The Wize Way

Episode 123: The Power of Capacity Planning for Accounting and Bookkeeping Firms

• Wize Mentoring for Accountants and Bookkeepers • Season 2 • Episode 123

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

In today's episode of The Wize Guys Podcast, Ed Chan and Thomas Sphabmixay deep dive into capacity planning. for accounting and bookkeeping firms. A capacity planner plays a critical role in managing resources, optimizing workflows, and ensuring that the firm can meet client demands efficiently while maintaining high standards of service. It requires a strong understanding of accounting and bookkeeping processes, project management skills, and the ability to adapt to changing client needs and industry trends. 

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Wize Mentoring:

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- poor practice to a business that runs without them.

Thomas Sphabmixay:

This month it's about scale undefined 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. F ortunately, in 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 show you how to interpret the capacity planner as well.

Thomas Sphabmixay:

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 a lot more capacity. Let's talk about that too. Maybe you just want to avoid a situation where we might be burning at our staff. But 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. And if you don't get it right, then you're going to find it really difficult to scale and, of course, you won't make any money. You'll feel like you're working very long hours and just nothing in the bottom line or not enough in the bottom line.

Ed Chan:

And we've got to firstly start with how most firms run their teams and they generally run flat teams instead of deep and narrow teams. And if you run flat teams, it throws up quite a few problems. One you can't find staff and because you're looking for that person that does everything, as we know, there's three tasks that you need to deal with in a firm which is grinding, the grinding work, the minding work, which is managing the teams and the 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're very expensive. And then you feel like you're walking around on eggshells around them because if they leave, you're back to trying to find someone and, of course, you're also not challenging them, because often they're looking to grow their careers and to move forward and you could end up getting them to do very low- level work and they're looking to be challenged to move forward. And of course, if they do very low- level work reconciliations, bank reconciliations, that kind of stuff and you're charging them out at a really high level because they're expensive you generally should charge them out at three times what you pay them Then you become, as a firm, become very expensive or you end up having to write time off. So at the end of each job going over budget, then you're writing time off and you're getting frustrated by this and that's as a consequence of running flat teams and of course, you can't scale that model. So it's not very sensible to do that.

Ed Chan:

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 want to manage people. They just want to go okay, I'm going to hire the most experienced person and just say look after that portfolio and then get on with something else. And that's not good because it's a loss for your clients that we 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're just playing in the P&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. So the deep and narrow team structure is the best way to go.

Ed Chan:

Now, once you've set up your ideal team structure, you start with your blueprint, and 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 and in our teams, it's a senior client manager who deals with clients and communication. Because there's two types of work that comes through, two types of traffic that comes through. There's communication traffic and there's production traffic, and you've got to 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 all grew up doing the work, so most of us know how to do it.

Ed Chan:

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 the industry if I was a grinder. I'm just too slow, 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 got to be very selective about who you hire. In our industry. 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 going to 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 got to get the resource mix right. If you just throw bodies at the problem, you'll find that it might get blocked in a particular area. So, for example, if you have too many juniors, then production is going to get blocked at the senior level, at either the senior client manager level or the senior production level, because as 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 taking time off those jobs or you'll become very expensive and you might lose your clients because you've got too expensive.

Ed Chan:

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 charging them more. We should make more money by being efficient and managing our teams so that the lower level work is done by a lower cost person and 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. And 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 and you might have too many juniors. That ends up with all the work being on the senior's team team's desk. So you've got to get that mix right. So you've got to get some juniors coming through because you need to train them and get them to do work at the lower level, and 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, and then you need a senior production manager then 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 play in your P&L. You need to invest in your balance sheet, which is to bring those people through. And 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 working done, some two years, an experienced 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. And that's one reason, why the resource mix, is causing the senior client manager not to be able to talk to the clients.

Ed Chan:

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 and even though their team's sitting there watching them work, they've got nothing to do because they won't delegate it down, they just hang onto it because they enjoy doing it. And 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 and often if you don't manage the team they do, they just gravitate to what they enjoy doing and it's just too expensive to do that. So you've got to keep an eye, you've got to educate the team as to what their roles are because often when you hire somebody from outside, they've come from a flat team, so they do everything you know, from bookkeeping to administration, to tax planning to finalization of the work and advisory and the whole lot, and it doesn't work.

Ed Chan:

You can't scale that kind of model, as I said because you can't find staff. Everyone's fighting over the same type of staff who can do everything, and you don't need that. So, even at a senior client manager, often people say to me oh, that person's not experienced enough. Well, you don't want that person, you don't need that person to be 100% 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. So you only deal with the last 20%. So 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 have all the clients coming to them and then they delegate the work down.

Ed Chan:

Well, you can't scale that kind of model, especially when 80% of the stuff can be handled by the team. So you flip that around. So 80% of it, 100% 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 and each team should handle around, in Australian terms, around $800 to a million. You're working towards that. Some teams will be smaller as you're building it up. You could start off with two 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 deep and narrow team. So that's how you scale. So if you've got a million dollars per team, you can get to $5 million with five teams. That's your ability. That's how you scale your business.

Ed Chan:

So now I just want to give you that background in case there are new people. They haven't heard this before, and because this session is about capacity planning. It's about getting the resource mix right. So the work is flowing. You know something is wrong when there's a blockage to production. You have to look at your team and work out where that blockage is occurring. And often it could occur in the senior levels, at the senior client manager level, the senior production level, the two-year experience level, or the junior level, 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.

Ed Chan:

But there are ebbs and flows in your work, especially if you're not doing scheduling. 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 stop you from giving a good turnaround time on your work, 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 senior client manager and assistant client manager, senior production manager two years, three years, five years, experienced people and junior coming through, or some outsource staff who's doing the lower level but lower cost tasks so that you're charging at a lower cost to the client, so you're competitive with your pricing. So all of that is can be worked out on your capacity planner and whenever you thinking of hiring somebody else, you should go back to your capacity planner.

Ed Chan:

You plan it out there. It's a bit like you don't build a house until an architect's designed 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 got to start with your plan and once you've got your plan then you hire people to fill those roles. So then you play people in position, not out of 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. And 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. And all this.

Ed Chan:

You plan all this out in your capacity planner on paper before you go out and you recruit. So, in a nutshell, it's all about making sure the work is flowing, it's not blocked in a particular area, and it's getting the balance right between P&L, getting the work out the door, and investing in your balance sheet, making sure 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're always looking ahead. So there might be a gap in the team. So you're anticipating that someone's going to 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. Excellent, ed.

Wize Mentoring:

Thanks for tuning in. If you liked this episode, please remember to subscribe and leave us a five-star review For more practical Wize tips on how to build a business that runs without you, head over to wizementoring. com/ podcast to download a free copy of the Accountant's 20-Hour Workweek Playbook. We've included a link in the show notes below. See you in the next episode!