Episode 78: Building Capacity VS Advertising: What is it and Why it Matters for your Accounting Firm

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In this week's episode of The Wize Guys Podcast, Brenton Ward with Ed Chan discusses the difference between building capacity and advertising and the importance of having the right people.

Find out how capacity matters for your accounting or bookkeeping business.

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Chapters

• 0:00 Intro
• 0:35 Building Capacity vs Advertising
• 0:50 Why you should identify your team’s capacity
• 2:51 The importance of having the right people do the right job
• 3:09 How to balance on and off marketing
• 4:54 How 80-20 rule affects the capacity

Transcript

Ed Chan: 0:01

You've got to master leading yourself. So that's about self-discipline, that's about experience, that's about controlling your feelings. So you've got to lead yourself.

Brenton Ward: 0:14

From Wize Mentoring is The Wize Guys Podcast, a show about accounting and bookkeeping practice owners and the many stories, lessons, and tips from their experience of transitioning from a time-pull practice to a business that runs without them. I hope you enjoy and subscribe. Building capacity versus advertising is critical for us as new clients directly affects our long-term workflow, given there are weekly touch points with clients. So, as you know, Jamie, Dianne's been quite a big bookkeeping business as well. Our clients vary from $300 per month to $20,000 per month, so staffing for this variant is difficult. It is getting easier as we've scaled up over the last 18 months. However, I'm looking forward to learning more about what we can do in this regard. So it comes back to then, I guess, what you've mentioned there the forecasting of the capacity. Is it more related to that capacity plan?

Jamie Johns: 1:18

I would say so. Yeah, absolutely so. With the bookkeeping side of it, whether those clients are the $300 a month or whether they're the $20,000 a month, it's so critical to go back to your capacity plan with the team, and whether one team or two teams, it doesn't matter. Go back to the team and look at the capacity of that team what is the physical capacity of that team? And then compare it with the actual forecasted fees, and you'll soon find out whether you, ed. You always say it's like water in a glass, like capacity. A full glass is full of capacity. What you want is you want the water down a bit so that you can throw more clients in, because if you're trying to tip water in a full glass, everyone's just going to lose the plot. So you must have some spare capacity.

Jamie Johns: 2:14

And around that, though, just to go further, Brenton, you must try and measure whether it's time billing or whether it's fixed fee. You must try and measure the speed of the jobs. And there's another comment on there, that from Paul. Does Jamie use time, and dollar budgets in Karbon? And the answer is we do what we do is we have hours in Karbon in a budget and you can also have a dollar budget in there as well, so that's right. The more metrics you can use to manage your business is good, but you don't want paralysis by analysis, so you need to sort of keep it as simple as possible. But you're made of folks that are around the ideal team. I come back to the teams and charge out rates per person and it's having the right people doing the right type of work.

Brenton Ward: 3:08

So, Ed, just a quick question. Back comments there in relation to building capacity versus advertising, and that kind of makes me think about turning on and off the marketing tap. How do you look at that issue? Because you may have the capacity now and then you turn the marketing tap on and all of a sudden your cup's overflowing. So how do you manage the balance there?

Ed Chan: 3:31

Well, it's harder for tax clients because they're not going to see you today but they may not come to do their work for a year. So we're constantly measuring the prospects versus the clients, versus the actuals. So we're constantly running a spreadsheet based on the number of clients we've seen. We're measuring our work capacity constantly. It's a bit easy with bookkeeping because when they want bookkeeping they want it straight away. They don't come back to you in 12 months' time to do their work, like a lot of the tax clients do. You get to a point where the existing staff is too busy but there's not enough work to hire a new staff. So the new staff might be only 20% capacity. So you're investing in a new person until there's enough work there to keep them busy. That's a challenge that every business faces and you've just got to manage capacity with actual as you go along. And obviously, if you're lucky enough to go into advertising or marketing and you know how much it brings back consistently, then you can plan for that as well. But often marketing is a hit- and- miss thing and we move clients. So, for example, one of our teams might be, as Jamie says, when you work out their capacity, you don't have it at 100% capacity. You have it at about 80% capacity so there's capacity there. Sorry for using the word constantly, but to take on any new business like.

Ed Chan: 5:13

Often when they're so busy they don't talk to their clients about doing a cash flow for them. In fact, the opposite. The body language says I'm just too busy. So clients come to you and say the bank said I need to do a cash flow and you go do you really need one? The body language turns businesses away because they're at full capacity. But you want the situation so that they're talking to their clients and encouraging them to. Let's do a 12-month capacity budget for you, but let's do two years or three years. You're looking at encouraging work to come in, but that's a function of how busy they are, so you need to keep it at about 80%.

Ed Chan: 5:54

So the analogy that Jamie used was the water in the cup. If you have it right at the top and then you try to pour some more water into it, it spills over. So that spilling over of the cup is like pushing business away from you, and that's because it's a function of how busy they are. So every team should be at about 80%, but often when they go above that 80%. So let's say, a particular team picks up a really big client and that big client is like $40,000, $50,000, but that client is perfect for that client manager, so you should go into that team. So what we do is then move some of the smaller clients or another client that might be better matched to another team. So we're constantly working the capacity with the actuals, with the new clients that are coming in, and we work with our spreadsheets to see how many new clients we've picked up and when are they going to come on board and were they just tie kickers or are they real? So it's a constant.