My Three Biggest Mistakes
I made a lot of mistakes while I was growing my business in the early days... A LOT! But there are three that I made that I see other CPA's making all the time. Eventually I realized that until I fixed these, nothing was going to change.
I'm a reader more than a watcher. If you are like me and want to digest this in a hurry a synopsis of the video is below.
I realized not long after going into business for myself that I was "ridiculously in charge" of my own destiny. That I could decide to do just about anything. It was all up to me. But that doesn't mean every decision was a good one.
Too Many Eggs in One Basket
One of my best clients relied heavily on me and my team in the early days of our business. In fact they provided the funds for me to go out and hire my first employees. We were regularly charging $15,000 - $30,000 per month.
Then one day they called and said, "we don't have the money to pay you." It was devastating. I needed the money for things I was already committed to. I had to let one of our team members go. It bruised my ego as a new business owner.
But when I looked back after the fact I could see there were warning signs I should have paid attention to. For instance, on more than one occasion I thought "how would we survive if this client left?" When you are asking that question you are probably too dependent on one client.
I also realized when I looked back that I had been harboring a growing resentment against this client because of their increasing demands on my time. I was burying that resentment because the money was good. But it was definitely affecting my service to the client and my quality of life.
The too many eggs in one basket problem is an easy one to get into. In this kind of work it is pretty easy to sign up clients that will pay you 10, 20, or 30 times what you charge for a normal tax return. And if you aren't careful you will wind up exactly where I did. Here's how to stay out of trouble.
When an existing client starts to get so big that you worry about losing them consider scaling back what you commit to. I will often outsource new project work for big clients if we have opportunities to bring new clients on board. Freeing up the time to take on new clients spreads out our risk, and the existing clients still have us involved in the project. We make less on those projects because we have to pay for the subcontractors to do the work. But overall our business is healthier.
Scaling a Service to Lots of Small Clients
Fresh off my experience of getting burned by one large client I decided diversification was a better strategy. By taking a fairly simple service and scaling it out to a large number of clients I wouldn't get hurt if any one client decided to leave or went out of business.
We developed a great product and started signing up clients left and right. Clients would come and go but on the whole more came than went. Business was good.
But another problem surfaced. As hard as we tried to vet new clients, some of them just wound up being crazy people. And all it took was one monkey wrench thrown into the machinery in the form of a customer service nightmare to completely derail our profitability.
In the end I learned there is only one filter that is effective at eliminating the crazy people. It turned out pricing was the most important positioning tool we had to make sure high quality people were the ones who got in the front door. When I raised my prices above a certain point the customer service headaches magically disappeared.
We gave up some clients by raising our prices, but our profitability improved drastically without the drag of crazy customers on our overhead.
Just Focus on Processes
Another thing I did was I look around at how other CPA firms were growing. And one of the things I noticed was their processes. They had processes for everything.
So we went to work on our own processes. By redesigning how we prepared tax returns we were able to drastically reduce the turn around time it took to complete the work. Encouraged by this I went out the next summer and fall and signed up as many tax clients as I could. And it worked.
The next tax season we posted the best seasonal revenue we had ever had.
And we also endured the most miserable tax season of our lives.
I learned that it didn't matter how successful you were if you hated doing the work. It doesn't matter how good you get, how perfect your process. If your heart isn't in it the financial results won't matter. And they won't last.
The problem was all of the tax and accounting stuff we did with clients was purely rear view mirror work. As a tax accountant I wasn't involved in growing the business. I wasn't a strategic advisor. I wasn't a sought after resource. And I had to face the fact that even with a fast turn around time I wasn't that valuable to my clients.
It was this last area that lead me to focus my efforts on developing a system and a process for helping small business owners do strategic planning and execution. I wanted to be looking out the front windshield with them. I wanted to be that valuable resource.
It took a while to figure out, but once we did, our revenue, profits and happiness went through the roof. I can look at the businesses we work with now and the impact they have on their communities and I know I play a very big role. That is exciting stuff.
Before we get into what the strategic consulting work looks like I want to share something really pragmatic in video 2. It doesn't matter whether you are doing taxes or accounting or bookkeeping...or maybe you are already doing consulting work, I want to share with you three really practical steps you can take to increase your profits.
Profits give you options and if you want options for your practice I can't wait to share these tips with you in the next video.