Many accounting firm owners, partners and managers plan for growth based on the number of new clients and projects they intend to take on. While the pandemic threw plenty of curveballs, it also gave accounting businesses the chance to show (not just pitch) how valuable advice from a great accountant can be.
But first, firms that want to take on more clients and higher-value projects need to figure out how to get all the work done.
In this article, we’ll explore why the right level of capacity is crucial for growing a profitable firm, as well as how to build all the capacity you need.
Why is capacity management and planning important?
Most accounting firms have revenue and growth targets. But far fewer firms are in the habit of calculating and actively planning the capacity to deliver the work. The key lies in answering this question:
Do we have enough people and hours (at the right level) to do the work? Or are we just going to say ‘yes’ and hope for the best?
When there’s a mismatch between work volume, capacity and capability, undesirable effects can result in decreased profitability, staff morale and client satisfaction.
Accounting firms in Australia reported “overwhelmingly positive” business conditions in May 2022, the CommBank Accounting Market Pulse showed. Yet 93% of accounting businesses confirmed that finding quality accountants and bookkeepers was their biggest challenge. They were booking high-quality work and seeing a high demand for their services but were held back by the challenge of finding and holding on to high-quality team members.
Accounting firms that lack the right levels of capacity and capability (that optimal combination of knowledge, skills, mindset and work environment) risk failing to do the jobs their clients booked them for. They also risk being unable to take on new clients and grow.
The top 7 downsides of “too little capacity”
When you say “yes” to new work, but can’t deliver it promptly and well, negative outcomes result:
1. Files Gets Stuck In WIP
When your work-in-progress (WIP) pile gets too high, files move at a snail’s pace. Your team become overwhelmed, dividing their focus between too many projects. As a result, work moves out the door slower and cash flow stagnates.
2. Work-Life Balance Gets Sacrificed
When firms over-commit to too much work, their staff have to work longer hours to get it done. Pretty soon, staff morale suffers and team members start looking for greener pastures, resulting in higher-than-average attrition.
3. High-Value Staff Are Under-Utilized
It’s also true that when you are short of capacity, the focus shifts to simply “getting the work done” by any means necessary.
Firms with insufficient resources frequently fall into this Capacity Trap–a situation where high-value resources are forced to do lower-value work. This is what the Capacity Trap looks like:
There are two big problems with the Capacity Trap:
- Wasted profit: when an accountant who can bill $150 per hour does $30-per-hour work, the opportunity cost is $120 per hour. Now multiply the opportunity cost for every under-utilized resource in your firm.
- Drop in staff morale: team members may be initially willing to do whatever needs to be done. But if a mismatch between ability and requirements persists, staff soon become unhappy.
4. Value Delivery Decreases
When your team gets bogged down in too much compliance and procedural work, you end up not being able to review and add value to your clients based on what the numbers are saying. While compliance and accounts processing work both matter, for your firm’s long-term health it’s important to offer clients your higher-value advisory services as soon as you can.
5. New Business Development Suffers
Ironically, what starts as enthusiasm to bring new business on board ends up having the opposite effect.
Once you become bogged down with work-in-progress, your accountants can end up sitting in front of a computer, instead of sitting in front of clients. All of a sudden, your new business pipeline runs dry.
6. Overworked teams pass up training opportunities
For accountants and bookkeepers to do their best, the need for training is constant. They’ll need to update their digital skills so they can make the best use of accounting software as it develops. They will also need to keep abreast of changes in regulations.
“During the pandemic, clients relied on their accountants during a time of changing regulations, processes and tax deadlines,” Twyla Verhelst, who heads FreshBooks’ Accountant Channel, wrote in the September 13, 2022 issue of Accounting Today.
“Many small businesses had to rapidly pivot the way they do business, like shifting to an e-commerce model just to make ends meet.”
Accounting businesses with the right level of resources give their teams the time and energy to take training courses. Their energy doesn’t get spent on trying to climb their way out of their piles of tasks and backlogs. Training empowers accounting teams to complete excellent work and build up your clients’ satisfaction and trust in your business.
We advocate planning your capacity to match your requirements 6 to 12 months in the future. By the time the future arrives, you’ll need more again.
You just have to ensure that you balance your capacity so that the staffing you have matches what your business needs.
The way our TOA Global clients’ firms do this is by adding a global team to handle their compliance and procedural work, so their local staff can focus more on higher-value, client-facing work.
What do you need to do to get the right number of team members with the skills, training and drive to help grow your business?
4 concrete methods for building firm capacity
1. Improve efficiency by creating standardized workflows
You already know about Henry Ford and his invention of the production line. Using standardised parts and workflows, he massively increased the production capacity of the automobile industry.
The inventor and industrialist improved the average production speed from 12.5 hours to 2.5 hours per automobile. Accounting firms can do the same.
But what some may not know is that because the production line method made the cars much cheaper, Ford could afford in 1914 to double each worker’s daily wage.
The same thinking works for firms wanting to increase their accounting work production. Building standardised workflows allows you to produce more output in less time so that you can deliver more value for every hour.
2. Improve efficiency by harnessing technology
Using technology efficiently already gets a lot of attention in the accounting world. Cloud accounting technology is just the beginning. There are many other categories of tools which can also increase the efficiency of other functions, including:
- Engagement letter automation.
- Receipt capture.
- Workflow management.
- Bank statement extraction instead of manual data entry.
- Responding to customer feedback.
Using the right technology and tools – and extracting maximum value from each one – is a solid recipe for making your people more productive.
Yet more companies still have to get around to doing it. When it surveyed 52,195 workers in 44 countries in March 2022, PwC found that only 26% were automating or enhancing work via technology.
3. Increase resourcing by hiring more high-value local staff
If you’re high on efficiency but low on resources, you may need to expand your team.
Hiring more local staff is certainly an option, although a talent shortage in most economies has made this more challenging than before. The important thing is to avoid hiring great people, only to put them onto procedural work that can be delegated to other team members so that your more senior staff can focus on advisory and other higher-value, client-facing services.
Before doing that, we recommend rebalancing capacity so your in-house team members can attend to your clients better and deliver the services that increase your firm’s competitive advantage.
4. Increase resources by hiring a global team
There’s also an option to hire job-ready accountants and bookkeepers in regions like the Philippines to handle the bulk of your compliance and procedural work.
By having a well-trained global team, your local team can be freed up to focus on:
- Strategic and advisory work.
- Networking and business development.
- Client meetings.
- Interpreting and explaining the numbers.
As a result, your revenue, margins and profits grow.
More and more firms are benefiting from global talent solutions. Our client firms alone number more than 1,000 as of mid-2022.
Please get in touch if you’d like to explore how this would work for you and your firm. Once you add the resources you need, the financial impact looks something like this:
Planning for your firm’s growth
You’ve seen how having the right approach to planning and managing your capacity is equally as important as sales and business development.
And you’ve also seen how most firms are constrained by too little capacity, as opposed to too much.
How will you grow your capacity—at the right cost—to achieve your growth and profit goals? We hope some of the tips in this article will help.
And if you’d like to explore adding a global accounting team as part of your strategy, we’d love to help.
Claim a Free Accounting Outsourcing Strategy for your firm. This is a detailed blueprint for rapidly scaling your capacity, margins and profits—and it’s based on the experiences of more than 1,000 accounting firms that have accomplished that while helping more than 3,000 accountants and bookkeepers grow their careers.