Welcome to the Escaping the Accountants Trap podcast. It's a podcast to help accountants, CPAs and bookkeepers escape what we call the accountants trap. And what's the accountants trap, you ask? Well, to get paid more, you must take on more low value and high demanding clients. And you can't raise your fees because you have a ton of competition and you're providing what most clients view as a commodity.

And technology is starting to automate your job away. This is a trap. So this podcast is all about finding strategies to help you escape the accountants trap, and finally, create a practice that you dream of. A practice where you're in control of your time and how much you make, and a practice that scalable, growing, and more profitable, all without working more hours.

In today's episode, we're going to help you escape the accountants trap by ensuring you have the right people on your team. So to help with this discussion, I've invited Kiara McMann, the owner of a consulting firm called phase two Management Consultants on the show. Kiara, welcome to the show. Thank you. Adam. Happy to be here. I'm really excited to talk about this because, you know, the thing that you mentioned right before we went on the air is that the biggest challenge to growing a practice is finding the right team.

And so we've heard this time and time again from our from our members and our program. But why is that the biggest challenge? Yeah. Well, there's definitely a shortage in the industry right now. And, you know, maybe 20, 30 years ago there weren't as many options for, you know, students or kids coming out of high school. Now, there's so many other things they can do with e-commerce, with, you know, it and all of the different opportunities entrepreneurship working for themselves is, is a big thing at the moment, too.

So there's lots of other trends, social media opening up has opened up lots of opportunities for these young people. So there's less people going into the accounting profession. And that means, less less, pool for us to hire from so that we're definitely starting with that as, as a challenge. Number one and then obviously there's there's other factors as well, as far as, you know, the competition out there and what, what each practice has to offer to attract the right people.

I will say that since the pandemic, you know, it's been, a blessing. And a curse on it all in one because, it reduced the local pool because now people got used to working more remotely and having that flexibility. And a lot of people didn't want to go back to the office. So even though before the pandemic, there was a shortage in the industry, now that the pandemic happened and people don't want to go to a local office.

It reduced the pool even further. But on the plus side, it opened up the, the entire country for your talent pool that you can choose from. So I would say overall it was a plus rather than a negative for the, for the industry. Especially if you happen to be in an area where there just isn't a lot of applicants.

Now, you're not you're not stuck with that area. Yeah. Yeah, that that makes sense. And I've read a lot that said that the accounting is hard to attract talent in the accounting profession especially, you know, for for all the reasons you just mentioned, especially because the barrier to entry to, to start your own business and is so low and you know, with Covid it really accelerated remote work.

So what would you say to the accountants and bookkeepers out there that that are filling this trap? They're sort of stuck. They are they are doing everything in their business. They're wearing all the hats. What would you say to them is their first step to take to to find the, the build the right team and and which positions do they need on their team?

Well, as they're going out and building the right team. Yeah, absolutely. So firstly, you know, maybe even like a pre first step would be, get the right mindset and a book that we recommend a lot. That helps with that is a book called E-myth. You probably heard of it, you know, Entrepreneurial Myth by Michael Gerber and really goes over, you know, the the two different hats of being your own best employee, versus being a business owner.

And if you're being your own best employee, that is very successful, but just up to a certain point. So you got to get the mind, set shift that you want to look at your business. Not just as, a pile of work on your desk, but what you can do to actually, you know, get get out from under that and start, running the business more.

So that's one thing I would definitely go over. And then as far as, attracting the right people, into your into your business and finding staff, you definitely want to hire with the in mind what will actually help the owner the most. So when you're looking at who's the right next hire for a, for any business, you're looking at what would relieve the owner's plate.

Because if you think about it, if the owner gets more time and gets more, bandwidth freed up, they are going to do more for the business with that extra time and energy than anybody else in the business. So we have to free the owner up first. And so so that's what I would look at. Like, what are you doing that you could get off your plate if you had this person, what would that person have to look like to take this stuff off your plate?

What have you on your plate? Probably initially would be the first exercise and, and start with the lower level work, first obviously, because then, you know, you could bring somebody in at, a lower rate per hour, but not, not so low that they couldn't take much off your plate. It has to be still, able to be somebody that can really make a difference to your workload.

That makes sense. It does, it does. There's so many good nuggets in here, and I want to dive into them. But, the first, there's a lot of accountants and bookkeepers that I've talked to personally that they, they just want to hold on to that the tactical work, the transactional work, because they enjoy it much like the Earth.

You know, the E-myth if you haven't read the anybody listening, if you haven't read it, it's it's the it's a great book and I highly recommend it as well. But it's this is a parable essentially of a business owner who I believe owned a pie shop because she enjoyed baking pies. And then all of a sudden she was wearing all the hats.

And so the idea was to transition her from baking the pies, essentially being the business to owning a business that bakes pies where other somebody else, other people are in the various positions. So why do you think accountants of bookkeepers, especially have a hard time letting go of the actual pie baking? Yeah, yeah, it's typical of a lot of, types of businesses.

Like, lawyers are the same dentists. They love to be doing dentistry. They want to be in their patients mouths fixing it. And they they don't really want to be out looking at, you know, the numbers and how many patients came in and, what the no-show rate and all that was. So it's typical of a lot of businesses where your, your background is professional education and, and profession.

And then that's probably what you did when you went to work for somebody initially. So that's that's what, you know, that's what your comfort zone is. And it's not necessarily comfortable doing other parts of running a business like marketing or, handling employees when maybe they don't always perform as well as you want them to. So all of these other areas are not in their background of education or experience.

So that's kind of what we're we're working with. And do we usually do go over initially, with practice owners, the two types of practices. And I guess you could say maybe with other businesses, not just, tax and accounting, but we look at like, do you want to be a lifestyle practice or a assets, practice or business?

So lifestyle is just where it's it serves your lifestyle. You you generate a you're more focused on the profit. What the profit margin is what you can take home. And you build everything around taking home as much as you can so that you can live off a nice income. And then that could be where the story ends.

But for a to really run a business, as in the, e-myth book, you want to not be your best employee. You want to invest in, you know, payroll to bring people in and then to grow it, your profit margin will go down, but the amount of profit will be a lot higher. So, 17% profit margin, you know, might be something to brag about, but it's usually going to be 70% of a lower number.

Whereas if you can get it up to, a much higher gross and you get 40% of that and you're not stuck doing the work and in the trenches, then that's just a better scenario for some people. And then, you know, obviously if you really don't want to wear these other hats in the business and you just want to service clients, there's nothing wrong with being a lifestyle business either, right?

Yeah. And you brought up a very good point, because you're right, there is a difference, you know, a lifestyle business being, you know, essentially you're owning your own job. There's nothing wrong with, but it is a job. Meaning if you take off, if you take time off two weeks, a week, a month, you're not going to get paid.

And two, it's, you know, you only have so much time. And then in the workweek, you can't take on that many more clients. And as you know, one of the traps of being an accountant or bookkeeper is that to get paid more, you have to work, work more hours or take on more clients. Well, when it's just you, you can't do that.

You only have so much time. Yeah, you're only raises when you raise fees. And obviously when you do that probably because of inflation. So you're up here. Expenses have gone up as well. So it's it's very distracting. Yeah. So in your experience working with accountants, do you feel this is sort of maybe a hunch that I have that most accountants would raise their hand and say, yes, I have a job.

I have this lifestyle business, as you called it. I do you feel like most of those people want. I would love to transition to having a sort of a machine that, you know, a business that works. Without them, they would I would, with the majority of accountants, love to transition. But something is holding them back. Or is it just they would rather just have a lifestyle business.

Like what do you feel, you know, a good percentage to fall into. They would rather have a lifestyle business if they really don't want to have a staff, they really see staff. And that can be, as a bit of a nightmare. They can feel like if they had a bad experience, maybe they worked for somebody and they weren't treated very well, or they saw that other staff weren't treated very well.

So there's definitely the type of person out there that just wants to do the work. And like you said, there's nothing wrong with that. But then there's a lot of people in between, you know, they're trying to transition, but they haven't really made the distinction between the two types of practices. So they don't fully know what it looks like and how to get there.

But you can see that they're trying to get out of the day to day. And, they realize the hours thing has just caught up with them. And while it was great at the beginning, you know, all the clients thought they were awesome when they were starting out and they had more time. Now clients are screaming at them to get the work back, and, there's just not enough hours in the day to give the kind of service they really want to give.

Yeah, this is stress. It ends up being a stressful job. So is how how much does fear fear play in the accountant or bookkeepers ability to hire their first employee, or to grow a business that doesn't revolve around them? Yeah. I mean, I just spoke to a client the other day and she had worked out how she could hire somebody.

And still be able to make a living. And she didn't factor in at all that this person would generate more than their cost. So because she wanted to look at the worst case scenario as, okay, so that would just tell you, you know, where she's coming from. The one thing I would say, though, is that, you know, hiring is not like, some expenses that are on reversible or irreversible.

I think the right word is because, you know, it's it's not like you've bought something and it's a no refund policy. So if it's not working out, you know, it's not like you sustain that. But I do find that in the accounting profession, there's a lot of what we call Mr. Nice guys or miss nice girls or whatever.

As far as like they don't they don't like to, they don't like confrontation. And so if they got somebody, they hired somebody. And that person wasn't working out, they might not do anything about it. So then it is a fear because you're going to be stuck with somebody, but it doesn't have to be that way. And and yeah, if if you're concerned about hiring the right person, sometimes people have had failed hires where they didn't work out.

So, and that's usually because the owner is not hiring every day of the week. So they don't really have the tools to, to distinguish between right hire and. Yeah, it's a good point. So yeah, it's it is almost like a skill I'm sorry I right. But but you're right. That's that's almost a skill that you have to hone.

And if you don't practice that skill all the time, when it comes down to hiring, it's something that you lack and you may make a mistake. Yes, absolutely. I mean, initially we would advise clients on how to hire, you know, drafting the ad, where to put it, how to go through the process. And then we just realize a lot of them, we're just way too busy to do it, and they just weren't able to do it justice.

Like you'll see all the time they get these resumes and they don't have time to, you know, respond to them. So there is no time that you can lose in the hiring process because, there's so many others looking as well. So there's a very short window you never want to hire when you're super busy or obviously when you're just about to go off on vacation because all those resumes will be still within, I would say, three days.

So, okay, there's a lot of like, coaching that we do, but we still found that, that the owners were just not, you know, not able to get to it promptly because obviously when they're hiring, they're super busy as well. So they don't have a lot of time to spend on the hiring process. It's kind of a catch 22.

So yeah. So then we just kind of, allowed, them to outsource that to us and we do it for them. So it's, it's kind of one of the services that, I'd say is, you know, and done for you very, you know, can really help a lot with, like, you know, as a consultant, you're giving your clients things to do.

This is something we can kind of take off them. So that's, been, you know, very popular, but yes, as long as, you know, you're, you're working out also your filtering process, you know, what you're going to do to weed out the people that you really don't want an obvious one is longevity. You know, people have great experience, but they're hopping around from one job to another every year or every other year.

That's usually not a good hire. But we kind of have a long list of criteria. And then we also do technical questions as well. So, you know, if we're hiring somebody without that has to have a lot of experience. You know, do they really know their stuff? Do they know their taxes? Do they know their accounting. And and not being afraid to ask those questions, I would say a lot of owners and I don't think it's just accountants just, are too nice in the interview process, which is understandable because they're going to be working and they're trying to start, you know, the relationship off on a positive funding.

But then it's just like a coffee shop conversation. It's not really an interview. And so we find like that, we can do the hard questions part for the owner and make sure that we're finding out who this person really is, if they would be a good employee. So what what are some characteristics or qualities that, that you would look for in an employee for an accounting firm?

Yeah. I mean, their, their resume will tell you a lot. Because of the longevity, that would be number one. It's not a guarantee, but it's almost a guarantee if they don't have that, that they're going to be, you know, good to work with. So we don't really negotiate on that point, particularly if you're hiring remote because, you know, you know, they're not under your roof.

They're not down the hall in another office where you can keep a close eye on them. So I would say that the criteria for hiring a remote staff is actually a lot stiffer than it would be for, you know, somebody that you have in your office of is this point about filtering is become more important these days with so many people hiring remotely?

And then, you know, why they left a job is always a good character. Question to ask. Yeah. And then, what their biggest contribution was to that, company that they worked with and, you know, other types of career questions where they're going. Do they have any are they just looking for a job and a paycheck, or do they have any ambitions career wise whatsoever?

So we'll we'll go through all of that with them and then also just see where they're at in the interview process sometimes finding out, you know, have they, have they been looking for quite a while. And how many interviews have they gone for, how industrious they are in that process? Just a lot of different areas. You can get a really good feel for who you're dealing with.

Yeah, but that makes sense. Conversely, what are some red flags that you should watch out for when interviewing? Yeah. I mean, definitely again, on the resume, you know, just even their communication back and forth in the hiring process sometimes you can notice that their, they're writing style is off. You know, that they, they don't complete sentences or whatever, or, you know, their grammar.

I mean, there are some people that have English as a second language, and there's nothing wrong with that if they're really good at English. But if they can't, you know, that's going to be a problem potentially, if you're having them communicate with clients, which most of you know, our clients would, would need them to do. So, yeah.

Just even in the in the process, back and forth, just seeing how willing they are, you know, you'll ask a couple of questions, maybe, the in the hiring process by email initially. And, some of them won't answer some of the questions. Maybe they overlooked it. They don't have good attention to detail or maybe ask a question.

Yeah. Or they think that, you know, they're they shouldn't have to answer those questions, which is an attitude already that, you know, we wouldn't want. Right. Yeah. That makes sense because you have to do the thing I look for a lot of times in employees is or almost every time I look for employee is do they really want this job?

And will they, you know, will and by answering all those questions and making sure they dot the I's and cross the t's, they indicate that they are they care. Right. And I will look for somebody that cares. But let me ask you this, when you know somebody at accounting, practice owner, bookkeeping practice owner, how do they know when it's the right time to hire their first employee?

Is there a time? Is there is there something that you look for or suggest? Yeah, I mean, it depends on what services they're offering, because some services would be like taxes tend to be higher fees than other services. So, you know, depending on where they're at in their practice for the very first hires that way. You mean like the when they should hire the first time, right?

They're they're doing it. They are the pie baker. They are doing everything themselves. Yeah. How do they know? Right. Right now I should hire. Yeah. I mean, because now, you know, you can get staff fairly flexible on hours. You know, I would start to look at hiring when you hit around 100,000, you know, 1 to 200,000. Hours later on there is a good formula to know when to add to, to your to your business.

And this formula is, to do with annual billings. So if you have, if you divide the gross annual billings of your business by the number of employees, of people. And so that includes the owner, sometimes the owner is the best employee. Anyway. So that includes admin, billable staff, everybody. And then you work out the full time equivalent.

So say that's 3.5 people, six point, you know, two, five people. Because sometimes you'll have part timers in there. So you work out the full time equivalent and divide that into your gross revenues, and then that you want that figure to be between 150 to 250,000. That margin is based on where you're at in the country, higher, you know, income areas, expensive areas.

You know, you you need to be at the 250, in the Bay area. You need to be at 300,000, believe it or not, per person, per full time equivalent. But that would tell you, if you're not there, you you're probably not ready to hire because until you get there, you're not making full use of your existing team members.

You might have the wrong person on the bus, or you might. Your fees might be too low. So you want to fix those other things before you jump into another payroll expense. Okay. And just to make sure I understand the formula, can you repeat the formula again so you work out firstly the number of full time equivalents in Europe.

Okay. How do you divide that into your gross revenue. So 500,000 million whatever that is. And then the answer should be between 150 to 250,000 per full time equivalent. Got it. Okay. So so gross revenue, let's say gross revenue was two. It was $100,000. And you have two full time equivalents. So to the owner and then one other person.

So two to full time equivalent. That would be $50,000 per employee in gross billings. So you and so you suggest it doesn't mean that they're doing that. And you know, probably one of them is doing most of it. But this is just a rule of thumb formula. It's just a gauge okay. And so the idea is to wait till you get to about 150, 200,000.

Then you start to look for somebody else. That would be at the beginning. Yep. And then as you go through, you would keep an eye on that formula to see, are we between 150 and 250,000? If not, have no business hiring. And if we yeah we are then great, we're ready to go for the next employee. Yeah, that makes sense.

And and you know somebody we've had this conversation with accountants and bookkeepers before, you know, in terms of when do I need to hire. And and I love this formula here and this completely makes sense. But then the natural response is, well, I'm already working. I'm already working 40 hours or 50 hours a week. I cannot add, more revenue, but yet I'm still not at this.

You know, this Mark, the the range you suggested was 150, 200,000 annual billings. What do I do? And our suggestion is to raise your fees. And you can't. Do you mean because accounting, a bookkeeping is a commodity? You can't raise your fees unless you provide a service that is higher value. And that's why we recommend that you offer, like a some sort of business advisory and outsource CFO services.

But what would you recommend to somebody that says, I can't, I don't have any more hours in the week to give? Yeah, I mean, there's there's two ways you can go with it. If you want to be a commodity and you don't want to add more value services than you really are based on volume, you've really got to increase the efficiency of how you can do things.

You've got to get staff very highly trained so they can turn things around faster. So it's all about speed and just efficiency. And it's it's really that kind of a business model which again, there's nothing wrong with. And you can make money doing it for sure. And then the other way would you suggest is that you add higher level services like the CFO and business advisory, tax planning, all of the ones that tend to be, a lot, better fees.

So then that that has its own, you know, unique challenges. You've got to have more, training and more skills on your team to do that. So it's really a choice that, you know, each owner would make. Yeah. And that makes sense. And and this further proves why they need to talk to somebody to help them figure it out.

So speaking of, how can somebody find you if they just need help in this area. Yeah. I mean, they can definitely check out the website. That's, phase two management.com. And then two as in Twl management.com. And then there's a contact page there obviously. But you can take a look at you know, what, we do there.

And there is actually a quiz, high performing tax practice quiz, which would apply to any, any book business thing or whatever. And then, that can help you determine what some of the next steps would be, what stage you're really at. So, because our program is very tailored to each practice, it's not a cookie cutter.

Everybody does the same thing. So we can figure out what your goals are and what would get you there. You know, specifically, I love it. So, phase two management.com. Find out more information. There's a quiz high performing how to determine if you are a high performing tax practice. Right okay. Perfect. All right. Well Kyra, thank you so much for coming on the show today.

We really appreciate it. I'm very happy to be here. Thank you so much to and to everybody listening or watching. Thank you so much for spending the last few minutes with us as we discussed how you can escape the accountants, the.