How to Shift Your CPA Firm to Operate in the 21st Century, the Jay Holmes Interview
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
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.