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Episode 16: The Best Plan in Running a Discovery Session for Your Accounting Firms ┃Wize Mentoring Business Tips

• Wize Mentoring for Accountants and Bookkeepers • Season 1 • Episode 16

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Episode 16: The Best Plan in Running a Discovery Session for Your Accounting Firms ┃Wize Mentoring Business Tips

“I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor.” - Henry David Thoreau 

In this episode of The Wize Guys, Brenton Ward with Jamie Johns, and Ed Chan share their insights about the need for a discovery session for every accounting practice.

As Ed has been through many, if not all, of the challenges you have faced in growing your Accounting business. Typically we get into business to earn more money and have more time and freedom only to find our reality is the exact opposite. We work more hours than we ever have and spend more time away from our family and if we were to divide the money we earn by the time we spend earning it, it's very little and not a good return on investment.

To find out how to ensure that you are not a prisoner in your own business, Ed and Jamie will give a thorough outline of how you can start to design or redesign your business to achieve the ROI of your end goals.

Timestamps:

1:06 What are discovery sessions?
2:41 How to determine the pains and challenges in your practice
4:02 The power of retirement investments
5:55 Why you should start to invest in businesses
6:10 Why is it that Warren Buffett invests in a direct business and what his 4 criteria are for investing? 
8:37 Comparing the ROI of your business vs the share market vs property investment
12:12 How to identify your capital value, passive income, and ROI
14:44 Why you should start to build something
15:29 The importance of having the right mindset
18:09 The journey from self-employed > business > investment
18:58 What are the questions to ask in a discovery call
22:27 Which is a better business model: partnership vs corporation
24:06 Key takeaways on why you should start your own discovery calls


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Download the full transcript here.


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PS: Whenever you’re ready… here are the fastest 3 ways we can help you fix and grow your accounting firm:

1. Download our famous Wize Freedom Strategy Map for FREE - Find out the 96 projects every firm owner must implement to build a $5M+ firm that can run without them - Download here

2. Need to Hire right now? Book at 1:1 FREE hiring assessment with our WizeTalent recruiters to help find your next best employee locally or offshore – Click Here

3. Book a 1:1 Wize Discovery Session – Spend 30mins with our Wize CEO, Jamie Johns, a $7M firm owner who is ready to give you his entire business plan to build a firm that can run without you – Find out more here

Brenton Ward: Hi everyone. And welcome to step one of the Wise Mentoring frameworks. My name's Brenton ward, and I've got with me as two Wise Guys. We've got Ed Chan and Jamie Johns. How are you? Gents? 

Ed Chan: Good day Brenton. Good day Jamie.

Jamie Johns: Hello Ed and Brenton! Welcome back. 

Brenton Ward: So everyone welcomes to the very first step of our wise mentoring journey and how better to begin that than starting with a discovery session now.

When we're coming up with this framework for our wise mentoring journey, you said, we need to start with basic understanding and discovering where the firm is and where they're at in their, their current business. Jamie, you've been through this process. So in this video, which will be about half an hour or so, I'd love for ed. If you could set the scene as to why you do discovery sessions with firms that you mentor and Jamie if you can sort of intertwine your experience of what you did throughout your discovery session with that and how you got to, well, the outcomes of that discovery session. So, we'll start with you. Can you explain to us why the need for a discovery session and what it is? 

Ed Chan: Yes. Thanks, Brenton. I guess I've just gone through the journey myself in terms of the pain and where I wanted to get to. And I know that most of the firms out there will have the same challenge. They'll want to know whether, you know, what they're, where they're going is, is in the right direction. They generally work very long hours. They don't have much of a lifestyle. They don't see their families. They work, when you divide it by the income they earn, it's very little in terms of the return on investment. And everybody's pretty much in the same boat. So when I sit down with an accounting firm, I asked them what their challenges are and it's pretty much all of that. It's I don't see my kids, I work very long hours. I'm consumed by the clients. I'm a prisoner in my business. This business I was supposed to give me life is taking life from me. And so I say to them that we've got to start with the end in mind. So let's, let's design your life and not let it take you wherever it will take. 

Let's design your life. So I, I, I start by saying that most accounting firms develop their business in this way. They feel that they've got a, a, something to offer. They hang up their shingle and they say that I'm in business. So through word of mouth, you know, they build their business up.

For many, many years, they work long hours and they good money. And some of them don't make such good money, but eventually, at the end, when they retire, they sell the business because they've been, they've built the business up. So they know that if they stepped away from that business, the business would just go, won't go as well. If they just stepped out of it. So there, the attitude is that I'll flog it for as much as I can get, and then I'll retire. But then what are you going to do with your money? So you can, okay. We invested in several places. You can invest it in the stock market. If you invested in the stock market, you'll get a 5% dividend yield. So if you sold your practice for a million dollars, you invest a million dollars into the stock market. You will get $50,000 a year to live on. If you bought a property with the return on a property is about 3% net. So you'll get about $30,000 a year to live well.

Currently, if you look at your practice and I do everything as a return on investment, currently, if you're doing a million dollars after your wages, you should be earning around $250,000. That's a 25% return on your investment. So you, a million dollars today is earning you around 25% return. Some are less, some are more firm.

Some firms earn around 36, 38% other firms earn around 15%. But whether it's 50, 20%, or 38% is a lot more than a 5% in the stock market or 3% return on the property. However, the problem with that, with that is that you've built this business around yourself. And if you stepped out of this business, it's not going to go very well.

So you have to sell it. The alternatives during the lifetime of this business, you're earning reasonable money and you take this profit and you pay tax on it because you end up paying quite a lot of tax on it, and whatever you're left with you then invest it into some shares into some property for your retirement. And again, it's very slow why doing it because you lose half of it in tax and what you're left with.

Then you go, when I listened to Warren Buffet who runs Berkshire Hathaway, the majority of the portfolio of Berkshire Hathaway is invested in direct businesses. And a smaller portion is in direct shares. Yeah. The reason why he's invested directly into businesses is that the businesses give a turnover of around 25, 30%. Whereas the investments from his share portfolio give him a dividend of around five or 6%.

So Berkshire Hathaway's been showing an average return of around 29% since the day he started for decades, decades, and decades. And he said that when he looks for a business, he has four things that he looks for. The business has to sell a product that the mum and dad out there need. So he's picked businesses that mom and dads out there need tax returns. Everyone needs to do a tax return. He said that he had to understand the product. So for many years, he didn't go into it because he didn't understand it. You understood insurance, and you understood all the other products, businesses that he went into. 

So we understand our business. The other thing was that he said it had to have really good management, and I believe we have really good management. And then the last thing he said was that he needed control over it. So that's why he buys the business at out a hundred percent. And then the period of ownership, Warren Buffet says is the period of ownership is forever. So the guy is pretty clever. And when I looked at our business and it ticked all those boxes,

I said to myself, well, why do I want to sell it? Put it into the stock market and drop my return on investment from 25%, which it is today down to 5% and lose control of it. And when the GFC comes around, you run the risk of losing half of it. When GFC channel nano didn't lose anything we can grow and journey GOC.

A lot of the companies stopped paying dividends. Whereas China now will continue to pay dividends. So when I looked, sat back and looked at that model, he, why would I want to sell it? But I understood that if I built the business around myself and I call that catching butterflies with a butterfly net, so you get it, then you catch these butterflies with a butterfly net.

The problem with that model is that, and that's the partnership model. And a lot of accounting firms have a partnership model where they'll only invite you to join them. If you're a finder, if you're a grinder or a minder, you wouldn't get invited to join them as a partner. So their growth model is based on partners being finders. But the problem with that model is that if you take that finder out of there, that's the end of your business. And that's not a very sustainable model. A lot of these very large accounting firms, you don't buy in. And when you leave, you don't get anything out of it either. I thought that was rather silly. It's much better to build a garden that attracts butterflies for you, right?

That requires you not to build a business around yourself, but to build the business to work without you. Right. And that requires investments. So let's talk about investments. When you invest back into your own business, it's tax-deductible. When you take money out as profits, you lose half of it in tax before you're live with the other 50%, we invest in assets.

So by investing the money, back to my own business, not only is it tax-deductible, but it's allowing me to fast track my retirement money if you like in a much quicker way because everything I put back into our business is tax-deductible. So building this garden that attracts butterflies to us so that it's not dependent on me, right.

Allows me to go from a self-employed person to a business than to an investment, right? And it's the fastest way to get there because you don't pay any tax on it. You act it's actually, you get it as a tax deduction. Every time you invest in, invest back into your business, like systems and hiring people and so forth. And that made more sense to me and listening to what Warren Buffet said right. All came together. So what I say in discovery is first, I, I asked us what the two challenges are, but the challenges are all pretty much the same. Then I start with the end in mind, then I'd say, what, what would you like your life to look like when you're 65 or 70? And how much income would you like to earn at that point?

And everybody's different. I understand that for me, it was about giving me more choice in my life so that I could choose whether I want it to work or not. But then to achieve that, I had to have a PA you have to create passive income and you can either choose it from outside investments, or you chose it by turning your own business into an investment.

And I chose to do that. So I sit down with people and I say, okay if you're going to, if you say to me when you're retired, you want to earn a hundred grand a year passively. If you're going to do that on the property, Oh, sorry. If you're going to do that in the stock market, you need around $2 million at a 5% return that gives you a hundred thousand a year.

So you need to build your business up from zero to $2 million, then you sell it. And hopefully, you'll get a lot of that. Putting aside capital gains tax and so forth. And then you go and you invest that in the stock market. So with most accountancy firms, if you value them at a dollar per dollar, then you can very easily identify what the capital value is.

So assuming you're doing a million dollars turnover, and that means at a dollar per dollar, it's worth a million dollars. Then after your wages, most, a lot of accounting firms do a net return of around $250,000. So $250,000 on your million dollars capital is a 25% return. Now, if you then were to sell that and take your million dollars and you put it into the stock market, you'd only get a 5% return, which is around $50,000. So obviously earning $250,000 of the same million dollars is a lot better, but you've got to set your business up in such a way that it can run without you and not because of you, right? And in the discovery session, we work out what it is. We start with the end in mind, we'll work out what income you want. So for example, you may say to me, I need an income of $200,000 a year at a 25% return. Your turnover than would need to be $800,000 because generally, your cost of goods sold is we'll sit at around 40%. And that leaves you with overheads around 35%. And then that leaves you with a 25% net and or 200 grand.

Your wages are on top of that, but it would just talking about passive income. If you then sold it for $800,000 and put it in the stock market, you'll only earn 40 grand from it. So how do we turn that business into an investment? So we then work backward and we work out turnover, 800,000. How many staff do you need? What are the systems that you need to put that in the place?

And what kind of staff do you need? Because you need a combination of grinders and minders working in teams. And then we put in the place, marketing, growth strategies to help you get there. 

Brenton Ward: So is it fair to say as part of this discovery session, it's getting business owners to get into that frame of mind of considering that business and investment, rather than being in the thick of things and taking whatever comes out at the end of the day. It's spinning that on its head and it's going well.  Let's turn this into an investment and say what we want to get as a return from it. 

Ed Chan: Absolutely. So instead of going to work to prepare a tax return, or to go to work, to do a job, you're going to work to build something, right? So you're going to work in that, in that example, to build an $800 million, sorry, $800,000 turnover business, which will then pay you a 25% return. And that was that's your superannuation fund. And in that process, you need the right people in the right seat, in the right bus with the right kind of systems, and so forth. 

Brenton Ward: So Jamie, when you started your discovery session with Ed, how are you viewing your business and out the back end of that discovery session? What sort of things where you're enlightened upon? 

Jamie Johns: Yeah, first of all, it's a mindset. So for me with, with working with Ed, first of all, it was the mindset that my business can be an investment, because I think there's a lot of business brokers out there and, and a lot of theory out there that you work in a business to sell it. There are a lot of business coaches out there.

For example, in a particular franchise that I won't mention, but they, you know, they all talk about, you know, the one person purpose of a business is to build it up and sell it. So when you start talking on, Ed turns that theory on its head and says,  ‘Okay, well, if, if you can get a better return on your business and set up your business in a way that it can get a better return on investment than property or the share market.’

So Ed's argument is why do you sell it? And, and, and it's purely focused on results. 

Brenton Ward: It resonated with you or, or were you questioning the fact given that then, your business was fairly heavily built around yourself, would you say.

Jamie Johns: Well, it was a lot, a lot, a lot of guys who start like me and like Ed did, it's all built around you. Ed talks about the butterfly catcher versus the garden that attracts the butterflies. So, you know, in the early days we all grow our businesses just by sheer referrals. And we do all the, you know, we do all the grinding and the mourning and the finding. And if you take the fonder out of it, you often don't have the referrals and you don't have the growth. So it really in the discovery session turns a lot of traditional thinking on its head and solely foxes on really true factors. One, ‘Can your business give you a good return on investment compared to other asset sources?’ And secondly, ‘Can you set up your business to run without you?’

Now, if you don't have the right mindset to believe that your business can run without you, then, you need to get to stage one and know stage one is I think dr. Stephen Covey talks about, you know, private victory and public victory, or there are two creations. So you really, it maintains you, disciple. It can be done. I've done it. This is how it's done, and you've got to get it through your mind first. That's the first thing. But the second thing that is purely focused on a business sense is let's get a good return in investment on this business. And you go to work every day, as it said to work on the balance sheet.

A lot of us, including myself and other accountants, you know, as soon as we have more staff, more systems or procedures, we think that of a P and L we think, Oh, that's an expense. Oh, that's just another expense. So you've got to change your whole mindset around working on the business and building investment over the longer term, not the short term. 

Brenton Ward: Can you give anyone watching, who would like to undertake their discovery session with themselves now, The steps would be to get that? 

Ed Chan: Absolutely. It's not that difficult. You just got to ask yourself, you know, if it's a husband and wife team, just ask your wife and yourself:

  1. What do you want your lifestyle to look like when you're 65? 
  2. What income do you want to earn when you're 65?
  3. What amount of work do you want to do? 
  4. We work backward from there. 

Then we designed that business instead of just letting the business take you wherever the wind blows. So to speak that you design your life, you design your business and you design the kind of income that you want and the kind of lifestyle that you want. I mean I wanted more choices in my life, and I knew that the only way I could get more choices in my life is to have a passive income, and the best way.

And the quickest way to build passive income is to invest it back into your own business and, and structure it in such a way that it ran without you. And that's what I've done. And it's achievable. It's when we're in the right kind of business. The problem is that there have been some very good marketers out there who's sort of brainwashed us into thinking that compliance is dying and compliance is in the very good product and people don't value it, and so forth. But compliance is the only business that's growing that they're also signed that it's dying, but it's not dying. It's growing. It's growing because we, you know, our population's growing by two 50, 300,000 a year, and the immigration policies quite healthy. 

So whenever skilled migrants come into this country, they all get a job and they all need to do tax returns. So the compliance pies are growing. And I keep saying, that's a great business model because that's the only business model where there, I know that the government drives business to your door because it's illegal not to do a tax return. It's recession-proof. 

All you need to do is to, or, or we need to do is to manage it efficiently so that it's profitable. And, and we don't need to go chasing for new business. The business is, is pretty close to a new T in nature. So what better business can you have that the government drives it to your door and it's near as you can get. And the pie is growing. And whenever, as long as there's a tax in the country, there's always going to be tax changes. When then whenever this tax changes, you always need an accountant. So there's been a lot of confusion created by a lot of people out there. 

Generally, they're picked from people who had a vested interest. They were either trying to sell you their products or sell you their services or something. And they misrepresent what our industry is. And because of that is credit a lot of confusion. And that's led a lot of accountants to believe that, you know, at the end of their working life, they'd need to flog it off and get as much as they can and not retain an interest in it, but naturally, if you don't have systems in place, then you, if you built the business around you, you have to sell it. There is no other option. So what I'm saying is that don't run it like a partnership, run it like a corporation where we separate ownership from your labor, skill, in any of the PR in a partnership model, it doesn't work because just because you're an owner, you think you've got a say in everything, even though you may not have the skills or experience to get involved in certain aspects of your business, but because you're a partner and you're an owner, you have a say in everything and it doesn't work.

If you turn it into a corporation where you separate the skills from the shareholding, some people are more CEO, some people are more COO. Some people are more CTO or CFO. And if we each stay in our flow in our area of expertise and let each other run our areas, then, and then hopefully together you'll produce a profit. Then you pay a dividend based on your shareholding that might, that works much better. We've proven it, and it works. And it's much more effective than a partnership model. And I'm not talking about the structure. I'm not talking about the legal structure. I'm talking about management, the way you run the business. 

Brenton Ward: Okay. So going through that process, Jamie, what was, what were the highlight moments for you coming out of the back end of that discovery session and what was your sort of realigned focus from that point? 

Jamie Johns: Yeah, the main thing to mention Brenton is, and I know these will resonate with hundreds of accountants is, is the realization that, that you don't have to be the central person to run the firm. So it's almost a humbling process. You've got to realize that the fam can run without you. That is the most important concept to realize because, and ed shows you how that can be done. That's a real choke point in the discovery session that, that who show you how that can be done.

The other thing is, I think, Ed mentioned is once you realize how that can be done, then it's really important to get that structure and foundation of teams and operational systems in place. One of the things you've always said is, you know, it's okay to kind of scale, but get your foundations right first, because otherwise, you're going to scale problems. So I'd been down that path. I'd try to scale. And I try to do this and try to do that in my own business. And I was only scaling problems. So it's important for the accountants and the, and the, the whoever's listening that you get those foundations, right? And like Ed said, even though you're a small business act block, a big one, so put systems and processes and people in place, even if you have to wear a lot of hats at the start, Mike show, you get the foundations, right? Because if you don't do that and you go to scale, then you're only going to scale problems. 

Brenton Ward: So If we talk about the discovery session where we're at this stage, because I know we're going to get into the foundations and the systems and the processes at this stage, I think we want, whoever's watching to take an opportunity now to take stock of where they are and to follow those steps that Ed outlined before is you start to look at your business from an investment perspective: ‘Where do you want to be when you're 65? What lifestyle do you want to be living at that stage of your life? How is your business going to provide for that? Can it provide for that?’ And in, in its current form, is it going to be able to do it, if not, we need to start putting some numbers on that future position and start working backward from there to kick this journey off. Is that a, is that fair to say it?

Ed Chan: Absolutely. You hit the nail, the head Just got to design your life, and it's all there to be desired designed because of the industry we're in, it's in nature, the government drives it to your door, and we deal with accountants who reasonably easy to deal with. They're educated and they're easy people to deal with. And the systems are all there. We just got to put everything together and it's all quite achievable.

Brenton Ward: Right. So for everyone watching, this is your opportunity now to take some time. So whether you're going to do it straight away, or you're going to lock it into your calendar.

Now take some time to, even if you have to rewind this video and go through those steps that it outlined just prior, just earlier in terms of what you should be doing to take yourself through this discovery process.

Also, there are some continuing videos from this video, which Jamie and, we'll dive into some of the other areas of the discovery process that he went through, but really at this stage, pause the video, stop the video and spend some time understanding where you'd like your life to be when you're 65. And is your business in a position to get you there, if not, we need to recalculate some numbers and start working backward from there. 

And thank you so much for sharing that part of your journey and the journey that you start your firm on. I think it's a brilliant place to start. And Jamie looking forward to hearing more on how you took sky accountants through this, this part of the journey as well.

Jamie Johns: Absolutely. Perhaps I'll go first, but yeah, we'll have a lot of exercises and tasks that, as you said, Brenton, we'll help. We'll help people dig down into the detail of these processes that Ed's outlined some of the bigger concepts that we do, but we'll certainly take them through the details so that they can wash out what we need to achieve in this section course. 

Brenton Ward: Yeah. Brilliant. Thanks. 

Ed? 

Ed Chan: And thanks for having me Brenton, it's an absolute honor to share some of the things that I've experienced with everybody. And I look forward to continuing to do that.

Brenton Ward: The pleasure is all ours. We look forward to hearing more of your learnings in step two, but for now, let's begin with at least going through our discovery session and understanding where we want to take our business. 

So until the next video, spend some quality time doing that. Thanks, guys. Bye!