why small firms can win the talent wars

seven keys to beating the staffing shortage.

by frank stitely
the relentless cpa

the following story brought tears to my eyes while i sat in a barbados resort drinking some alcohol concoction. was it the alcohol talking or the happy ending where i got a profit distribution check? maybe a little of both.

more: the fool in the room | calculating and cutting turnaround time | debunking the demise of the cpa firm | how many tax preparers do you need? | how to teach reviewing and time management | 3 tips for handling rookie tax preparers | some uncommon advice on hiring full-time staff | what goes into a client project?
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the afternoon before i left for beautiful barbados, the partner group of our outsourced accounting practice met for a state of the practice meeting conducted by our director of outsourced accounting.

fred is about 25 years old. i don’t know exactly, as i don’t really need to know. we hired fred directly out of college. he was the college roommate of my business partner’s nephew. we have hired a number of people from fred’s college with generally good results. we like hiring from this college because the big firms don’t like to.

the college doesn’t have a five-year master’s program. graduates can’t immediately take the cpa exam upon exit. that doesn’t matter so much for us. we aren’t looking for an army of cheap auditors. we expect to teach newbies from scratch about tax returns and life in general. my partner and i were fraternity brothers in college. we know how stupid new college grads can be. we were really stupid ourselves. arguably, i still am.

fred had been with us about a year when we began looking for a new director of outsourced accounting. we parted with the prior director, because his get up and go had long since gotten up and left. the whole outsourced practice was a hot, stinking pile of excrement. revenue was nil and any clients we had were angry at us and our parents for having us. for good reason.

we were chasing a controller-type person and had offered a really good salary, but he wanted a lot more. there was no way we could make the numbers work. fred overheard us discussing our frustration.

he plopped down in my office and said, “i’d like to throw my hat into the ring for the job.”

my first thought was, “sure, fred. you go there with your one year of experience out of college.”

but, sometimes the best decisions are made out of desperation. fred knew our software. he knew a little about taxes and knew our internal workflow systems. most importantly, he was excited about the job.

i told him, “wait right there.” i grabbed another partner and dragged her into my office, in a non-sexual way, for those of you looking to be offended. we haggled out the details in about 15 minutes and fred was on board. we had to replace him on the cpa firm side, but we were just out of tax season and had some runway for that.

fred did so well after the first year that he earned a 10 percent ownership stake as well as a raise. at the end of year two, he was running the end-of-year state of the practice meeting.

at the start of the meeting, fred distributed profit distribution checks. imagine that. we made enough money to actually distribute profits with cash left over. i’m not certain what happened at the meeting for about an hour. i was in shock. i don’t think even alcohol raises me to this state of bliss.

once i regained consciousness, i vaguely remember something about a raise and bonuses for fred and his staff. i maybe heard something about fred getting 10 percent more ownership. it’s like the most beautiful woman in the world asking for a favor. the answer is always yes. the most beautiful woman in the world has never asked me for a favor. i’m guessing here.

i would wager that our outsourced accounting practice is larger by itself than at least 75 percent of the accounting firms in the u.s. it took just two years with the right person, fred. our future enterprise growth rests largely with fred’s business. growing a firm with $15,000 annual clients happens a lot faster than growing with $1,500 clients. i knew this when we started the practice, but that didn’t matter until fred walked into my office with his one year of experience.

let’s stop for a teaching moment for any staff reading this. the best way to ask for a raise is to give your boss a check first. i’m thinking of teaching a seminar on this for millennials. i plan on charging $1,000 a head. send me attendees and i’ll give you a cut of the deal. just add it on to the price. they’ll have to give up avocado toast for a week.

here’s the point that has me in tears even now. i got a check for doing next to nothing for a year. how? by hiring the right talent.

do you have to give the right talent money? yes. ownership? maybe – for great performance. as inigo told the six-fingered man in “the princess bride,” “offer me all that i ask for and more …”

that’s where i’ll kill the analogy. i’m the six-fingered man in this analogy, and i really don’t want to die. compensate the best people accordingly. they’re great business partners. they give you money.

i define effective practice management as follows. effective practice management is putting the right people in the right places with the right resources at the right time. note the “right people” part of this.

you can have the best practice management software in the world. with the wrong people, you have a hot, heaping pile of excrement. i know from experience. i have the best practice management software in the world. people tell me my best quality is modesty – the people i pay to tell me this.

hiring better talent is another of our double wins. better talent reduces wip as better people require fewer hours to perform tasks. better talent also increases capacity as your firm accomplishes more both in terms of services offered and sheer work completed.

let’s talk about acquiring great talent.

attracting talent to small firms

stop thinking of small firms as undesirable places to work. we thought for years, “who would ever want to work for us? we’re small and don’t have the highest salaries and best benefits packages.”

that was 100 percent wrong. we had to make some changes and take a leap of faith, but we were wrong at the very core. what do small firms offer that large firms can never touch?

the chance to make a difference. the big four recruits masses of asses (auditors) to tick and tie invoices to source ledgers and report variances based on a properly selected sample size from the population.

is anyone still awake?

what do millennials say they want more than clean water, clean air, lower co2 levels, and affordable lattes? a chance to make a difference. in reality, that’s number two after salary, but it’s still a really high priority.

what do we do, as small firms? we make a difference in clients’ lives. we help clients hire workers, afford college educations, and fund retirement. our staff participates every day in this. very few people and organizations make a difference in people’s lives that we do.

small firms are great places to work. newbies learn about more than just taxes and bookkeeping, as important as those skills are. they learn how businesses work – and how they don’t. there is nothing more real-world than what we do. they’ll pick up skills more quickly that are more useful than any they’ll learn with the big four.

for people who want to make a difference, small firms are the bomb diggity. people who have worked for small firms can work anywhere from controllership to starting their own gigs.

let’s talk about putting that huge advantage to work.

making your firm more attractive

if you have hired primarily low-level, cheap staff, you have some work to do before you begin hiring better talent. first, you have your present staff, because you’ve been keeping your prices low. you can’t afford better talent unless you make some changes.

with your current low-performing staff, you are like a third world subsistence farmer who is always just one misfortune from disaster. when someone quits in january, as poor staff are likely to do, you get to work 100-hour weeks for yet another tax season.

like third world subsistence farmers, you need fundamental change. subsistence farmers need a mindset change that readies them for new technology to compete. you also need a mindset change to ready your practice for new ways of operating.

to afford better talent, you need better clients. if you have 200 clients and can’t afford to lose the bottom 20, you have a marketing problem. if getting one new client a month feels normal, you aren’t replacing bad clients with good ones. thus, you can’t afford better quality staff.

this isn’t a marketing guide. if you need one of those, go to www.g005e.com/shop and buy one. you need a pipeline of continuous potential clients contacting you all of the time. this isn’t going to cost zero, either. you need a target market and a plan to attract your target clients.

i recommend working with a local marketing expert on a contract basis. require experience working in the cpa and accounting world. there are also a few very good national organizations that cater to cpa and accounting firms. there are also a lot of bad national organizations catering to us.

as with most new initiatives, you have a significant likelihood of failing with your first marketing effort. learn from the failure. don’t give up. i am in the middle of what i suspect will be a failed initiative. we will reload and try again.

next, raise your prices. once you begin building a pipeline of better clients, you can let your bottom-feeding, whining, good-for-nothing clients go away. you hopefully won’t haven’t to fire them. they’ll just go away. you’ll know they’ve gone away when you no longer have debates about the invoices you send out.

a longtime client came to me and asked why his bill had gone up so much from 10 years ago. first, i looked at an invoice register and discovered what he thought he was paying 10 years ago and what he actually paid was quite a bit apart. he was paying substantially more 10 years ago than he remembered. it’s amazing how facts change the tone of conversations.

next, i explained how the complexity of his tax returns increased. now instead of a schedule d, we had schedule d with a few 8849 forms. he seemed satisfied with my explanation, but i know from experience, there’s a pretty good chance he’ll be out price shopping soon. we are charging him a reasonable price, and i won’t take less. if he leaves, we’ll replace him from our pipeline.

until you start making good business decisions about keeping or not keeping clients, you are just like any other third world subsistence farmer. you’ll always be just one step ahead of starving.

about this point, i would expect a little pushback from people in multi-partner firms. what if we’re a three-partner firm, and one partner is perfectly happy with what we are doing even though the other two of us see the need for change?

i wish i had an easy solution for this. the real solution is to read your operating agreement and figure out the price of a professional divorce. this happens all the time for issues besides revenue growth. i suggest letting that partner depart the firm with his clients. you probably don’t want them anyway.

also, let him take some lousy staff with him. you can bet the staff who want to work with him are pretty bad.  you know who they are. they’re the preparers who need to print out last year’s tax returns before preparing this year’s. they’re the admin people who tell you clients will never accept tax returns in pdf format. clients want paper.

once you have a good new client pipeline in place, it’s time to fish in a better talent pond. determine what you need to pay for better staff and what benefits you need. the major payroll services usually have free surveys available. of course, they aren’t really free. you’ll have to sit through a presentation on something useless, like why you should love human resource people. make them bring lunch.

differentiating your firm

affording competitive benefits is tough – especially health insurance. we spent 18 months looking for an affordable plan with good coverage. by “we,” i mean our practice administrator researched the plans and i cheered her on. good staff will leave over bad health insurance. the stakes here are high.

there are some benefits decisions that are easy. get rid of the old simple or sep retirement plan. i can’t think of a single instance when a simple plan is the right plan for anyone – clients or us. sep plans may be great for excluding staff from coverage for three years, but is that what we’re after?

in the year 2020, you are advising pretty much all of your clients, even the small ones, to adopt 401(k) plan variants. take your own advice. drink your own kool-aid. smoke your own dope. pick your analogy.

if you don’t have any retirement plan, what message are you sending to staff? you recommend retirement plans for your clients, but not for your staff. this is how you end up with lousy staff. the good ones leave. the bad ones stay because no one wants them.

the insurance industry calls this adverse selection. this works with clients as well as staff. when you adopt policies that drive off good clients and staff, you wind up with just the bad clients and staff, who can’t leave. life then sucks.

if you really want to differentiate yourself from other local firms, pay for training. i beat this topic to death in my first book. you will shock candidates coming from competitors. rinky-dink local firms don’t pay for training. don’t be rinky-dink. i covered the math on this in my first book. training yields a great return on investment.

finally, create a fun place to work. small firms do interesting work. having fun should be easy when your staff does meaningful work. however, if there’s a lot of yelling going on in the office, and people are bursting into tears, your office will devolve into adverse selection, where anyone, who can leave, will leave. you’ll be a subsistence farmer again.

we’ve hired a number of staff who have come from yelling environments. one of my current partners came from one. we had a time when too much yelling was happening. it contributed to a reduction in staff quality and thus work quality. i wondered why we were hiring losers. i suspect our work environment was the problem.

if you feel the need to yell a lot, either you have an anger problem or the wrong employees. yelling won’t make bad employees better. replace them. that’s what this post is about.

praising good performance matters. when staff only get criticism, they shut down and do even worse work.

forget the work-life mantra

i’m not a believer in the hot management concept called work-life integration. that’s where employers ask employees to live their personal lives through the business. employers serve meals and provide exercise facilities to keep employees engaged all day and into the night at work. companies hold beer blasts on friday with nearly mandatory attendance required.

i just read a book on happiness that put forth the proposition that work-life integration causes higher rates of depression by diminishing employee relationships with family and outside friends. the author cited working at facebook as an example. she tells the story of a mother and a child visiting the father for lunch at work because he rarely saw them.

that life’s not for me or our staff. i suspect work-life integration is merely a way to not pay for extra work. i do believe that occasional social events for employees can build teamwork and morale. it’s much harder to yell at someone when you know their kids’ names and where they’re going to college. just try not to steal too much of your staff’s personal time. tax season is rough enough.

building a better work environment is about creating a more human-friendly environment – a place where people can grow and enjoy life outside the firm as well as inside it.

now, it’s time to find that better pond. a lot of firms are finding that better pond overseas. because you don’t need to hire a hundred new staff, you can fish in places the large firms can’t.

do any of your clients have kids in college studying accounting? think summer internships.

what about community college grads? they can work for you while they study to complete their four-year degrees. this is a win-win. you win because you get reasonably priced staff. they win because they get an engaging, relevant work experience while they are studying.

look for people who have been rejected by other firms after a short period. we hired two newbies this past summer this way. one graduated in december and went to work for a local firm that let him go after one tax season. they’re one of those firms that hires a bunch of people in january, knowing that they’ll fire them in may once their work dries up. i couldn’t sleep if i did that to people, but there are a lot of firms that do this.

we hired jim in the summer and started training him. because he had been through one tax season, he had a head start. we got him billable almost immediately. he’s doing tax projections as i write this. he’s an intensely smart kid who just got off to a rough start in his career by working for a bad firm.

greg was a near college grad last spring. “near college grad” means he participated in college graduation even though he had one summer course to complete. he was hired by a firm that terminated him before he even started for lying on his resume about being a college grad. really???

we hired greg shortly after for our outsourced accounting operation. fred tells me greg is a brilliant dude. he’s really quick at picking up the technical side. best of all, he’s really great with clients. he may develop into a rainmaker. i am about to withdraw from a lead share group and substitute greg in my place. life is beautiful.

preeta (i’m especially gifted at making up foreign-sounding names) isn’t an employee yet. we’re stalking her. she was an intern for us this past summer. she’s a senior at a local college. she worked for fred over the summer. fred tells me she’s a perfect fit. she picked up our systems over the summer and knows all of our software. we moved to a new office a few weeks ago. preeta attended our open house. i smell victory, or better yet, another profit distribution check.

what years of experience really get you

so far, my examples are all about hiring younger staff. there’s reason behind this. when i look back at the history of our firm, i see very clearly a lot of hiring mistakes. one mistake that i have repeated over and over is assuming that years of experience on a resume mean anything.

when you hire a newbie out of college, you know you’re getting zero years of experience. when you hire someone with 20 years of experience, you probably aren’t getting 20 years of real experience. you are possibly getting five years of real experience followed by 15 years of chair warming.

you may not even be getting five years of good experience. you might be getting five years of learning the wrong way to do things. you may have to unteach a lot of bad habits. worse, you are paying for 20 years of experience that you aren’t getting.

hiring newbies isn’t foolproof. you’ll make hiring mistakes, but the mistakes will be less costly. you can also change a newbie’s attitude more quickly. they haven’t developed that six-inch-deep layer of skepticism about everything. they haven’t learned to hate life yet. they are capable of change.

you can hate me for that last paragraph, but you can’t deny the truth. in mid-march, don’t be surprised when that person with 20 years of experience stops following your workflow and resumes bad habits picked up from a miserable career in a half-dozen different loser firms. the newbies know only your systems.

this has been a long post. i am tempted to end it with some platitude like “think outside the box.” however, changes in our industry lead me to believe the box doesn’t even exist. create your own box.

to summarize this very long post:

1. better talent reduces wip and increases capacity.
2. small firms are great places to work.
3. lay the groundwork for hiring better talent with a full new client pipeline.
4. get competitive with salaries and benefits.
5. create a great work environment.
6. find better talent ponds in which to fish.
7. hire younger people.

as i conclude this post, i’m having breakfast at chick-fil-a. i start a lot of mornings here. i like the attitudes of the employees. there’s something great about hearing, “my pleasure” as they refill my large diet coke.

i’m certain the employees here have bad days. i’ve witnessed a few idiot customers call them names. the employees have learned an essential talent that’s as useful in our business as in the fast-food world – fake cheerfulness.

isn’t it great to have employees who can stay cheerful with clients in early april, despite being ready to kill most of them? as i finish my sausage muffin, i’m mulling over our need to hire another admin person. i may be sitting in a great pond of customer service. it’s time to take out my fishing rod…

posted on september 18, 2020