{"id":62074,"date":"2019-06-08t12:00:47","date_gmt":"2019-06-08t16:00:47","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=62074"},"modified":"2024-08-14t11:26:54","modified_gmt":"2024-08-14t15:26:54","slug":"why-you-must-constantly-push-work-down","status":"publish","type":"post","link":"\/\/www.g005e.com\/2019\/06\/08\/why-you-must-constantly-push-work-down\/","title":{"rendered":"why you must constantly push work down"},"content":{"rendered":"
<\/a>new staff won’t work the hours you did. forget that notion right now. by <\/i>bill reeb<\/i><\/a> and <\/i>dominic cingoranelli<\/i><\/a><\/p>\n as we work with firms throughout north america, one of the most constant, critical issues we find is that of staffing gaps. those gaps are manifested in shortfalls of billable hours, as well as shortages of people, and a lack of critical competencies of people \u2013 all at various levels throughout the firm.<\/p>\n more on performance management:<\/b> when the inmates are running the asylum<\/a> | the two most common management styles<\/a> | different roles for different partners<\/a> | how big \u2018books\u2019 hurt firms<\/a> | developing a three-year vision [video]<\/a> | more merger questions than you imagined<\/a> | mps: how to elect them \u2026 and fire them<\/a> | partners as role models: the good, bad & ugly<\/a> in these situations, we tend to find that often the partners, and sometimes the managers, are billing too many hours. meanwhile many staff, especially at the lowest levels within the firm, consistently are missing their billable hour targets. so, how do you wrap your arms around all of this? we often hear cpas talk about \u201cleverage.\u201d this is a good place to start as a metric to see how your culture is changing and how well<\/p>\n the problem with this word is that, as with so many metrics, it is not nearly as comparable from firm to firm as anyone would think.<\/p>\n in its simplest form, the leverage number is net revenues divided by total revenues billed by the partners for their own time.<\/p><\/blockquote>\n so, if a firm has $5 million in net revenues, and the partners\u2019 time accounts for $1.5 million in bill revenues, the leverage number would 5\/1.5 = 3.33. however, there are two modifications that we suggest to make the leverage statistic more meaningful and actionable to facilitate firm change.<\/p>\n first, you should remove revenues billed by each partner when they do work on other partners\u2019 books \u2013 that is on other than their managed book. so, if i billed $500,000 personally, and i have a $1.5 million book, then my leverage ratio as calculated according to the rules above would be 3.33. but, if i billed $100,000 of that revenue on another partner\u2019s book, then my revenues were only $400,000 to be divided into my total revenues billed. so, my leverage number should actually be $1.5 million\/$400,000 = 3.75.<\/p>\n but we are not done … let\u2019s take this a step further. what if we added other partners\u2019 time when considering leverage in my book? if two other partners did work on my clients, and each of those partners billed $75,000 on my book, then total partner time of $550,000 (my $400,000 + $75,000 + $75,000) would need to be divided into my $1.5 million in revenues to determine my leverage ratio, which now has fallen to 2.72.<\/p>\n we suggest making these changes to the normal formula because many partners have highly leveraged books, but they are highly leveraged because they have a group of junior partners doing the lion\u2019s share of work on them. so, it isn\u2019t uncommon to find a partner with a $2 million book he or she manages, including that partner\u2019s billings of about $400,000, but also including billings of $300,000 each by two other partners.<\/p>\n what looks like a ratio of 5 in that case is really only a ratio of 2.<\/p><\/blockquote>\n why? because there is no leverage when you involve other partners … that is no different than the relationship partner doing all of that work him or herself.<\/p>\n we are not saying you shouldn\u2019t involve other partners, but rather, making the point that doing so does not create firm leverage. you are actually tying up the scarcest resource you have when partners work on other partners\u2019 managed books.<\/p>\n when the clients are big enough, adding more partners to the mix certainly is justified, especially when each partner might be managing different services being delivered to the client. but far too often, a client does not generate significant annual fees, and yet, multiple partners will spend a great number of hours doing their work.<\/p>\n continuing with this concept, we suggest to our cpa firm clients further modifications that actually make the leverage ratio worse than what we\u2019ve described thus far. we suggest they augment the denominator (a partner\u2019s individual billed revenues on their managed book) with billings not only of other partners, but also of other principals or non-equity partners, and sometimes, even the senior manager group.<\/p>\n the whole point of leverage is to push the work down. it doesn\u2019t take any skill to hand all of your work to the most capable people in your firm.<\/p><\/blockquote>\n so, if you really want to see how well people are leveraging their work, training the people in the lower ranks of your firm, you need to determine how much of that work is being done by managers and below. as you earn higher numbers using this version of the calculation, you are truly seeing who is taking the time to break down the work and get lower-level people involved.<\/p>\n the next question usually is, \u201cso what is a good leverage number?\u201d well, if you look at very large firms, you might find leverage to be about 10-15. however, if you look at small firms, that number might be 2. logically, the larger the firm, the better leverage they are likely to have, although just because you are not a small firm, that doesn\u2019t mean you will have better leverage ratios than a small firm.<\/p>\n our instant reply about \u201cleverage ratio targets\u201d isn\u2019t what number they should aspire to, but rather, asking questions like \u201cwhat number has the partner group been trending toward?\u201d another question we commonly ask is \u201cwhat leverage numbers are your most highly leveraged partners experiencing?\u201d with these statistics, we have an average leverage ratio along with the leverage ratio of our highest performing partners. this quick exercise will give you some data within your firm to start moving toward improvements.<\/p>\n we really don\u2019t care about the firm\u2019s overall leverage number at this point. rather, we suggest that you focus on each of the partners\u2019 individual leverage numbers to facilitate the most rapid improvement.<\/p>\n this is a simple process to lay out for people to see. in a spreadsheet, list every partner and the book of revenues he or she manages. then, show their personally billed dollars against their book. we also would suggest adding, at a minimum, an additional column for other partners time billed in those same managed books. then divide, as mentioned above, partners dollars billed into managed revenues and you get a leverage number. who are the poorly leveraged partners (the ones who come out with the lowest numbers)?<\/p>\n next, take the average of those numbers and create a compensation goal tied to leverage improvement for all of the partners who fall below the threshold \u2013 the average you\u2019ve calculated. if the numbers have a wide gap between best and worst leveraged partners, then create a stair-stepped approach identifying hurdles each year to increase leverage until all of the partners fall within an acceptable range.<\/p>\n now, after you share that spreadsheet and share my comments above, it starts to get interesting. this is because we get to hear the deeply ingrained rationalizations coming out.<\/p>\n there is often some accuracy in rationalizations, but that doesn\u2019t make them true.<\/p><\/blockquote>\n for example, the smallest booked partners will argue that they have to do all of the work because the largest booked partners take all of the staff. there is some truth to this argument. there is often preference giving in staffing to the senior owners, and often to the largest booked partners. and the smallest booked partners, also typically the youngest partners, have access to the people in the firm no one else wants, or they can wait for the good staff to become available (which puts them at odds with their clients\u2019 deadlines), or they can do the work themselves. thus, small booked partners may tend to remain small booked partners without the culture changing or each of them deciding on their own to do something differently.<\/p>\n let\u2019s look at how to address this (and what a surprise, the solutions often take privileges away from the privileged, so they commonly are either not supported or not adopted). the first key is to make sure that no partner carries a small book. therefore, if there is a firm average book managed target they are trying to maintain, book should be shifted from the larger booked partners to the smaller booked partners. not all at once, but over a few years, every partner should carry the expected minimum book size managed for all partners.<\/p>\n if a partner can\u2019t actually handle the size of book expected, then that calls into question whether he or she should be a partner in the first place. i am not suggesting that you shouldn\u2019t provide training to the partner struggling with managing a larger book than he\/she is used to managing. however, if, after ramping up book size over several years, and teaching the partner how to delegate more work, if they still can\u2019t handle the workload, then they probably shouldn\u2019t stay a partner.<\/p>\n notice that i didn\u2019t suggest that compensation be changed. the problem with way too many firms is that when they started out, as an eat what you kill firm (which almost all firms start out as), a partner\u2019s book size was not only where he\/she gained his\/her power, but it was also the source of most of the compensation paid. this is not a problem when the firm is less than $2 million in revenues. but as the firm grows, the focus needs to change to every partner pulling their weight, filling all of the partner roles and responsibilities. so, compensation has to shift from being about book, to holding partners accountable to fulfilling the entire roles and responsibilities of being a partner.<\/p>\n in order to facilitate this kind of cultural change, when one partner shifts his\/her book to another, their compensation shouldn\u2019t go down. rather, as long as that partner is meeting his\/her goals, then they should be paid the same or more. on the other hand, if their goals are not met, then compensation should go down. i don\u2019t want to get into a lengthy discussion about partner compensation but i just want to reiterate that, when we suggest shifting book, we are not suggesting shifting compensation.<\/p>\n the purpose of shifting book is to have the small booked partners learn how to manage larger books of business and carry their weight as a partner, while the larger booked partners need to shed some of their clients so that they have more time to leverage their existing networks and generate additional revenues for the firm.<\/p><\/blockquote>\n the end result is that the firm makes more money because of growth, and there is more money to pay both the partner who previously was a smaller booked partner, and the partner who was previously the larger booked partner. that is why you make these kinds of changes: to catapult the firm into being more successful and allowing everyone to make more money.<\/p>\n what if you shifted book from the larger booked partner to the smaller booked partner and at the end of the day, the smaller booked partner stepped up to the challenge, but the larger booked partner took this opportunity to work a lot less and kind of retire in place? in this case, the gap between the previously small and large booked partners would close over time (and with a high enough retirement in place attitude, the gap would close much sooner than later). why? because in this circumstance, the previously smaller booked partner would be meeting or exceeding his\/her goals so his or her compensation would go up. and the previously large booked partner would be retiring in place and therefore not meeting his\/her goals and his or her compensation would go down.<\/p>\n to be clear, that is rarely ever the case. when these kinds of changes are made, the vast majority of the time, the previously smaller booked partner makes more money, and the previously larger booked partner makes more money simply because the firm makes more money as it grows and is more profitable, successful and sustainable. everybody wins.<\/p>\n but if you don\u2019t make this shift of moving books around, unfortunately, what we commonly find is the large booked partners get comfortable living off of the entitlement compensation generated by their existing book of clients. on the other hand, the young partners rarely get a chance to fill the role of partner because they are too busy doing the manager level (or below) work on their clients and spending the remainder of their available time acting as a manager on their senior partners books of business.<\/p>\n it is critical to break this cycle and the leverage ratio is a great metric to eradicate this dysfunction by helping firms measure, monitor and reward those making the effort to change for the good of the firm.<\/p><\/blockquote>\n besides making sure that partners carry some minimum book size, at least a couple of other issues must be addressed, too. first of all, your firm needs to be continually hiring enough people to keep up with your growth projections. most every firm we run into is behind the curve on hiring. this is because they don\u2019t take a long, hard and rational look at true staffing needs.<\/p>\n to begin with, if you expect your staff to work the kinds of hours you did when you were coming up through the profession, you are out of touch with reality. they will find other places to work that allow them to make a comfortable living without working more than 2,300 hours or so a year.<\/p>\n on top of this, if you have anyone who is marginal and should be cut loose, sooner or later, they will be, and that is not normally factored into hiring needs. similarly, there always are some people we hire, no matter how well they interviewed, who don\u2019t work out. this needs to be factored in as well. in other words, you need to \u201cgross up\u201d the numbers of new hires substantially to cover the turnover you\u2019re likely going to see. and recognize, as well, that if you grow 15 percent more next year, you need to have 15 percent more people and hours available at the beginning of the year, not at the end.<\/p>\n now some of you will be reading this and thinking that it\u2019s impossible to do this. that\u2019s because you\u2019re looking to hire experienced people. if the hiring market over the last decade has shown us anything, it is not rational to expect to be able to support your firm\u2019s growth strategy by hiring a lot of experienced people.<\/p>\n just know this … we don\u2019t have a single firm we work with that would let a good person go … especially an experienced good person.<\/p><\/blockquote>\n they would find a way to keep that person on the payroll, by allowing them to work remotely, create a flexible schedule to meet their needs, etc. so, with this in mind, when you run across an experienced cpa looking for work, look at them hard, and if they don\u2019t have a wonderful answer (like they just moved to your town to come back home to take care of their parents or something like that), then know you are likely hiring someone your competitor firm \u2013 which is also short-staffed \u2013 decided they would be better off without. you can live in denial all you want, but the only strategy that you can count on working is to hire in entry-level people and take the time to train them properly, so they will become the experienced people you need for your firm.<\/p>\n yes, you say, but who has time to train them? if you don\u2019t take time to train your people, the senior people in your firm will continue to work longer and longer hours, enjoying it less and less, while foregoing the delivery of key services to your clients (trusted business advisor, for example). and that means that sooner or later, you will realize the strategy you have adopted, which will ultimately solve your workload problem by running off your good clients to a competitor who has made the investment in their people so that the partners and managers actually have the time to spend to take care of them.<\/p>\n you can avoid this sort of outcome, though, by<\/p>\n and you can monitor your progress by adding the leverage ratio to your mix of management tools. but to create this constant push-down of work, this involves understanding what each person needs from you in terms of guidance, encouragement, autonomy and support. it requires you to customize your approach to delegation and development based on those needs.<\/p>\n some people will require more frequent check-ins and guidance than others. some will progress more rapidly \u2013 some will take a little longer. and some people will need to be let go because they are not making the grade (start making this assessment sooner rather than later).<\/p>\n if you are coaching them properly, setting reasonable expectations and providing them with the leadership they need, you can develop your new hires into great, experienced staff over less time than it took for you to be that good when you were coming up in the profession. it\u2019s all very doable. we have clients who are doing it now. you just need to change the way you think about hiring, delegation, development and coaching.<\/p>\n","protected":false},"excerpt":{"rendered":"
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\nat the same time, it is common that organic growth is slowing, and sometimes has even stopped, as partners and managers barely have enough time to get the work out the door. this quickly results in the partners and managers having virtually no time to make sure they are in front of their top clients. therefore, they are not having discussions with their clients about \u201cwhat keeps them awake at night,\u201d which means they are paying lip service to fulfilling the trusted business advisor role. and the trusted business advisor role, which is being ignored, is a common foundational competency we find expected of all partners and managers.<\/p>\n\n
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\nnew staff won’t work the hours you did. forget that notion right now.<\/strong>
\nby bill reeb and dominic cingoranelli<\/em><\/p>\n","protected":false},"author":1644,"featured_media":53478,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[1908,3120,3002,2297,2298],"tags":[643,715,62,57],"class_list":["post-62074","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management","category-pro-member-exclusive","category-special","category-staffing","category-succession","tag-hiring","tag-jobs","tag-retirement","tag-succession"],"acf":[],"yoast_head":"\n