is their bed made in the background of the zoom call? They will make buying decisions based on all these dumb things that we're like, that has nothing to do with my technical expertise. And that's frustrating to us because we want this to just be like, this pure science where, like, the best, most alpha technical people win. Right? But then the problem is when we're laser focused on that and the client sends you an email or wants to hop on a call or something like that, you're like, don't you realize what you're doing is. Is keeping me from doing the important stuff? All these, you know, status requests. Hey, how are things coming along? Are we getting close? Like, every time you do this, you're getting in the way of me getting work done. That's irritating to us. The problem is when the client doesn't understand what we do, their perception of what we're doing becomes reality. And that's how they make buying decisions. So those little touch points that we have, like, they're the only part of the process that they understand. And it's, you know, the leading cause of why people go to another accounting firm, right? Like, they can't get in touch with their accountant. They don't feel heard or understood. And this stems from the fact that most of us at our core, like we are, we are technical people and it's very hard for us to like do the business math of what's perfect versus what is good enough. And so like real life examples of where the quality assurance process and maybe who you have like do the work itself has, has different answers. So monthly bookkeeping, what are the highest stakes books that you will do all year? It's year rent, year end has to be done at a level that is higher than what I would argue the rest of the year has to be done at. Interim books do not come to the same level of importance as the year end books. So maybe interim books have to be done at a 6 out of 10 level, right? On the tax side, if you're doing tax planning mid year, you can make an argument either way here. Like obviously the year end work has to be done correctly because that's ultimately what goes into the tax filing. But if this is a big dollar high stakes tax plan, the interim tax plan probably has to be done like at a high level too. Like that probably still needs to be a 9 out of 10 because you miss a checkbox like you miss an important detail and the numbers can change wildly. Now most of us, I would say not only firm owners, but accountants in general, we have the mindset that everything has to be 10 out of 10. And our definition of 10 out of 10 is oftentimes partially like what is technically correct, but also subjectively the way that we would have done it. And, and so 10 out of 10 oftentimes looks like, is this just what I would have done? And it is when we're in this mindset that it becomes very, very difficult to delegate anything and successfully get anything off of our plate. And so if you've heard people tell you like, well, if you're going to delegate something, plan on it be done, plan on it being done 80% as well as you would have done it. And you're like, you can't do these tax returns 80% as well. You can't do the month end close 80% as well. It's either right or it isn't right. And the answer is, ah, kind of sorta. And this is where digging into like the nature of the work and how stake high stakes or not as high stakes it is ought to factor into the level of expertise and the level of effort that we apply to this work. So what are the overall dollars and like reputational impact of an engagement on the firm. A $10,000 a month engagement comes with a lot more heft than a $1,000 a month engagement. And so we need to think about, right, sizing the quality assurance process because it shouldn't look the same on every single engagement. We are talking about systems over superstars. How many accounting firms are just reliant upon the unicorn or the person with X years experience or the person who just gets it to then just trust them to send it out the door correctly? And then those firms are perpetually blocked by the fact that we can't find another superstar. Man, we've been hiring this, we've had this job listing out for a tax manager for the last four years. If only we could get that next person, then all of our dreams will be real realized. The less reliant upon. The less reliant we are upon our systems. The more re. More. The less reliant we are upon our systems, the more reliant we become on our superstars. And quality assurance can have a system. So how do you start tiptoeing into this if you're a solo firm owner? Hang on. Not that if you're running a firm and I'd say you're still signing off on everything. To me, the most logical place to start here is usually a dollar threshold. Like there's all sorts of yardsticks for like, what are the things that maybe I can remove myself from first? I find them like for the business, the best universal yardstick, if you had to pick one, it is dollars. And in the abstract, you removing yourself from something, maybe not being the person to sign off for the first time, or a member of your team doing this for the first time. In the abstract that may be very hard for you to get your head around. And you're like, that feels too risky. But when we're thinking of that, oftentimes we're projecting onto that scenario. Like the most complex scenario, like the examples where you know that that would break down but that's never where you would start with something like that. Where you would start is you would say set a dollar threshold, you know, to say like, hey, maybe I don't need to touch the returns under 600 bucks again, maybe I don't need to retouch the month end engagements under $500 a month. Or maybe, maybe I only do the technical review on those month end closes every other month and then another member of the team does the months that I'm not doing. At a certain point we need to like respect the value of the doing but recognize that somebody in the business has to be working on and maintaining the system for the doing. How do we create more doers and how do we get them to do the doing in a standardized way? Right? And so most of us go through this evolution from craftsmen. We were working for somebody else, and so we honed our craft and we can do that stuff. And then we decide, hey, I'm going to go out and do this either for myself or for somebody else. But we were at our core craftsman in the beginning of our career. And then for some reason, if you're good at being a craftsperson, you can evolve into being a manager, which is a totally different job, right? Which is kind of just maintaining what the system is kind of your role then. And then ultimately somebody's got to evolve into the architect, like, who is making that system, who's in charge of the system and accountable for the aspects of it that are working and the aspects of it that aren't. And it is within this system that then your managers are able to operate and they guide the craftspeople who are then your primary doers. There is a timeline where you could just for all of your years, be a world class reviewer. And there's a huge percentage of accountants who will do this their entire career. They will live the same five years on repeat. But there's also a timeline where you're the one to build the system that creates world class reviewers, that designs the system that is not entirely reliant upon superstars, but in creating a standardized way to do something and then getting people to be able to plug into that system and make a outsized contribution compared to what they could have done without that system. And this is why, in my opinion, the greatest asset of an accounting firm is truly its quality assurance process. It really is. Like, there's not many things in an accounting firm that we could actually treat as like assets, things that we really own. Interestingly, I actually think meeting transcripts may be really the most valuable IP of an accounting firm soon because it's, it's the most complete snapshot of like the collective expertise of a firm. Somebody comes and works for your firm for three years and then they leave. You still own the meeting transcripts, you still own that contribution that they made to the firm. And there's many ways we can tap into that sort of collective knowledge for many years to come from juniors being like, hey, has anybody had this conversation with a client before? Like, how do I approach it? Wouldn't it be nice to see every example of that? In the past to even external like client facing, you know, a chat assistant or something like that that can tap into all the ways that we've advised clients in the past. Meeting transcripts, super valuable in that regard. But in terms of the machine of an accounting firm, the most valuable thing you could build it's gotta be the quality assurance process because the bottleneck, the constraint for most firms technical review, it's the hard stuff.

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I first got on Verito when somebody asked me like, what's a better hosting service I should go use. I went to my online community, realized almost 700 firms in there now. I literally typed in Thomson Reuters hosting. Somebody had asked the same question and like eight people in a row had commented that they absolutely loved Verito and had a great experience. That's honestly, that's why we started talking about Verito and now they're sponsoring our stuff. Whoo. Okay, if you're on virtual Office, you know what to do. Check out the link to Verito down in the show notes. Tax peeps, listen up. Do you have a tax workflow solution yet? I'm not talking about Graham Pappy's little auto scan, the awful intake OCR thing that comes with, with our dumpy old tax software. That's not what I'm talking about. There's a new crop of AI tax workflow tools that are doing some really, really cool things. One of the leaders here is this episode sponsor, Sorban. They were one of the first to this. They do a really, really good version of automated 1040 intake. A tremendous amount of the time spent during tax season is just Chasing people for docs and like building out the request lists of all the things that we need when the client emails and they're like what do you need from me? And you go back to the prior year file and you look at what you already have and you just got to do all that stuff. Sorban man, it wipes out all of that complete no brainer. Tax workflow tools like this is not an exaggeration, are honestly like a must buy right now for tax firms. I'd say they have been for the last like two years and they just keep getting better. Sorben also they are working on pushing the data to your tax software. Really hard problem to solve. They're working on it. They're also working on automated delivery. So ingest the tax return and then gives the client like a super smooth signing and sort of to do list experience once the return is actually done. Really good product. Know a lot of happy users. That's Sorban. If you do more than a couple hundred ten forties a year, definitely check out Sorban link down in the show notes. Now my take here is this is what makes like difficulty based prep and review cues so essential. And this is something that larger firms do, but small firms don't often take advantage of. And, and you know, the basic example of this that I've shared before that I did in my firm was, was we categorized, you know, 1040s into basically five different difficulty levels. Level one was basically government forms only. So you're just taking stuff off of W2s and 1,099 Rs, 1099 interest, no itemized deductions, no adjustments to income. And that, that return, that level one return, that's pretty much data entry, right? Like we're just pulling stuff off of government forms. Level two included adjustments to income level. Level three got into itemized deductions. Level. Level four included Schedule E, page one. And level five was Schedule C, Schedule F's pass throughs. You know, all the, all the stuff that requires more like has the bookkeeping stuff been done correctly? It's all the more hairy stuff. And in my firm I had the problem that most firms do where we were chronically blocked at review. We just couldn't find enough folks that had that, that secret sauce, you know, where you could trust them to sign off on stuff when it went out the door and it became this weird culture of like the haves and the have nots, like who is blessed to do that and who isn't. And it made it very hard to ever pull another person into review. Because this big, scary thing. If you remember the first time you reviewed something and the first time that you were the one, the last one to sign off on that thing before it went out the door, that's a scary time, right? You're like, this is how smart those people feel when they sign off on something. Like, I'm pretty sure this is right, but I don't know that I can really be trusted for this. And then, like, the question of when was the right time for someone to cross over that threshold, it came very. It became very ambiguous. Like, the big boss was kind of just shooting from the hip, where they're like, yeah, I'm pretty sure they can do it. We'll see how it goes. Rather than building something that's a more linear, linear progression. And so when we rolled out this sort of difficulty approach, it made review everybody's job. Because what does it really take to review a level one? 1040. I'm talking about 1040s here. You can do the same for bookkeeping projects to a degree, for entity stuff. But what does it really take to be able to review a Level one return? That's. I mean, that's largely administrative. Like, we are checking that the government forms line up with what was entered and entered into the return. And so while it may be very hard to get our heads around, how do I build a quality assurance process like a system for reviewing a tax return? Again, this is where in the ambiguous, we jump to the most complex, complex examples, and we're like, there's so many different versions of this. You can never build a system for it. So we have to rely on the superstar. We have to just rely on those years of experience. But if you pair this back down to the first step, what's the most basic version of this that we can imagine? You can imagine building a system, a set of instructions to walk a staff person through reviewing a Level one return. Now, we did the same for prep. So everybody was also approved to prep up to a certain level. And then that person would. Was required to review up to the level below the level they were allowed to prep. So if they were approved to prep up to Level three, they had to review up to Level two. And we started this one level at a time. We built out the documentation for Level one. Cause that was kind of the only version of this we could get our heads around. Everything else seemed too hard. And so you go through the exercise of building the documentation for Level one, and you get the team through it and you learn what works about it and what doesn't work about it. And once you've gone through that learning process, you learn, okay, level two. And like building out this process, this actually feels more in reach. But if you just think about the level four, if you just think about the level five right now, and you can't get your head around how to do that, you can't let that stop you from building the system for level one. And so a combination of this sort of difficulty system that gives everyone a linear progression through doing more work, but also for you, if you're trying to delegate more work out from under yourself, beginning to shed the projects where the risk to the business of it not being done to your level is not that substantial. That for you is the path of focusing your time on the higher value projects. And in a world where people are coming up with new ideas every day, and I know this podcast, I definitely contribute to that problem, right? You get an abundance of things that you want to do, but that stuff doesn't happen until you find ways to eliminate. In my case, I mean, I came up as a tax accountant. Eventually I launched a cast practice and so I've done kind of both sides of that, the tax and the bookkeeping, but at a 40 person firm and ultimately got myself totally out of the client work. And that happened a step at a time similar to the whole, you know, review thing. Like, very hard to get your head around abstractly, the notion of, like, how am I ever going to get out from under all of these things that I'm doing? You start with step one. And for most people, step one is a dollar threshold to say, like, the risk to the business of this person in my team not doing it to the exact same level as me is not high enough to justify me doing all of that stuff myself still. And I mean, it's very unpopular to say in many accountant circles. The notion that like there isn't an absolute correct or there is this notion of good enough. Reality is in any business there is a notion of good enough. And we do this. I mean, we, like you could spend endless time on any project, but there comes a point where you're like, I think I've spent enough time to, to get the 95% out of this. Like, we are kind of always doing that ROI calculation, but sometimes we, we glorify the, the technical stuff to the level that it ends up getting in the way of the business. And it's maybe wrong to say we assign maybe too much importance to the craft and not Enough importance to the business itself, the health of the business, making sure the client feels heard and understood and taken care of and all that. I was talking one with someone at one of my live events recently, and this is a great example of how across the board, different firms are on this stuff. There's firms have so many versions of this, like, tunnel vision, where we're not even thinking about all the different ways that the same thing can be done until you have conversations with other firms and you're like, holy cow, like, you're all doing it in a totally different way. To me, I had no idea that these, these other options were even possible because we are just like going down these railroad tracks that are a product of the lived experiences that we've had and the things that we've seen and the conversations we've had. The reality is there's so many other people doing things different ways. We're not exposed to those things and, and to be able to have those conversations. Great example of this. I'm at a live event and chatting with someone who runs a solo firm. They're doing tax work, but I think this is equally relevant to bookkeepers as well. And they're basically saying they understand the value of niching down further. But normally when you niche down the clients you support, you'll go nationwide. So most firms traditionally, like, you're working with local people. But if I'm just going to start working with beekeepers, taxidermists, then I'm going to grow beyond local. I'm going to start supporting people nationwide at that point. Right. As soon as you do that, compliance becomes a headache. I mean, the United States has 5,600 income tax jurisdictions. Nothing will make you perpetually feel like a dummy quite like doing tax, because there's always another thing to know. You literally cannot spend enough years in the profession and not still feel like an idiot. And so the notion that you're just going to overnight open up your doors to clients from all over the country and be an expert in every state and local tax nuance is kind of not realistic. Right. And so this person that I'm talking with been exposed in, in past roles to like just the bigger world that is out there of just how much nuance there is in all the different places that people can operate. And they're like, I had a real problem with trying to niche down and go nationwide because I just know how much I don't know about doing this work in, in other tax jurisdictions. But literally the day before I was talking with someone Else. And they had decided to niche down. And what they told me was, I, um, I've branded myself as the X. A very, very specific thing. I don't see what it is, but very, very specific thing. Tax guy. And they've gotten a lot of traction from this. People are very excited. They're like, sweet. Finally a tax pro for like this very, very specific thing. And they said, and I, I was first meeting this person. They tell me the story. And they said, I guess I got to figure out how to do taxes now. These are two conversations I had on back to back nights. First person been exposed to a lot of things, and they're like, man, I can't. I can't do this stuff. I just know there's so much I don't know about how to do this very next day. Did I get the order of the days mixed up? I don't know. You know what I mean? Another solo firm owner is like, I got a bunch of people that want me to do this stuff now. In fact, I branded myself as a person who can do this. I got to figure out how to do this. Those two things coexist. Those are two real firms. Who's right? I think most accounting purists would be like, oh, no, the person that is rightfully nervous is right here. Right? I would say the answer honestly, it has to be somewhere in the middle. And so this, this doesn't. This fails to, you know, glorify the purity of the craft. But I would say the over fixation on the purity of the craft is what gets in the way for many of us of getting home in time for dinner. Like running a sustainable business. We're in a profession where people will literally kill themselves in the name of bailing out their clients. In the last two weeks, three people have told me stories of folks this last tax season dying at their desk. One was 63, I think. The other was in his 60s. The other I heard was 42. There is a level at which the craft has to take a backseat to the business. And I'm. I'm not going to pretend that that's like an easy calculation to make. It isn't. But I think most of us have not even really begun to divorce ourselves from the notion that what I do is right and something can only ever be right, and I can only ever have enough confidence that it is right if I'm the last one to touch it before it goes out the door. There's also a degree here of, like, putting the accounting thing in perspective, right? So Maybe the, the two most practical takeaways from this, besides just trying to get away from the mindset of good enough being a light switch versus a spectrum is one. I would say if you run a team here, lean into this notion of sort of difficulty scaling and who has permission to do what level of difficulty and how do we give people a linear progression step, step into doing more technical stuff. If you've ever dealt with the problem of, you know, the, the senior reviewer cherry picking the easy stuff to review because they need a break, the person getting into something that is way over their head, like having this difficulty scale. So we're, we're deploying an appropriate amount of expertise to the correct projects is very important to running a firm efficiently. Second takeaway here, there's an element of dollar and cents here that matters as well. And this probably comes down to like how much expertise and how much time, how senior of a person am I going to deploy to the quality assurance of this project? If this is a small dollar, low stakes project, and to a lot of people, this feels wrong. My take here is you got to think about it as a business, there's a level and volume of expertise that we often apply that cannot be justified if we factor in the overall size of the engagement. So let's start thinking about what are the thresholds below which yourself, your most senior folks, they don't need to touch that stuff. Maybe we're leaning more into peer review. Maybe it's just having that more linear progression of folks being responsible for review who maybe historically have only done prep. Maybe it's just pulling more of those people into that process so that below a certain threshold, your most scarce people, the superstars, are not getting pulled into that. Systems over heroics. Hang on that noise Down. Systems over superstars. Standardized work over heroics. There's still room on my team for talented people and superstars, don't get me wrong. But the best application of those people, it is in the machines that they build, the systems they create, how they channel that superstardom into something that can scale beyond just them. And the result of that, that system, I think it is the most important asset that your accounting firm can build. Get any wisdom on this stuff, man. Drop a comment, let me know anything you've tried here. What's worked, what hasn't worked, anywhere you've gotten stuck. Thanks for coming to Hanging today. I'll catch you in the next one.

Hey, real quick podcast friends. I'm coming to a city near you running a bunch of live events before the end of the year. We're going to be at Intuit Connect in Vegas, we're going to be in Toronto, in Atlanta, Austin, Oklahoma City, Phoenix, Seattle, Seattle, Portland, San Francisco, Louisiana, Atlanta, Nashville, Chicago, Washington, D.C. philadelphia and Boston. If you are there or anywhere near there within a half tank's gas up there, buddy. I want to see you. We put together some super cool events that I'm very excited about all around getting you and your team aligned. Heading into 2026, the biggest problem I had running a firm was I had an abundance of ideas but was always blocked by trying to get my team bought into those ideas and everybody working in the same direction. And it's why I believe the biggest way I can help you is actually getting your team inspired, getting everyone energized for the year to come. So it's not just you, but also because these are live events, you're gonna meet a whole bunch of other local practitioners as well, which can almost certainly unlock some cool things for you. I'm especially looking at you solo firm runners and side hustlers, where your team effectively is the people you meet along the way, the relationships that you build, the people you can go to with questions when you get stuck on this or that. Going to be a super fun experience, including for some of these events. We're recording like a live interactive version of the podcast where you'll get to be part of the conversation. Very, very excited for these. I want to see you there. To learn more, head over to jasononfirms.com events and I hope to see you there.