which employee is most valuable? you might be surprised.
by frank stitely
the relentless cpa
we have been heavily in the numbers so far. let’s take a break from that to discuss a factor that, while not heavily numeric, plays a big factor in managing wip – employee productivity. because capacity is the denominator in the lean six sigma equation, and employee productivity is a big factor in capacity, employee productivity becomes a big factor in determining turnaround time.
more: calculating and cutting turnaround time | there are no easy answers | how to thrive as a 21st-century firm | farm-aid for accountants? | whittle down wip | the tax practice traffic cop | how to coach your staff | how to create good managers
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first, let’s dismiss from the room all the consultants, who tell us that time tracking and productivity metrics don’t matter. for the most part, these consultants have never managed or owned cpa firms. rarely have they worked in firms for any length of time.
they have never known the struggles of meeting payroll the first pay period in february, when employee hours are up, but the tax season money is not rolling in yet. goodbye. don’t let the door hit you in the butt on the way out – or do let it hit you. that’s up to you. i hope it’s a heavy door.
here’s an example that shows why time tracking and productivity metrics matter. let’s assume you buy a cpa firm from a retiring owner. you know going in that the firm’s profitability isn’t very good. the firm is just breaking even after the owner’s compensation. how do you determine why profitability is bad and how you can fix it?
this firm has three employees and no time tracking or individual billing data. the following employees are not actual former or current employees of my firm, but represent amalgams of many of the people who have graced my firm with their presence over 30+ years. some of them caused my mental health issues.
tammy: tammy has worked in the cpa profession for over 20 years. she has worked with this firm for three years. her hiring was a breath of fresh air for the old owner. tammy shouts a bright “hello” every morning to each person in the office. she knows the names of everyone’s family members, and always asks about their welfare. she never leaves the coffee pot on.
she primarily prepares personal tax returns, because she has never really “connected” with business returns. her work is pretty good but almost always requires at least a few fixes before delivery to clients. clients love talking to her.
tammy makes $75,000 per year.
edward: edward is the scholarly sort. he doesn’t talk a lot and just keeps to his business of preparing mostly business tax returns. personal returns bore him. when edward doesn’t know something, he has no problem rolling up his sleeves and doing the research, even in march and april. he’ll spare no effort to get to the bottom of a tricky question about the deductibility of pet health insurance.
even though edward has the personality of a dead earthworm, his coworkers like and respect him for his diligence. clients not so much. they find him brusque and aloof. nonetheless, clients don’t mind working with him as he seems very knowledgeable. edward has been in the cpa profession for 10 years, four with his current firm.
edward makes $85,000 per year.
gregory: by the way, who names their kids gregory anymore? if this firm were a season of “survivor,” gregory would have been voted off the island in the first episode. he has been a cpa for a whopping three years, but he knows absolutely everything – or at least thinks he does. he follows firm procedures up to a point – the point where you become annoyed that he can’t just do what everyone else does.
gregory doesn’t connect well with the firm’s client base of mostly baby boomer clients. they don’t like taking advice from a kid. gregory does bring in a lot of millennial clients, but most of them can’t afford the firm’s prices. gregory was fired from his last job for privately serving clients his old firm had declined. everyone is worried that he’s doing the same thing now.
gregory refuses weekend hours. he’ll come in on a saturday, but only stays for a couple of hours and is gone. he tells the boss that he works until 11 p.m. each weeknight. he has important stuff to do on weekends.
gregory has lots of “improvement” ideas. he wants to take a new approach to financial planning, where he could serve younger clients with few assets. that’s just stupid, of course. you can’t make money in financial planning on people with no assets.
gregory makes $65,000 per year and no one can figure out how he still has a job. he’ll be gone after tax season like you-know-what through a goose. everyone agrees on that.
who is causing our productivity problem?
the answer is that you have absolutely no clue. if you think you do, you are mistaken. you know the saying that goes, “when you don’t know who the fool in the room is, the fool is you.” well, look in the mirror if you think you know who to fire in the above example.
the consultants, whom we kicked out of the room, tell you to believe that you don’t need time tracking and productivity metrics to run a firm. you just “know” who is good and who isn’t. they mumble nonsense about “forward-looking” metrics, which are merely an excuse for not knowing how your firm operates. the technical term is management by ignorance (mbi). i own the trademark to that. i’ll be running certification courses soon. they’ll be short courses. the aicpa calls them micro learning, which means you’ll spend five minutes learning nothing.
i suffered through a conference session where the session leader told us he knows that he needs another employee when he has about $180,000 of annual billing to get done. that would be great except that he gave us too much information about his firm. i calculated that his real billings per employee were about $120,000. he had no billing metrics to know his real number. he also had no information to fix his numbers. he couldn’t tell productive employees from chair warmers.
let’s introduce a really basic metric to our example – annual billings per employee. no, it’s not a perfect metric. in the real world, you need a lot more than just this. if you’re nice to me, i’ll give you some of these measures later. but let’s see how just this basic piece of information can open your eyes.
- tammy: $125,000 per year
- edward: $135,000 per year
- gregory: $175,000 per year
“but frank,” you object. “there is no way in the real world a gregory would outbill the other two.”
wrong. here is where i borrowed a bit of my own firm’s history. gregory isn’t exactly like our employee (now manager), but he is close in a lot of respects.
all the partners in our firm wanted to fire gregory. then we saw the numbers. nobody believed the numbers. one of my partners dug into them. were these actual billings that we collected in real american dollars? yes, they were. our worst employee was possibly our best.
our gregory wasn’t perfect. but in light of his results, he was worth training – certainly not firing.
to reiterate how stupid we were … we thought bringing in millennial clients wasn’t a great idea. we were about 10 percent right. bringing in millennial clients indiscriminately is a bad idea. bringing in millennial clients who can afford our fees is a magnificent idea, however. millennials are now in the age range where people start businesses. we like business clients, who will be with us for a long time before dying. i suspect you do as well.
in the end, all of the partners sang in unison (to the tune of “rudolph the red-nosed reindeer”), “oh how the partners loved him. and they shouted out with glee. gregory the billing monster, you’ll go down in hisss-toooo-reeee!”
here’s the point of the above diatribe. metrics matter. no metrics. no roadmap to improving productivity.
productivity determines capacity. five great employees produce more than five chair warmers, unless you’re in the chair-warming business. therefore, employee productivity affects capacity and thus our lean sigma equation. higher productivity equals higher capacity driving faster turnaround times. faster turnaround times equal happier clients creating a happier you. and that’s what matters.
bring the consultants back in the room and yell at them.
“productivity matters, morons!”
i’m not ready to end this post without another swipe at the “throw out the timesheets” people. they tell you that you can tell if a firm is profitable by looking at the income statement. isn’t that special? yes, you can.
however, you can’t dig into why a firm is or isn’t profitable without a lot more information – like productivity metrics. where do productivity metrics come from? time tracking.
our consultants are the fools in the room.
now i’m done.