The Wize Guys

Episode 57: Let's Deep Dive into the Wize Capacity Planner

June 01, 2023 Wize Mentoring for Accountants and Bookkeepers Season 1 Episode 57
The Wize Guys
Episode 57: Let's Deep Dive into the Wize Capacity Planner
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Episode 57: Let's Deep Dive into the Wize Capacity Planner

“Businesses don’t plan to fail, they fail to plan.”  - Ed Chan

In this episode of The Wize Guys Podcast, Ed Chan, Tim Causbrook, and Thomas Sphabmixay we take a comprehensive look at the Wize Capacity Planner, featuring a detailed demonstration by Wize Mentor Tim Causbrook. Tim provides valuable insights on utilizing the capacity planner to its full potential and shares key considerations for determining the optimal time to begin using it.


0:00 - Intro

0:31 -The concept of having a capacity planner

1:30 - How to start using the capacity planner

5:15 - The importance of a capacity planner for production and recruitment

13:27 - Understanding the capacity planner

21:13 - How to take action


"If you don't get it right, then you're gonna find it really difficult to scale." - Ed Chan

"When you run flat teams, you won't be able to scale that because you're looking for this one person that can do all three things and they're very hard to find." - Ed Chan

“In using this capacity planner, there are so many hidden variables behind it as well. It goes beyond just making sure that we put in the numbers and put in the weeks that they're gonna work. There are so many elements behind the resource mix and the assumption that they are an inquiring person, to begin with.” - Thomas Sphabmixay









Download the full transcript here.

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Thomas Sphabmixay: This month it's about the scale and honing into scale. We're talking about using the capacity planner.

Now, the capacity planner is a very common sense and obvious tool to use. Of course, you need some sort of calculation and methodical approach in determining how many team members you need for the level of turnover or revenue that you have. But oddly enough, it really isn't something that's used out there. But fortunately, Wize, we're going to show you today a deep dive into the capacity planner. We're going to get into the nitty-gritty of the capacity planner and, especially showing you how to interpret the capacity planner as well. 

Perhaps you're going to find yourself in a situation where you're using the capacity planner and you find yourself with excess capacity, but then in your firm, it doesn't feel like excess capacity. We have a little bit of a talk about that, what's going on over there. You might find yourself under capacity, but then you're saying, actually I have, I have a lot more capacity. Let's talk about that too. Maybe just wanna avoid a situation where we might be burning at our staff. But to take into, to take us into all of that today. 

Ed, do you want to just talk a little bit about the importance of the capacity planner and how that all falls under the umbrella of just planning, having good planning as a business otherwise we're going to suffer without it. 

Ed Chan: Yeah. Thanks, Thomas. Thanks for the introduction.

I guess whenever we coach firms, one of the biggest challenges for firms is their ability to scale. If you don't get it right, then you're gonna find it really difficult to scale. Of course, you won't make any money. You'll feel like you are working very long hours and there's just nothing in the bottom line or not enough in the bottom line.

We gotta first start with how most firms run their teams and they generally run flat teams instead of deeper and narrow teams. If you run flat teams, it throws up quite a few problems. One, you can't find staff, right? And because you're looking for that person that does everything. As we know, there are three tasks that you need to deal with in a firm, which is grinding work, minding work, which is managing the teams, and finding work. You need all three to run a business. 

When you run flat teams, you won't be able to scale that because you're looking for this one person that can do all three things and they're very hard to find. They are very expensive. Then you feel like you're walking around on eggshells around them because if they leave then you're back to trying to find someone. And of course, you are also not challenging them because often they're looking to grow their careers and to move forward. You could end up, getting them to do very low-level work and they're looking to be challenged to move forward. If they do very low-level work reconciliations, bank reconciliations, that kind of stuff, and you're charging them out at a really high, high, high level because they're expensive and you generally charge them out at three times what you pay them. Then as a firm, become very expensive or you end up having to write time off. 

So at the end of each job, you're going over budget and you are writing time off and you're getting frustrated by this and that. There's a consequence of running flat teams. You can't scale that model. So it's not very sensible to do that. But a lot of firms do that for various different reasons. One, they don't know how else to do it. Two, they can't find staff or they're lazy. They don't wanna manage people. They just want to go, ‘Okay, I'm gonna hire the most experienced person,’ and just say, ‘Look after that portfolio and then get on with something else.’ That's not good because it's a loss for your clients ‘cause they'll end up paying too much for it. And you're not challenging your staff and you're not growing people from within your firm because you are just playing in the P and L side and not the balance sheet side. So you need to be bringing people through and that's important as well. Because you're not just short-term, you're looking long-term as well. The deeper narrow team structure is the best way to go. 

Now once you set up your ideal team structure, you start with your blueprint and then you then look for the people to fill those roles. It's a bit like a sporting team. Every sporting team has different positions. So you recruit the right person for those positions. In our teams, it's a senior client manager who deals with the clients on communication. ‘Cause there's two types of work that comes through, two types of traffic that come through. There's communication traffic and there's production traffic. You've gotta set up the teams to deal with those types of traffic. And not everybody can handle the communication and not everybody can handle the production. So on the production, we're all trained to be production orientated. We're all trained, we're all grown up doing the work. So most of us know how to do it. But you're looking for a particular person in our industry and some accountants should not be working in our industry because they're too slow. 

So for example, I shouldn't be working in our industry If I was a grinder. I'm just too slow and I'm more of a manager. So as a manager, I'm really good, but if you got me to do work, I'm just too slow doing it. So I shouldn't be working in our industry. I should work in commerce or public service where time isn't an issue and huge productivity is an issue. So you've gotta be very selective about who you hire in our industry. ‘Cause it's not just throwing more bodies at the problem, it doesn't work that way. 

Thomas Sphabmixay: That's a huge thing, right? In using this capacity planner, there are so many hidden variables behind it as well. It goes beyond just making sure that we put in the numbers and put in the weeks that they're gonna work. There are so many elements behind the resource mix and the assumption that they are an inquiring person, to begin with. 

Ed Chan: Exactly. Yeah, exactly. 

So you've gotta get the resource mix right. So if you just throw bodies at the problem, you'll find that it might get blocked in a particular area.

For example, if you have too many juniors, then the production's gonna get blocked at the senior level at either the senior client manager level or the senior production level because, at a junior level, you can't get through as much. So you end up doing 20% or even 10 or 15% and it's back on the senior's desk. Or if you have too many seniors, as I said before, you'll be writing time off those jobs or you'll become very expensive and you might lose your clients because you've got too expensive. And that's all a function of us mismanaging our business. It's not right to just throw our own laziness or inefficiencies onto the clients by just charging them all. We should make more money by being efficient in managing our teams so that the lower level work is done by a lower cost person. 

As it goes up in terms of experience level, then you charge more so that you get to the senior client manager level where they should be just handling the communication with the clients. Often when a senior client manager says to me, ‘Oh, I don't have enough time to talk to my clients,’ or to do tax planning with them or see them in meetings. It's a function of the team itself or the mix within the team. You might have too many juniors that end up with all the work being on the seniors' team's desk. So you gotta get that mix right. 

So you gotta get some juniors coming through because you need to train them and get them to do work at the lower level. Then you need a more experienced person in there. Two years plus experience to take it so that it's completed to closer to being completed. Then you need a senior production manager to than to just simply check the work and continue to train the people coming through. So bringing people through from a junior level. It's like investing in your balance sheet and you don't just plan your P and L and you need to invest in your balance sheet, which is to bring those people through. Of course, the flip side of it is you want the work client's work to be done at a different level. So, you've got some junior work done. 

Some two years of experience person doing the work and then a senior person finishing it off and checking it and someone training and then that frees up the senior client manager to go and talk to the clients. That's one reason, which is the resource mix is causing the senior client manager not to be able to talk to the clients. Another one is a senior client manager or the senior production manager who enjoys doing the work. So they sit there and they do the work and then they say, ‘I haven't got time to see the clients.’ Even though, their team sitting there watching them work, they with nothing to do because they won't delegate it. They just hang onto it because they enjoy doing it. Then you need to lead because the senior client managers are very expensive and they're not paid to sit there and do the work. It's just too expensive. Often if you don't manage the team, they just gravitate to what they enjoy doing and it's just too expensive to do that. And so you've gotta keep an eye. 

You've gotta educate the team as to what their roles are. Because often when you hire somebody from the outside, they've come from a flat team. So they do it. They do everything from bookkeeping to administration, to tax planning, to finalization at work and advisory, and a whole lot, and it doesn't work. You can't scale that kind of model. As I said, ‘cause you can't find staff and everyone's fighting over the, the same type of staff who can do everything and you don't need that. So even as a senior client manager, often people say to me, ‘Oh, that person's not experienced enough,’ or ‘You don't want that person, you don't need that person to be a hundred percent experienced.’ You need them to be at 80% experience the old 80-20 rule because most things that your clients need are at about an 80% level. So the last 20%, when they sell a business or the one-off things that don't happen all the time. They can bring you into the meeting. So your time is spent at a much higher level consistently at a much higher level. So you can charge at a higher level. You only deal with the last 20%. The senior client manager deals with 80% of it, and then they bring you in for the last 20%. 

Now, where most firms go wrong is that they run, they have all the clients coming to them and then they delegate the work down. Well, you can't scale that kind of model, especially when 80% of the staff can be handled by the team. So you've flipped that around. A hundred percent of it goes to the staff, to the senior client manager and then they bring you in for the last 20%. Then you can scale, then you can start building teams. Each team should handle around, in Australian terms, around 800,000 to a million dollars. You're working towards that. Some teams will be smaller as you're building it up. You could start off with 200,000 or 300,000. You start building it up and as you build it up, you just bring in more staff underneath the senior client manager and you build a deeper narrow team. So that's how you scale. If you've got a million dollars per team, you can get to $5 million with five teams. That's your ability and that's how you scale your business. 

So I just wanna give you that background in case there are new people and they haven't heard this before. The biggest decisions are about the capacity planner, and it's about getting the resource mix right. The work is flowing, you'll know something is wrong when there's a blockage to production and you gotta look at your team and work out where that blockage is occurring. Often it could occur at the senior level, senior client manager level or senior production level or two-year experience level, or junior level. So just depending on where that blockage is, you can then go in and fix it and hire the right person to do it. But often when you're very busy and I get this all the time, the staff will say, ‘Oh, we're really busy, we need another person.’ But there are ebbs and flows in your work. If you're not doing scheduling or if you're doing scheduling, which we've covered in another session, but if you're doing scheduling, you're bringing the work in over 12 months instead of just waiting for the work to come in and it creates stress in your team and blockages to stops your getting, giving a good turnaround time on your work. Then you need to be able to know how much capacity you have in that team. And the only way, to do that is to use a capacity planner that takes into account the resource mix. 

So you've got the senior client manager and assistant client manager, senior production manager, two to five years experienced people and a junior coming through or some outsourced staff who's doing the lower level, the lower cost act tasks so that you're charging at a lower cost to the client. So you're competitive with your pricing. All of that is, can be worked out on your capacity planner and whenever you are thinking of hiring somebody else, you should go back to your capacity planner. You plan it out there. It's a bit like, you don't build a house until an architect design, the blueprint. You don't just go out and start laying bricks in the backyard and start digging a hole without a plan. So you've gotta start with your plan. And once you've got your plan, then you hire people to fill those roles. Then you play people in position, not outta position because not everybody can talk to clients and not everybody can do work very quickly, but with a blueprint of your ideal team, then you can confidently go out there and recruit those people. It's much easier to recruit because it's defined roles and they don't have to be good at everything. So, it makes the recruitment process easier. It makes retention a lot easier because if you play people in their flow, they're really happy and they're productive. If you play them out of their flow, they're not happy and then they're less productive and you won't retain them and they'll move on and often they don't know what they're good at. So your job as a leader there is to help them identify what their flow is, what they're good at, what they're not good at, and to play them in the right position. You plan all this out in your capacity planner on paper before you go out and you recruit. 

In a nutshell, it's all about making sure the work is flowing. It's not blocked in a particular area. It's getting the balance right between P and L, getting the work out the door and investing in a balance sheet, making sure that you've got enough people there that are doing the low-level tasks so you're not being too expensive there and bringing them through. So you're investing in your balance sheet. So trying to get that balance right and you are always looking ahead. There might be a gap in the team. So you are anticipating that someone's gonna go on maternity leave or something's happening and you're trying to fill that gap and you're looking a year, two years, three years ahead of where you are today. So it's all part of that planning. 

Thomas Sphabmixay: Planning. Excellent, Ed. - 

Look, we are itching to get into the capacity planner now. Tim, would you be so kind as to take us through the nitty gritty of the capacity planner? 

Tim Causbrook:  So to find it, you go into production here and the capacity planner and you just hit that and it will bring up this spreadsheet. Just a quick tip, if you haven't been around here before, I always go to editing and open and desktop app cause you've got more space. So I'll do that right now. There's a lot of stuff in here. But I did wanna show you a couple of cool tricks. So if you've got multi-team, you've got up to 10 rows here currently. There'll be more I think in the new hub we're making and basically just really overview, you put the last year's fees here and any new fees per team or any lost fees. And we do this once a year to get a sense of the fees, ‘cause the fees are kind of gonna set the bar for what the capacity will be. We'll just look at it, I've just made a couple of examples to show you the power of the capacity planner. It’s not an exact science as Ed always says, but it is really, really useful, especially when it comes to looking at profit and bottom line. 

There are probably two or three variables that come into play there. I'll show you how you can really use this as a tool to figure out where your issues are. So my first team here, we've got Charles, Andrew, and Edward. Bonus points, if anyone knows where I got those names from. We've got a client manager, a typical team, an assistant client manager, a production manager, and a senior accountant. As Ed says, you could have up to maybe three or four or five even accountants and bookkeepers under that production manager. I just kept it simple today just to demonstrate a couple of things. We've got the resource mix as Ed calls it ~ experience, location, salary, working weeks, and hours per week, which gives you total hours. Then productivity gives you productive hours over here. And then you've got the cost per hour and the charge-out rate. We've got two added features. There's a lot in here, but there's the capacity in terms of the fees and there's the annual budget.

Now if the capacity for fees is more than the budget, there's excess capacity in the team. That's a really neat way of showing you what that is just over here. So to go back to the left-hand side here, there are a couple of variables that I mentioned before that come into play here. One is productivity. A lot of firms aren't tracking their productivity. If you're not, it's very, very hard to understand your capacity. Capacity isn't just how many staff you have, it's the resource mix. I can't emphasize this enough. It's the resource mix. As Ed was saying, if you had a client manager and a bunch of junior grinders, and junior accountants, that's a bad resource mix. So even if your capacity plan down the bottom here says you have enough capacity. I would bet my bottom dollar that you would struggle to get through the work on that type of team. So one variable is the resource mix. It's really good to see what that is here. 

The other variable is the working weeks ~ working hours and American firms, they have a lot more holidays we've come to realize. So, if you think it's after annual leave, sick leave, or public holidays, it might be, who knows, 50 weeks or 48 weeks. Plug in the variables there and if you have part-timers, make sure you put down their equivalent there. But as I said, the real variables, the things that can change year to year and day to day are the productivity and the charge-out rates. We've just increased our charge-out rates and a lot of Australian firms as a result of CP increases. Now, if you are a fixed fee, don't worry about that. Just plug in, get a market rate report, plug in what the market rates are, and tie them to their positions so you can get some kind of instruction from this. 

Now the key thing I wanted to look at today, and this is where I get really excited with the capacity planner, is obviously the capacity. So if we look down here, we've got the forecasted annual fees of 800K, but as I said before, the spare capacity in this team is from a million, and these numbers, the forecasted actual fees come from up here. You've got 800K, this team hasn't won or lost any fees for this financial year. So they're just doing 800. But when we multiply the productive hours by the charge-out rate, we get a capacity of a million. So this team, to go back over here, I'll stop swiveling, this team is over capacity by 24%. Now this is where it gets interesting, I kind of nerd out a little bit over this. 

Yeah, it's got excess capacity. So, that's based on pretty reasonable productivity KPIs here. We can go in deep dive into that maybe later. But the idea is that the client managers doing a lot of selling and you're not paying for that. And the productive staff, the more pure productive staff they are, the closer they get to grinding, and the higher the productivity expectation is. You would look at this and think, ‘Okay, I don't need to hire more staff, I need to win more fees.’  That makes sense, right? Because you've got the spare capacity of 250k.

A lot of firms that aren't measuring productivity aren't necessarily getting these KPIs. It might be more like 40 or 60 and now you've got almost no spare capacity and you are thinking about hiring someone. We always say you need at least 10%. 3% tough if someone's sick or goes on holiday, the team's gonna be under a lot of pressure. So if you're not measuring your productivity, you're kind of going blind on this thing. You really need to know what the productivity of the team is. It's essential to fix the capacity planner and use it properly.

As Ed always says, you wanna deal with the problem and treat the problem, not the symptom. If the problem is actually the productivity's too low, you need a production manager to ensure or an office manager to ensure the productivity is the right KPI. You don't need to throw more bodies at the problem ‘cause you're treating the symptom. Then the symptom is that not enough work's getting done. As we'll see, that would be disastrous to the bottom line. So this is probably my favorite bit about the capacity planner. It's not actually the capacity, it's this part here, it's the gross profit analysis. 

What this is saying is that the gross profit should be 60% which takes into account the salaries against the revenue. So the salaries should be 60%. right. There should be 60% gross profit left over after you minus the salaries from the forecasted actual fees. Here it's saying it's 36%. What this is saying is that unless your overheads are close to zero, even then you are not making any profit on this team whatsoever. Now that's why I'm saying it's disastrous to hire another person to this team. It's really important that you look at this column here just as important to look at this column and this column when you're looking at hiring, should I hire another person when you look at the capacity? 

Now, if you look here sometimes the issue is when you have a lot of the firms I work with in WizeGrowth, they don't have 60% at forecasted fees. But they do have 60% at capacity. That's happy days. All that means is that this team or that firm would need more clients. If it had more clients and didn't put on more staff, the profits would be back in line. But as you can see here, this is saying that even if this team was doing 1,000,05, 000 in fees, they still wouldn't be hitting 60%. That means the margins are out of whack and that means that the salaries are too high. As you can see, this is a completely onshore team with quite high salaries across the board. So this is why it's really, really helpful to know what the problem is, not the symptom. The problem here is the margins. And the only way to fix that is obviously to look at the salaries and you can't really change salaries. That's a tough one on that team. 

I'm going deep into this, but that just shows you the power of this. It's not an exact science, but, but it really is useful, especially when looking at a lot of owners I work with scratch their heads, ‘Why am I making any money?’ It often comes back to the capacity plan, as Jamie always says, if you can manage your cost of a good sold, that's 80% of the challenge. The biggest cost to any business is the productive staff. So you wanna manage that well? 

Let's just have one more look at this if we've got time. This is another scenario and if you have a look at this team, we've got a production manager, two client managers, an assistant, a senior, and an intermediate accountant. There's a spare capacity of 41%. So there's a lot of spare capacity, so there's no need to hire, but this is where it gets really interesting. Yes, it is under 60% gross profit, but at capacity which is 1.3, it's 70%. So you're in the golden zone there. So there's no issue with the margins here. These salaries are in line. All that you need to do here is have more clients. 

And the last one down here at the bottom here is also, is also instructive. We've got a bookkeeper here as well just to show you how you can use the bookkeeping tab. This one is under capacity by 7%, which is not great. You want to have 10% spare, but if you look over here, it's actually quite healthy. So you've got 72% gross profit and you've got 70% at capacity. The gross profit at capacity goes backward. I think when the team is under capacity. That's why that's happening there. But all that's saying is that everything else being equal, if overheads are 35%, you actually have 12% spare cash to hire another bookkeeper or senior accountant to make up that capacity. If you are growing the team and you're growing the client base, that's a really good idea. 

So I hope that hasn't gone too deep, but I just really wanted to emphasize something you might ignore when you hop in here and have a look at yourself. It is a capacity planner and really this is the capacity down here on the left, but it's also super, super important to pay attention to the gross profit at forecasted fees and the gross profit at capacity fees. 

Ed, Thomas, or Kristy, is there anything you wanted to add or any corrections?

Ed Chan: Probably just on the percentage of production, why the senior client manager is so low in terms of their productivity?

Tim Causbrook: The idea is that a lot of firm owners do all the sales themselves if they're working in their flow and they enjoy that not a bad thing. But really what we're looking for is we're looking for the client managers to become salespeople as well. 

If you go and try out a car shop, the salesman doesn't charge you for having a look at the car. So a lot of, a lot of their time ideally is spent following up referrals that clients have made, trying to convert leads that have come through the marketing system. It's also spent training the production manager and managing the team as well, which you wouldn't necessarily be charging any single client for. A lot of firms that have this wide and shallow mindset find it really, really hard to get their heads around this shift. They think, ‘No, the most expensive person, we wanna charge them out at a hundred percent so it can recover.’ But they're thinking on an individual mindset there, they're not thinking in terms of the team. 

It's all about leverage. If you have a really good client manager who's really good at managing the clients, but also really good at managing the team, I'm not so worried about their productivity. They're probably the only employees in this place that I don't really look at their productivity. Although that being said, Ed, if it starts getting 70 to 80%, I do look at it and I start to worry, it's almost the opposite. I go, ‘Wait, wait a minute, what's happening here?’ I'm sure there are write-offs where, where someone that expensive is doing more than 50%. 

Ed Chan: Yeah. So senior client manager's KPI is growing the firm. So getting new referrals, not losing clients, that's their main KPI is to retain clients and to get referrals. The only way you can do that is to get in front of the clients and, and talk to them and not sit there grinding. 

Just add to what Tim's saying is that theirs is more of a sales role now. I know the word sales is a terrible word in accounting, but t they're there to sell. The three-step process is discovery, proposal, and production. So in discovery where they sit with a client to discover what it is they want, we don't generally charge for that because it's like Tim said, if you go into a showroom to buy a car, the salesman doesn't charge you for to do discovery with you as to what kind of car you want. The really good client managers go from discovery to proposal very quickly. They're not wasting a lot of time. So you then go sit with the client, work out what he wants and what his problem is, then you come up with a solution. You then send out a proposal and then they sign the proposal and they send it back and you don't go into production until the proposal was signed and sent back to you. That process ensures well means that the client managers, the senior client managers are not in full production mode. So you've gotta allow them some time to, do that role to take the clients through discovery, then proposal, and then production. Just thought I'd that add that bit to it. 

Thomas Sphabmixay: Yeah. Excellent. 

I think I really, I just want to emphasize the point you made earlier, Tim as well. You mentioned even if you're a fixed fee firm, it's worthwhile to still put in the market rates for the charge-out rates per the roles you see here. For those of us that do fixed fees, the reason we're entering the market rates is that you still need some sort of instruction to go off from in this capacity planner. All things being said, you want to be able to understand what your team is capable of performing at just given normal, typical market conditions. You want to understand what the economic output of this team is and then compare it to actually what's going on in your office. 

So thank you for that Tim, and thank you for that Ed.

The concept of having a capacity planner
How to start using the capacity planner
The importance of a capacity planner for production and recruitment
Understanding the capacity planner
How to take action