You did it! You made the decision to launch your very own CPA practice. Your client base is starting to grow and so is the workload…but when is the right time to bring on staff to help you meet and exceed your clients needs? Join us as we chat with Gabrielle Luoma, Founder of the Tucson AZ based, GML CPA firm, who talks about when is the right time to hire accounting staff as you Grow Your Firm.

In this episode, we will discuss:

• Testing the business waters
• Transitioning from a solo effort to an established firm
• Setting big business goals
• When the time is right to start hiring staff
• And so much more!

Part 1

Part 2

Key Resources:
GML Website:  www.gmlcpa.com
GML Email:  info@gmlcpa.com
Gabrielle’s LinkedIn:  https://www.linkedin.com/in/gabrielleluomacpa
Gabrielle’s Direct Email: gluoma@gmlcpa.com

Testing the Business Waters
Gabrielle Luoma never saw herself as an entrepreneur or owner.

Yet in just over 10 years, Gabrielle is now running GML CPA, a diversified services CPA firm with seven employees.
In 2004, Gabrielle had her youngest daughter and spent that year not knowing which direction to go. She set a small goal for herself: To make $500 per month from preparing individual tax returns.

By 2006, Gabrielle saw that her business reach could grow and that she could go to the next level. So she began to market herself to the public.

Gabrielle placed an ad in the local HOA community newsletter and became excited each time she received a call. After tax season, Gabrielle was able to pick up first business client.

But what was next for Gabrielle? Admittedly, she did not know where to begin and she never set a business goal. It was all about taking baby steps. She made the effort to conduct ongoing engagements with the business community. She started to meet her business goals by building upon the skills she already had. Soon enough, her small business revenues went from $500 per month to $750 per month. “It was really pretty cool,” said Gabrielle.

Transitioning From a Solo Effort to An Established Firm

By 2007, Gabrielle decided it was time to transition her business to a full-time effort. First she secured an office space because she did not want people coming to her home, and she wanted to be taken more seriously.

Although Gabrielle believes that idea has changed now with the cloud and virtual business practices. “So funny to say that now that we are in 2016. You don’t really need an office space in order to be taken seriously, but back then, it felt like you really did.”

Setting Big Business Goals

Now her business goal was to make between $75,000 and $100,000 per year. For her, it was a big goal.

To achieve this goal, Gabrielle knew she had to step up her marketing efforts and learn how to connect with customers. Her first hurdle was her shyness and to overcome it, she focused on what she could easily and repeatedly talk about:

1) Income tax returns
2) QuickBooks training
3) Small business bookkeeping

Next, she joined a weekly BNI networking group that was quite popular during the time and met with same 20 or 30 business owners who referred work to her.

As business grew, she looked for strategic placement opportunities in front of potential customers. Gabrielle sponsored networking breakfasts and events where business owners convened to get her name out there.

Gabrielle’s consistent efforts made impacts in laying the foundation and building relationships.”

She now had a referral network in place from her long-standing, “solid” relationships with strategic partners including financial planners, employee stock valuation experts, and insurance agents whom she trusted and who trust her.

Her partners share the same values and thinking processes and are like an extension to her business.

Time to Hire Staff

As her business grew, Gabrielle hired her first employee, a bookkeeper, in 2007. This person handled all the bookkeeping and accounting work so Gabrielle could focus on income tax work.

Gabrielle realized quickly that she did not have any work processes in place. Since she was never a business owner, she did not know how to provide for employees. “It was a train wreck,” admits Gabrielle.

In 2009, Gabrielle hired on a second employee, and with this new hire, Gabrielle had a new set of expectations. She was now organized in what she wanted and ensured that good processes were in place, although she notes that she is always learning.
Gabrielle offers suggestions on how to determine which areas or roles to hire for first.

1. Pay rate – Start by filling a role that pays at a lower rate: Bookkeeper vs. CPA
2. Work hours – Begin with a part-time hire and add hours as your business scales
3. Training time – The first hire requires much more time to train, and with each subsequent hire, required training time is marginally less.

In the beginning, she managed all of the work, and now she doesn’t have to do it. Her staff handles particular areas of the business and reports back to her.

Gabrielle suggests building a business “that pays you.” Look at your own business to see if you are charging your clients enough to cover your expenses and meet your profit targets.

Take into consideration your overhead and what you would have to pay someone to do the job.

With additional hires, a business owner has a lot to keep track and promote including:

• Positive working environment that fosters accountability
• Client care culture
• Work expectations of employees and of management

Every step is the next step up to grow your firm. Today, she has seven people working at GML. Gabrielle is proud of what she has created so far. The staff get along well and “really do love each other.” While she has had situations where the person was just not the right fit, after a departure, they all still remain friends.

Creating and fostering the right culture for your firm does not happen overnight and every year it can get better. Gabrielle says it takes a lot of hard work by everyone in the firm but ultimately where she is at, “it’s great and I love it.”

Her Business Today

With her team in place today, Gabrielle has been positioned to grow to the next level, expanding her reach to small businesses. Her firm now offers accounting, tax, CFO services, outsourced accounting, and business consulting.

Gabrielle started working with the Value Pricing model in 2011 mainly as a way to pay her staff. Gabrielle transitioned from charging an hourly rate to a fixed rate then to a value rate.

Through her tax and accounting work, Gabrielle was able to see what the industry has been charging for services by the hour. To determine a fixed price per annum, she average out the hours per job.

Making the step to value pricing was harder. She decided to start charging a value price with new clients first and then gradually introduced it to existing clients.

Value pricing is a new experience for business clients, and if they are open to it, it sets the stage for a good, negotiated plan for both.

The hard part about implementing the Value Pricing model is having to communicate to clients why prices would rise.

Gabrielle thinks it is a simple as being honest. In some cases the clients may not be fine with the reason, and she believes that those clients may not be right for you.

“One goes away and another will come. The ones that stay become happier because they are getting better service. It all works out in the end.”

Gabrielle’s services are not just transactional but consultative. She and her team address situations and may bring on strategic partners to provide additional value. They ask questions to understand what the business is about, and then they determine what are the “pain points to fix.” They meet with some of their clients on a weekly basis and act as an insider CPA role, remaining “in the trenches.”

“Clients are not used to that conversation from CPAs. They are not used to be asked all of these questions,” says Gabrielle. If you figure out how to help them, “usually you get a client for life.”

And hiring accounting staff to great a working team is important to support and grow your client relationships.

In today’s new Grow Your Firm interview, we dive into the story of Jay Holmes, owner of CPA firm Blueback Accounting, who learned how to shift his CPA firm to operate in the 21st century.

In this episode, we explore:

• Why You Would Want to Leave a Traditional CPA Firm
• Why the Billable Hour Model Does Not Work
• Change the Way You Do Business
• Focus on Quality and Not Quantity

Links:
http://www.bluebackaccounting.com/

Why Leave The Traditional CPA Firm?

Jay worked at a mid-size, traditional accounting firm and saw the “writing on the walls” as the saying goes.

He disagreed with how the management ran the firm and about their work expectations. So he stopped putting in the hours, and consequently departed from the firm in 2010.
In 2011, Jay found himself in his living room, starting his own firm.

Jay admitted that his former world burnt him out by the “nonsense” of always having to think of budgeted and billable hours.

Jay’s friend and former coworker, John, called him up to see if he could join his business endeavor. John, too, believed in a different and fresh way to do businesses as an independent CPA firm. He wanted to learn how to shift the CPA firm to operate in the 21st century and work towards building a profitable business.

So Jay and John began the work to start winning business.

“We needed clients, so we got a phone book and started going through it cold calling. We called 20 business a day, and that lasted 2 days.” Every person rejected them and so Jay said, “forget it. “

Their business was slow in the summer and the fall. Joining a few business networking groups is what turned the pace around in winning clients.

During the first tax season, they completed approximately 60 tax returns, most of which came from the networking group.

However, it took some time for them to realize the difficulty in selling tax services. Rather, Jay identified the opportunity to do higher-end CFO consulting work and focused on building client relationships. They shifted to an operational service offering based on bookkeeping and payroll services. As a result, business growth increased dramatically.

One of Jay’s take-away for early success is when the value you give to your clients increases, so does the frequency of interactions you have with your clients. Jay went from talking to clients yearly to now talking to them weekly because of the business services his firm was providing.

And then his business grew even more through client referrals.

The Billable Hour Model Does Not Work

Jay is convinced that the billable hour model is not conducive for business. It is all about “how much effort put into clients,” says Jay.

When your time is capped, you can’t do the extra hour…clients couldn’t interact and take the value.

Also, he said that Ron Baker’s book – Value Pricing – changed his mind about the billable hour model.

As a tax preparer, the billable hour was “held over your head.” It “was never a tool to guide you. It was to punish you for taking too long,” says Jay.

Changing They Way of Doing Business

Jay did not like the system, so he changed it. He would not implement the billable hour in his firm.

As Jay and his team performed their services, they were able to survey what the CPA and tax-preparing competition had charged in the past. From there, they derived a flat fee for the services they would charge their new clients going forward.

“Value conversation is so important for whatever you are providing. Explain the value and how you go about delivering and providing value.”

Being that trusted advisor that provides real value is critical for your business.

“People are scared of making mistakes and scared of the IRS and audit and what could happen – they are very willing to pay extra for additional assurance, if there’s an audit, then you got their back,” states Jay.

Having the value conversation upfront and early with your client is important. Send out your proposal ahead of time. Then explain in person, the exact steps you and your firm take to prepare their tax return. Emphasize the important steps and provide additional context. Jay points out that the average client has no clue that a tax return can take 4 or 5 hours to complete.

Confidence and trust are built-in this process and that translates well to client retention and referrals.

It is Quality, Not Quantity

After growing their business without defining their client targets, Jay realized that having 200 or 300 clients was not necessary. It was quality, not quantity. For Jay, knowing 30 or 40 clients more intimately was the right number of clients for his business. And therefore the quality of the referrals increases. Your good reputation goes a long way.

When narrowing down your pool of clients, Jay says to first map out potential revenue per client. It can be a bit art than a science. Determine how much each service you provide: payroll, bookkeeping, and personal and business tax returns, is worth. Then focus on those clients that yield both the most revenue and potential creative and strategic business opportunities.

When you have right-sized your client base, Jay says then to be “proactive and not reactive.” He cautions to not sit around to wait for the clients to come to you. Be creative. Look for ways to improve your client’s business.

Jay gives a real business example. His team handles on-going payroll reporting for a client. From the payroll data, the team took it upon themselves to think strategically about the ways in which their client could save money or grow its business.

From that recommendation, Jay’s team took the general strategy and then recommended it proactively to their other clients.

Jay talks about being strategic with the type of clients you choose. Then, be smart about their industry. Learn everything you can about that space. Read trade journals, and follow industry developments. “Speak the language” when working together and that approach will enhance the business relationship.

For Jay, he prefers to work with the professional service industries such as the medical and dental fields. He thinks it may be best to avoid industries with lots of inventory management that include manufacturing, retail or the restaurant industries due to additional hours of work needed to earn the same value.

If you find your current situation is not working for you, find the courage to change the way business is done and which clients will be the right fit for you. The power is in your hands to shape the CPA working environment that is suits you best and shift your CPA firm to operate in the 21st Century.

Want to see how one independent CPA firm has succeeded in winning business, recruiting and retaining the right talent, and growing into a larger organization? Join us today as we talk with Paula Allgood of Beaird Harris to learn the simple 3-step process to transform your CPA firm into a profitable powerhouse.

In this interview you will explore the evolution of an independent accounting firm from its start as a small, local firm, to growing into a larger, unique organization:

1. By evaluating and recruiting the right client and talent
2. By retaining talented employees
3. And by rethinking the office structure

 Click Below to Listen to the Interview:

Show Links:
BeairdHarris Website

The Background: The Appeal of the Small, Independent Firm

Paula was one of the earliest members to join the practice, first as an intern and then upon graduation from Texas A&M.  As she described her tenured, 25-year career with the firm, she was “home grown.”

Then, graduates entering the CPA world had only two types of options: Work at the Big 6 accounting firms or go small and local.

For Paula, going small and local appealed to her. She saw the business environment at the local firm as one of independence, creativity, and entrepreneurialism. Paula enjoyed helping clients one on one with business challenges and issues, and she developed a personal connectivity to them. Admittedly, Paula could not see these opportunities and experiences at the big firms.

The team at Beaird Harris then consisted of six people – two founding partners, a receptionist, staff and interns. One of the founding partners came from a Big 6 firm and the other from a micro-firm.

This small CPA firm gave Paula the opportunity to work with “smart, neat business owners” on tax and consulting projects and drive solutions with a nuanced understanding.

At a small and local firm, you become the “jack-of-all-trades” to the client. At this firm, you are the department, says Paula. And when challenges arise, Paula approaches each one with the view: “I don’t know how to do it but I’m going to figure it out and get it done.”

Expanding the Business to a Larger Organization

Now 25 years later, the Beaird Harris team has grown to 45 people purely by their organic growth model and by making no acquisitions.

They have expanded by design, deciding to serve their clients in a unique way. The foundation of their practice is providing the opportunity to help clients, to target their needs, and to operate with integrity.

Paula believes her team is at the right size to provide the depth of services and technical skills to address tax and financial challenges, while being able to maintain close relationships with their clients to help them achieve their financial goals.

The growth of the small, independent firm is predicated on the cohesive culture of the team. In Paula firm’s case, they have been able to attract those who get a charge out of doing the work and growing with the organization. It is a “win-win” for the employee and for the clients as the relationship develops and thrives, says Paula.

On the flip side, as a small firm grows, retaining the culture can be a challenge. The risk to the firm growing larger is that the firm may become just another “cookie-cutter” in the industry and lose its unique positioning. Paula says that she and her team realize this shortcoming and every day try to discuss, identify, and work on mitigating this possibility.

Step 1: Recruiting the Right Client and the Right Talent

In meeting client needs, Paula says it is important “to be able to have different folks on your team service all the different elements of [clients’] growth.” Her firm attracts clients in the service-oriented, closely held, customer-driven industries such as in the medical and dental fields, management service organizations, attorneys, restaurateurs and others.

Paula says when hiring, focus on skill sets that are client-centered. While the firm cannot be everything to everyone, find those common denominators and build your services around them. Refer the rest of what you cannot meet to outside partners and resources you trust.

We “want to say to clients – here’s what we do; here’s what we are like; here’s the way we do it; here’s our approach our business; here’s our team,” says Paula. She suggests having prospective clients come into the office to meet the staff so they can “gel”.

The same goes for recruiting for the firm. When meeting with candidates, explain what your firm stands for, what are its core tenants, and what makes the firm tick. In providing a clear picture of who you are, and your hires will forge a better and longer-term relationships, according to Paula.

Their end result is creating a team that is:

• cohesive
• diverse in expertise
• works well together
• builds alignments
• and communicates openly

Step 2: Evaluating and Retaining Talented Employees

Pick the right members that would fit your team dynamic. For Paula and her team, she says her firm administers team and personality tests during and after the hiring process. These tests explore and implement the interpersonal and technical skills that her firm believes are important for success.

Two tests that Paula knows work well for her team when paired together are:

• Kolbe Assessment – the test lasts 20 minutes and results are immediate. The assessment quantifies work style and traits using a scaling system
• StrengthsFinder Assessment – identifies and describes the natural talents of individuals

These tests enable self-realization and personal growth for individuals. When the tests are combined, Paula sees how the work environment is able to better understand each other and improve the ways they work together.

Picking the right talent for your company culture and identifying how best to work together are two ways to keep talent at your firm and put you on a path to transform your small firm into a profitable powerhouse.

A third way to retain talent is to help enrich their career and foster personal growth.

Paula and her team are providing an enriching environment through CPE trainings. She and a few of the younger team members have formed a Training Committee that meets frequently and determines great ways to help those obtain their CPE credits.

Some of these initiatives include:

1. Webinars for technical training watched together as a group and discussed together upon completion
2. Speaker Series of business people outside of the CPA world they work with on a day-to-day basis including commercial insurance brokers, pension firm managers, and attorneys for example.
3. Half day or full day training sessions supplemented with a reading program
4. Ongoing professional development with the focus on growing the next generation of CPAs “who can carry the torch with the excitement and enthusiasm”

Step 3: Rethinking the Office Environment Structure

Paula has found that creating an office environment that works for the team has produced effective results for the firm. She and her team re-evaluate frequently how they can improve.

Here are some of Paula’s findings

1. Connectivity and embracing the cloud

While face time in the office is important, Paula says the team loves work location flexibility, and it is achievable through good connectivity. Her team uses Skype for Business for those working away from the office that day. Seeing each other on the screen compared to hearing them on the speakerphone helps one another read facial expressions, understand tone, and better connect with one another through engagement.

Paula’s firm offers their staff the opportunity to work from home one day a week during off-season and two days a week during busy season. Working from home provides peace of mind, saves time by avoiding the commute, and provides work flexibility.

2. Office remodel of the common area

Paula’s firm created a true employee lounge last year that has couches and TVs and four standing work stations.

She found that the lounge strengthens culture and creates a casual environment. Employees can take mental break and get a change of pace for the day, especially during busy season.

3. Promote the family and personal life

Promoting work flexibility helps on the home front, Paula says. A happy employee that has a sufficient work-life balance creates a happy firm and results in happy clients.

Paula calls this initiative a “home run”. “Although it is not without challenges and it’s not perfect”, this way works when you have an established culture of trust and accountability, says Paula.

Knowing your firm culture and its competitive positioning; hiring the right team and retaining this talent for the long run of your business are great ways to transform your CPA firm into a profitable powerhouse.

On this new episode of Growing Your Firm podcast, we chat with Joel Sinkin, author and President of Transition Advisors, about how to successfully transition and sell your CPA firm.
In this interview, we discuss important topics on how to successfully transition and sell your CPA firm including:

• When to start thinking of your succession plan
• How to structure your deal
• How to value your accounting firm
• and so much more..!

 Click Below to Listen to the Interview:

Show Links: 
Transition Advisors
Selling your CPA Firm Resources
CPA Firm Mergers & Acquisitions: How to Buy a Firm, How to Sell a Firm and How to Make the Best Deal

Key Summary

In your tenured career, you have been a valued service to your clients and built a firm that makes you proud.
But what happens next?

Have you thought about your transition plan? Do you desire to sell your firm or are you interested in joining your practice with one that is complementary?

Joel Sinkin is the President of Transition Advisors who built his practice to become the ultimate resource for CPA firms for making introductions, performing valuations, advising on deal structures, assisting with negotiations, drafting contracts, and conducting due diligence.
Joel says for buyers and sellers of CPA firms, the considerations are all the same.

1. When do you start planning the succession?
2. How should you value the practice?
3. How do you structure the deal?
4. What are the keys to client retention upon completing a transition?

With this in mind, let’s jump into the first consideration to help you successfully transition and sell your CPA firm.

When Do You Start Your Planning Process?

Ask yourself how many more tax seasons do you want to work full time before starting to slow down. If your answer is 5 years or less, then Joel suggests it is time to start your succession plan. It is best to start this process 3 to 5 years ahead of time before you actually transition.

Clients of small and medium-sized CPA firms are loyal to the partner of the firm. These clients do not have a good understanding of tax intricacies; otherwise they may have chosen to do their tax work themselves. You are their trusted and valued advisor. Joel reminds you that the clients have a choice of accounting firms and they have chosen you.

Joel says to take advantage of this loyalty.

Typically, you are meeting with your clients at least once a year.

Joel says it is very important to give yourself a 3- to 5-year head start for selling your practice or slowing down your services because with each meeting, you are properly and gradually preparing your clients for this inevitable change.

Be upfront and transparent with your clients in advance of your succession

And How Do You Structure Your Deal?

Joel says most transitions are structured in one of two ways: Direct sale or partnership merger.

1. Immediate sale

In this scenario, the firm owner is looking to exit fully from the practice. The owner does not want to stay full-time, rather the owner may stay through a transitional period while introducing clients to the new owners Merger leading to a buy-out In this scenario, two firms merge together with the purpose of a partnership exit. In a multi-partner firm, one partner may want to retire soon, while the other partners may want to continue with their practice. This firm would lack the capacity to replace their partner.

2. Merger leading to a buy-out  

In this scenario, two firms merge together with the purpose of a partnership exit.  In a multi-partner firm, one partner may want to retire soon, while the other partners may want to continue with their practice.  This firm would lack the capacity to replace their partner.

So instead, they arrange a merger into and a buy-out by another accounting firm. This decision is made both for professional and financial growth reasons. The existing partner may still stay on for a transition period.

Joel discusses the idea of creating a two-stage deal. This deal is designed for someone who is one to five years away from slowing down his or her practice but is concerned about giving up control, autonomy, or income. In a two-stage deal, the transition is more natural – while clients will be billed under the new firm name, the accountant continues to service the clients. Over time gradually, clients begin to meet and work with the new contacts at the firm in a transition period.

How Would You Value Your Deal?

Once you have decided when and how you will transition your firm, the next question is “how much is my business worth?”

Joel says to ask three questions: “What is the multiple? What is the multiple? What is the multiple?” And in this case, the multiple is the billings multiple.

However, Joel cautions that the accounting world is “facing the greatest exodus of talent the industry has ever seen.” According to the AICPA, 70% partners are over the age of 50 years old that means more and more practices will be up for sale resulting in declines to the value of the firm.

When placing value on your practice, a combination of factors including how much cash is paid up front, how long the payout retention period will be, and how profitable the firm is to the buyer, will determine the multiple.

According to Joel, the 5 key variables that reach a firm valuation are:

1. Cash up front, if any.

Joel says that it is “rare that deal has more than 20% upfront. Most are more towards 0 or 10%” cash upfront.

2. Duration of the retention or guarantee period.   

How frequently you have interacted with your clients in the past will impact the duration of the retention period.  Joel says in 100% of the cases he sees, the clients are loyal at small firms.  

The seller’s purchase price can be impacted by how client fees rise or fall, post-close. Joel recommends structuring a retention period of two years or more. In Year 1 post-close, clients will experience new changes during tax season and will evaluate their experience. By the second year, the new firm would have greater visibility on whether clients will have stuck around for a second tax season. Sellers will be able to earn more from their sale over a longer retention period through better client retention.

3. Duration of the payout period
Based on his experience, Joel suggests structuring a payout period between 4 to 7 years and from 6 to 10 years for firms with $2 million or more in revenue.

4. Buyer’s profitability

The value of the firm is increased if it is profitable to the buyer and not the seller. For example, when absorbing the new business, do additional costs such as overhead, rents, staff, and software drag down the overall profitability of the combined firm? Can the buyer realize synergies? Does the buyer take a capital gain treatment compared to an accounting deduction? These considerations matter when ascribing value to the firm.

5. Multiple 

A firm gets a higher valuation and becomes more profitable to the seller when the deal is structured with: a) less money paid up front b) a longer retention period, and c) a longer the payout period to the seller.

How Do You Choose The Right Successor?

Your transition will be easier when you choose your successor wisely. Choosing the right successor for your firm is most important consideration in the transition process.

Joel says to keep in mind the Four Cs when selecting your best successor:

1. Chemistry 

“If you don’t want to eat lunch with someone, then don’t sell them your practice. If you are not comfortable – why would your clients and staff be comfortable?” says Joel.

2. Culture

While culture can be defined different ways by different firms, Joel suggests to find the successor firm whose culture complements yours.

3. Capacity

This point does not get much attention. Combining forces can sometimes be better, but only if the successor firm has the skill-set, the senior resources, and the capacity to best manage the additional business.

4. Continuity

Clients like continuity. They fear a merger. They fear change. When transitioning, talk openly with your clients before your clients raise any objections.
Clients will care if:

• You are still at the firm
• Their fees will increase
• They have to travel further to new office and
• They will now interact with a junior resource vs. a partner

Good luck to you as you consider your next steps in transitioning your firm. Just remember, “Clients won’t focus on what was lost, but what was gained,” says Joel. Get out there and sell your firm!