The Wize Way

Episode 166: Are You Getting the Right Numbers in Your Business?

• Wize Mentoring for Accountants and Bookkeepers • Season 2 • Episode 166

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The problem with most firm owners is that they work harder than their business.

If your profit margins aren’t hitting 25%, there’s a reason — and it starts with your team structure and capacity planning.

In this episode of The Wize Way Podcast, Brenton Ward, Ed Chan, and Jamie Johns reveal:
✅ How to separate your effort from the business’s performance
✅ The ideal team productivity % by role (Finders, Minders, Grinders)
✅ How to build in spare capacity so you can scale without burning out
✅ Why tracking the right KPIs changes everything

Whether you're stuck in the grind or scaling fast - these numbers are non-negotiable.
 
#TheWizeWay #AccountingPodcast #BookkeepingBusiness #CapacityPlanning #WizeMentoring #ProfitFirst #AccountingFirmOwner #TeamStructure

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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

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Speaker 1:

The reason why we do this is to separate out how hard you're working versus how hard the business is working. So if we can get those KPIs right and get them working around 40% cost of goods sold, then you know you're working your business pretty hard, Because often you could be doing all the work that the business should be doing and you could have very good numbers. But if you're working really long hours then the business isn't working. You're just doing all the hours that the business should be doing. So the harder the business works, the less you have to work. But the less the business is working, the more you have to work.

Speaker 2:

Welcome to the Wise Way, the show for accounting and bookkeeping firm owners who want more time, profit and freedom and a business that can run without them. I'm Bren Ward, your host, and each week we deep dive into the real stories, proven strategies and battle-tested tools from successful firm owners. Just like you, our wise mentors want to share their journey of how they've scaled and systemized their way to freedom. So you can too. If you're stuck in the grind or you're ready to scale smarter, this is your blueprint. Let's get into the episode Jamie was mentioned there about, you know, just adding some science to all of this, and I know it is a bit of a combo of art and science when it comes to capacity planning. So it's not you know right down to the letter, but how have you seen this develop over the years and any comments to working with Jamie over that period to get this right?

Speaker 1:

Yeah, absolutely so. I just want to add toie was saying about uh getting the cost of goods. Uh, right, because when you look at a, a normal accounting firm, they have fees in their pnl, they have fees received and then all the cost goes under under category called uh expenses. Um, ours is more. You know you've got a cost of goods sold, you've got your opening width, your cost of the wages and then your closing width and gives you a gross profit and that should be around your cost of goods sold should be around 40% If you're because that's the largest cost of your organisation. If you can get that under control, then you're because that's the largest cost of your organisation. If you can get that under control, then you know the profit would just fall out the bottom because your fixed overheads are around 35, 30, 35% and there's not much you can do with your fixed overheads because you know your rent, your rent, your software, your software and so forth and it's pretty much uh fixed um, and if you, if you get around 35 percent your fixed overheads and your cost of goods sold is around 40 percent, then the profit will will just drop out at 25 percent and then if you can squeeze a bit more out of your cost of goods sold in terms of getting the team structure right and right, people doing the right kind of work, and you know they're at 85 percent uh productivity. And if you get all those uh uh boxes ticked then you're going to have a minimum of 25 percent return, and and at a dollar. If the goodwill was valued at a dollar per dollar, then that's a 25 return on your capital. Now there's not many other businesses out there or investments like property or shares or anything that will give you a 25 return.

Speaker 1:

The reason why we do this is to separate out how hard you're working versus how hard the business is working. So if we can get those kpis right and make sure and and get those KPIs right and get them working around 40% cost of goods sold, then you know you're working your business pretty hard, because often you could be doing all the work that the business should be doing and you could have very good numbers. But if you're working really long hours, then the business isn't working. You're just doing all the hours that the business should be doing. So the harder the business works, the less you have to work. But the less the business is working, the more you have to work. And in order to identify how hard the business is working is the reason why we present the financials in the way we do, with the cost of goods sold and fixed overheads and profit. And in order to work towards those KPIs, we work with this capacity planner.

Speaker 1:

And, as Jamie said, you know, in the team it's a bit like if you're, you know, running a soccer team.

Speaker 1:

You've got different positions, you've got a goalie and a winger and they all have different roles. So we have a client manager, a senior client manager, who deals with clients. Their productivity is very low because they're communicating with clients, they're doing the sales, they're, you know, setting up companies and doing sales with the clients, and so their productivity is around 50%. But at the lower end, where you have an accountant or a grinder that's just doing all the work, their productivity should be more at 80% 85% because they don't have any distractions and as long as you make sure that before they start the job, that there's nothing missing or as much of it is in, then they don't have to pick the job up, put the job down, pick the job up and put the job down, and that costs money and time. So if you get all these things working, then you should end up with a minimum of 25% EBITDA, assuming a dollar per dollar is a goodwill. And so you know, at my practice we're doing about 33% EBITDA.

Speaker 2:

So minimum 25, so an average of 25 is very realistic just a quick one is hiring taking up way too much of your time right now. It's pretty painful, isn't it? Let us take the pain out of your hiring process. At wise talent, we have a completely dedicated team who only work with firm owners around the world to hire the best talent, whether it's an accountant, bookkeeper, practice manager or client manager, whether it's locally or whether it's an offshore option you're looking to consider as well. We screen, we shortlist and we send you only the best. So stop stressing over resumes and start meeting great candidates.

Speaker 2:

In the show notes you'll find a link through to the Wise Talent team. Book yourself a call with Dani, tell her what you're looking for and let her take over and make it a painless, enjoyable experience. Take your HR hat off forever. Look at Wise Talent and talk to Dani today. Jamie, add to that for us in terms of some actionable steps and walking through. You know we're walking firms through this every day now in Wise Growth as part of the foundation planning sessions. What are some of the key points that you you want to touch on here, and I welcome?

Speaker 3:

thomas, or I think at a fundamental level, if we work through the capacity planning, um, first of all. Um, for example, it's a great process to do straight away, but it's very good at the start of your financial year that you can work out, you know what a forecast of your actual fees will be for the year ahead. So you know, you get a pretty good feel of what you've just done in the current year in terms of actual fees. And then you know, know you should try and estimate might be a little bit of growth, 10 growth, or whatever it may be. But first of all, you know, work out what your forecasted fees are for for the year ahead. And that's really important because you've got to plan, plan, plan what's that? I'll say, those who fail to plan plan to fail. So the Capacity Planner it's probably my number one planning tool at Sky Accountants and soon to have five teams, so I just couldn't live without it. So that's probably the first point, brent, is work out, estimate what your actual fees will be on a per team basis for the year ahead. The next point then, is you really want to jot down and you can see hopefully I'm still sharing my screen there, but you want to jot down all your finders, miners and grinders, if you like, but at that level, like who the senior client manager is, and again you've got a different topic another day but get that team design right the senior client manager. And again you've got a a different topic another day, but get that team design right the senior client manager, the assistant client manager and so forth and jot them down as you can see on the screen there and then and then obviously list everyone's salaries in the capacity planner, because we're listing their salaries, because we want to look at ultimately, at the end, we want to look at the profitability, as ed mentioned, of this team. That would be the next thing.

Speaker 3:

Obviously you got to put how many weeks a person works, how many hours in the week that they work, and that'll give you the total hours. And then, as you know, we mentioned at the very start about when I started working with Ed well, what should people's productivity be and what is productivity? And I remember in the time when I first started working with Ed, there was a lot of probably other coaches and commentators saying that you know, don't worry about productivity, just don't keep timesheets. Don't worry about productivity, just fix fee or value price and the rest will fall into place. Nothing could be further than the truth, to be honest. So, um, so, yeah, so again we can talk about what productivity is. Um, so, make sure you understand what productivity is and then, uh, you know the second point there is, uh, what? What is a person's charge out rate and how is that determined? So, and we can do a deep dive in those with ed's help, um, here and now. But obviously, once you calculate, um, how many hours they're working, what their productive hours are, by their charge out, right, you'll you'll get an individual person's um capacity. So the capacity is, if they did those productive hours by their charge-out rate, that person's full capacity is, say, in this example, $206,250. That's their full capacity. So if you work through that for each individual, you'll get the capacity.

Speaker 3:

And this is just for example. We've got an accounting team and in this example, we've got a bookkeeping team, and charge-out rates for bookkeeping, most people would know are different to accountants. And also, if you have an offshore team, then you can make your bookkeeping very profitable. And then obviously you have the overall teams or the overall firm's capacity. Overall teams or the overall firm's capacity, and in this particular case. I've just for argument's sake, today's example. I've said look, our forecasted fees is $600,000 in accounting work and we've got about $150,000 in bookkeeping work, so our overall fees is $750,000, but our team's capacity is a bit over a million dollars there, or a million and 32 000, and so what that leads to is um is an analysis around what is the spare capacity. So if we've got 750 000 in fees, but if our team was working all things equal, was working um to their productivity and charging out at that right hourly rate, then we've got about $282,000 of spare capacity, or, as a percentage of our capacity, around 27%.

Speaker 3:

And one of the most important things I think I learnt with Ed was one of the questions why is the senior client manager only 50% productive, or the assistant manager is 75, for example? Now, it's not an exact science, but what you have to realize is the role that these people are doing. So the biggest aspect there, brenton, is to understand why a person's got that productivity and if they're not doing billable work or chargeable work, um, you know what is that other 50? And particularly if you're a client manager, it's talking to clients. It's it's talking to new leads, new referrals, having AGMs with clients, taking them through the process and telling them how good you are, what their tax outcome is or if it's the bookkeeping. It's what their figures actually mean and what I've found is clients actually value. The biggest point is actually talking to the accountant or the bookkeeper. That's what the clients value. They don't really value the processing work in the background. While it's important, it's all about what the client's perception is.

Speaker 3:

So it's important to make sure that you have spare capacity in the firm and I'll probably bring it in here, but I would say 80% to 90% of the firms over the years of mentoring, I would say 80% to 90% of the firms don't have spare capacity to grow. And if you don't have spare capacity below, it's a bit like this glass of water probably can't see it there, but if that glass of water is full and I've got no capacity to put more water in or put more fees in, the cup's going to overflow In an accounting or bookkeeping firm. That means lack of service. You can't get the work done, you can't get back to clients. You simply can't manage your clients expectations because everyone's just like flat out and uh, you know, I've spoken to that many accounts over there, a bit like ed would often say that, like they're, I've just won another client.

Speaker 3:

You know, their body language is like, oh, it's just pain. It's like, do I have to work saturday to get this work done? So, uh, whereas you know someone who's leading a team, who's got spare capacity, it's like, oh, yeah, yeah, we can, we can take on your work, we've got the people to do it, we've got spare capacity and um, your whole psychology is different.

Speaker 2:

So yeah, just to voice uh on a point there. Um, a question from michael, jamie and thomas has answered it in the chat and it's on the spreadsheet their spare capacity what's the sort of average range you want to keep in the firm? And then you might you might, elaborate on this as well yeah, it just depends on how fast you're growing.

Speaker 1:

If you're growing very, very fast, then you probably want more, like 15 plus. If you've just been cruising, then you want at least 10 percent and, as as jamie used that analogy with the glass of water, you want to. If you want to grow, you've got to have, you know, you've got to have that cup not at the full, at the rim, but you've got to have the water. You, you know, 10% less under the rim so that when you pour some more water into it you can actually hold that water without it overflowing. Overflowing means you know you're losing clients, you're not returning calls, you're not getting work done in the right amount of time. And if you get the balance right between the two, then you're going to have very happy clients and they're going to refer work to you because you know they're happy and this tells you.

Speaker 1:

Well, we think 10% to 15% is in the normal and you know, if you go too much capacity and you're not growing to fill that capacity, then you're not going to have a very profitable firm, you're going to have too many expenses and your EBITDA will drop. If you have too much capacity and just like if you have too little capacity, that's going to cause other problems, like I said, long turnaround times and and so forth. So getting that right is so important. So you should be looking at this constantly, especially when you're growing and you've like a team member's left and you've hired another another team member the first place you go into is this and, of course, if you're growing, uh, before you make a decision to hire anybody, you come in here and you plan it out and make sure that you're planning your capacity to suit the, the level of fees that's coming in or the anticipated level of fees that's coming. Yeah, you've got to be ahead of the curve.

Speaker 3:

You'll be looking at it constantly and the key and the key to it too, is to make sure you work with your senior client managers, the, you know, the leaders of the teams, brenton and ed um and as soon as you educate them like these days at sky, for example, as soon as one of the senior client managers wants to hire someone, they instinctively go to the capacity planner because they know that that's what I'll I'll go to and they'll know that that's what I rely on. So it's really good when you get that culture where everyone's focused on the same tool or the same philosophy of how do we hire? What's the process? So it was just like the other day. My senior client managers will always come to me and say hey, jamie, I've recounted my capacity planner and I've looked at the fees of one race, you know, recently I think I'll need another person. So it's just so good because you get on the same page to strategically.

Speaker 2:

Yeah in terms of allocating time. Do you allocate a percentage of productivity to training or fixed hours, or how, or is it different for team member roles ed. Any comments on that?

Speaker 1:

yeah'll notice that the manager's productivity is less than, in that case, jane, who's on 90%. So Jane is on 90% because she's got no management responsibilities, she's just there to grind produce. So you'll notice that the others the senior production manager there, rose, she her job is to manage the staff and train them. So you notice, her productivity is at 70 because the other 30 is to make sure that she's training, uh, the staff. And then the right at the top, alec, who's the senior client manager. His half his day is spent just talking to clients, right and, like Jamie said, the communication with the clients, the relationship with the clients, and you notice that his production is at 50%.

Speaker 1:

Now, as Jamie said, this is not fixed in concrete or anything. This is in concrete or anything. This is all flexible. It just depends on your team structure and the experience level in those teams. Now what we find, though, is if you get the senior client manager in this example, alec, doing more grinding work right, so his production goes from 50% up to 80%, then you won't have as happy clients and you won't get as many referrals. So just getting the balance right is important between, you know, servicing and growth. If you want to grow, you've got to spend more time in front of your clients, and the likes of Alec needs to do less grinding and more face-to-face work meetings, you know Zoom calls discussions, you know that kind of work and then you'll get more referrals. But if you don't want to grow anymore, you know Alec can do more grinding work and you won't grow.

Speaker 2:

Okay, so the managers would do higher-level training and then deliver on only the key concepts to the team. Yes, yeah, okay, correct higher level training and then deliver on only the key concepts to the team.

Speaker 3:

Yes, yeah, okay, disclose all staff salaries on your capacity plan into all staff or just show the team total, jamie yeah, so, uh, once you've got all your teams structured right and the people in the the right seats, as we say, only the senior client managers. The senior client managers are responsible for their teams, brenton, and they're responsible for the. The senior client managers are responsible for their teams, brenton, and they're responsible for the setting the salaries. They're responsible for the annual performance reviews. So, as a ceo, I'm there to support them in that, so I can be in the meetings if they want me to be there, but generally and you get going as they get confidence up, you don't need to be there. Um. So only the answer, the question here. Only the senior client manager, um, sees the salaries of their team members and the rest don't know. The rest only know their own salaries yeah, and it's the reason?

Speaker 1:

the reason is that you want that person in this example, alec to run that team, and if you constantly bypass him or her and do their job for them, including reviewing the salaries for their team, then they're going to sit back and let you do it. So this is the concept of management from bottom up, not from top down. The top down management is where Jamie jumps in there and interferes and bypasses Alec and do Alec's job for him or her, and he or she will just sit back and let you do it. But instead of doing that, you let them. That's their job. You can be there to support them, but you've got to let them do their job of running that team and take responsibility for that team. But you can reassure them that you're there to help them and you'll be there to guide them, but you're not going to do it for them.

Speaker 2:

Thanks for tuning in to this episode of the Wise Way. If today's episode sparked an idea or helped you see things differently, please don't forget to leave us a review. And if you haven't subscribed to the podcast on your favorite platform yet, please go ahead and do that as well. Let's continue the conversation here through YouTube or any other social platforms that you can find us on. And just remember, if you're not a subscriber, our weekly Friday tip newsletter. You can get that to your inbox every week. Going forward, Whether you're starting out or scaling up, you don't have to do it alone. Let's build a business that works for you. The wise way. We'll see you in the next episode.