How can your firm thrive through the ups and downs (and pandemics)? Our Automating Success webinar series will take firms through every step of change, from business models and pricing to staffing to leveling up your advisory skills.
As part of our Automating Success Masterclass series, we present you with this fictional story of a firm to highlight real-life challenges firms face in today’s world. In each webinar, our thought leaders will share their expertise on how this firm might address those challenges.
Please note: this is a fictional story for entertainment and educational purposes only.
Meet Klein, Rowe & Co.
Firm Name: Klein, Rowe & Co.
2 partners (Martin and Martha)
2 leaders on the team (1 is a Technical CPA and 1 is an Ops/Administrative person), 2 CPAs, 3 accountants/tax, 2 bookkeepers, and 1 part time support team. 1 Marketing Specialist in later years; 3 Contractors help on a part time basis for overflow work, and during tax season. One of the Contractors is Martin’s Mother.
KRC's Main Troubles
Klein, Rowe & Co is facing what might be familiar issues to many accounting firms, including:
- Business development,
- Pricing for value,
- Redesigning their business model and roles,
- Team Structure,
- Value of Internal Financial Processes,
- Using/Deploying Strong Technology,
- Recovery during crisis,
- Focusing on Advisory
Meet our Firm Leaders
Martin and Martha both had a vision to start a different type of firm. They saw their value together in the last large firm they were in as they led the Consulting and Tax areas of the last firm, respectively. Though Martha was on the partner track, Martin became disillusioned as he saw a mismanaged firm struggle to consistently deliver value, remain distracted by poor technology choices, and a glut of new shiny services. As a result, they both saw the staff of that firm either leaving or remaining only to struggle in a poor culture. It was just a job.
Twelve years ago, Martin and Martha started Klein, Rowe & Co. because they knew they could do it better. They were even innovative enough to get a co-working space, start virtually, and run their firm on the cloud. Martin and Martha started out together in the co-working space and have remained in that model since the inception of the firm. They knew how to bring in clients, manage teams, and do the technical side of anything the clients would throw at them. They were ready to take over the world!
The Early Years
Since they were established professionals, new clients flocked to Martin and Martha because of their reputation at the last firm. Though the hours were hard at first, the work and clients poured in. It only took 6 months until they hired their first accountant virtually. Three months after that, they also hired a sharp virtual assistant that they were lucky enough to bring on full time within the next 6 months. After the first year, they had 1 virtual accounting/tax team member, their virtual assistant (who now worked in the cowork space with Martin and Martha), and a newly hired bookkeeper out of university.
Martha is driven and spends a lot of time out of the office drumming up new business while Martin loves to solve the complex technical problems tucked away in his office. Martha was in charge of working with the consultant who created their website to manage the content and branding. Martha knew Martin had a knack for preparing for complex white collar crime cases they provided to local attorneys (and a few national law firms). Martin’s legal brief spreadsheets were legendary! So Martha went after the legal market and drummed up many law firms to begin serving their litigation practices. They took every client they could, so law firms weren’t their only focus. They worked with individuals, small businesses, and the odd client of 1 farm and 2 manufacturing companies as well. The work came in so fast, they had to hire a couple of people just to assist Martin. This additional team also prepared client tax returns Martin could no longer get to. Thankfully, they were able to hire some smart people (though these team members were expensive to pull from other firms).
When it came to marketing their services, Martha handed over the website and any marketing efforts to their virtual assistant, but because work was coming in, they didn’t put much focus on it At this stage, they had a website and used a free email marketing platform to occasionally send out a marketing email -- but there was no focus or strategy applied. They didn’t feel it was needed. Business was strong.
After all of the growth, hard work, and new team members, Martin and Martha were making good money with only a few years of focused business development and the money to hire smart people.
The First Growth Ceiling
As is common with service based firms, when the team grows to between 7 to 10 team members, things get complicated fast. Martin and Martha were too busy to focus on stuff like processes, core values, and culture, so complaints started arising out of the first few team members. Further, though they have been committed to the cloud, they failed to implement a cohesive accounting Tech Stack that guided the onboarding and implementation of their services with clients and team. Other than the occasionally-used email marketing system, they didn’t have a tech stack to help manage their own marketing and business development.
Team members thought they were ready for raises and promotions, but Martin and Martha weren’t in tune to things like that. Onboarding clients into piece-meal pieces of cloud technology stopped being successful, and was more of a responsive move (some of the technology they suggested to their clients, but they would also use anything the clients brought too).
After 5 years, a couple of team members left that they had to replace with some quick hires due to the large legal forensic caseload Martin was always trying to manage. A common growth strategy is to “throw people at the problem” as firms grow quickly. This is what Martin and Martha did with no thought of how to onboard these team members, how to train them on their processes or uses of their strategic accounting technology, or how to help them specialize in Klein & Rowe’s legal advisory focus.
Further, they were adding so many clients in all types of industries, and all types of broad services that they lost a few large clients and one significant law firm client. They also struggled to make payroll in one part of the year. This has never happened before and was troubling. After spending some time trying to figure out this cash shortage over a long weekend, Martin and Martha found that the administrative team member had not been billing a large law firm case (and never even took in the case’s large $12,000 retainer). They approached the team member on the phone that weekend (Martin was furious!) with the problem; the administrative team member never came back to work by sending a vague email about a new position they had found. They had to look to a temp hiring solution on that next Monday to keep all of the balls in the air.
Even with these first bumps, KRC was still a strong firm with consistent clients. The work wasn’t as fun as it had been for Martin and Martha but maybe this is what building a firm is supposed to feel like? After steady growth (with a few bumps along the way), 8 years showed about the same client base, but with some turnover happening regularly on the team now (but Martin and Martha never had time to think about the turnover). Things seemed to be getting out of hand. Martin would have said “this firm is driving us, not the other way around.” Martha didn’t want to talk about it - she just went and got more clients.
Move Towards Advisory and Leadership
Martin and Martha have attended some interesting conferences and webinars and kept hearing how advisory and the cloud was the way of the future. They had been solidly doing both of those for some time. They had a thriving legal firm support niche and had always worked in the cloud, so they thought they were solid on those fronts.
After these webinars and conferences, they were left scratching their heads as to why they felt their firm was running them if they had always seemingly focused on the right things?
Still, the work was getting overwhelming especially as they had to keep giving new team members work without sufficient training to do the work or use the technology well. They took a leap of faith and promoted their first team member to a position of leadership. This team member could almost out work Martin and had saved the firm many times on missing deadlines and technical mishaps over the years. They knew this was the right person for the first leadership role. They also put this seasoned team member as the lead with some large law firm clients. Martin was overwhelmed by the workload, so they thought this move to promote a new leader to the firm and put them in charge of some large clients would alleviate his work.
Martin was mostly left in the firm to manage the firm and processes, while Martha thought of new ideas, new technology, new services, brought in just about any client that would pay, and continued to stay focused on business development. If there was a problem in the firm (team leaving, struggling with profitability, or failing to make payroll) Martha would either throw new revenue at it, or try to hire new people.
She also decided to hire their first full time Marketing Specialist to help. In addition to marketing, the Specialist handled a lot of Martha’s business development administrative work including follow up on local events and new clients. Martha gave her random things to do, such as an occasional email blast, or a topic to write a blog post on, try a Facebook ad now and then, add a service or remove a team member from the website.
There were many times that revenue and new team members showed up without Martin even realizing what was happening. Further, the new promoted leader created a few big mistakes on large clients, had fired one person from the firm without Martin and Martha’s permission, and was becoming more and more agitated with the remaining team.
After 8 years, KRC was glutted, slow moving, had higher demands from more prominent clients, struggled to show profit, and had a culture that was becoming harder and harder to thrive in. Though the team turn over continued, they were able to promote another administrative team member that had been with them 3 years to the role of Operations Manager. No one really knew what that role was meant to do, but Martin and Martha were looking for relief.
10 year anniversary
After the firm’s 10 year anniversary, the Operations Manager hired a part time support person on their own to relieve the overwhelming work the Ops Manager had (since they still stayed deeply involved in accounting and tax preparation). This part time person was not engaged, but did take some firm accounting and payroll off of the plate of the other accountants and the Operations Manager.
Klein, Rowe & Co. was stable, but struggling on a number of fronts.
Martin and Martha didn’t realize it, but they were leading an unhealthy firm. Here are some of the problems they had been ‘investing in’ over a decade:
No discriminate client onboarding strategy,
Claiming a narrow marketing niche (around law firms) yet taking every client they could,
No strategic pricing strategy that leverages their decades of wisdom,
No strategic marketing plan to help bring in consistent leads and new customers
Chasing shiny technology instead of strategically deploying technology,
Lack of team care and training,
No sticky culture that holds strong members to the firm, and attracts others,
No team or process structure to push their work through the firm, and
A complete misunderstanding of how to roll advisory into their firm.
The KRC firm hit a major crisis with the onset of the COVID-19 global virus spread in early 2020, quickly followed by the government’s confusing, cloudy bail out of small businesses. To further the exasperation, and probably unintentionally, the government leaned squarely on the shoulders of accounting firms to navigate the confusing and added untold levels of work and stress on to already taxed firms.
Unhealthy firms struggle to survive or remain healthy during times of crisis. This became a scary reality for many firms during the pandemic. It’s difficult to turn around a sinking ship. Unhealthy firms become more unhealthy as they layer pandemic-related struggles into their firms and teams with quick, murky guidance coming from all over the profession.
Healthy firms are ones with cash in the bank, established processes, those that lead their firms and clients, using strong technology in their already designed firm processes, abilities to onboard their teams and clients into the firm’s process and Tech Stack, differentiating value and pricing in their marketing, as well as strong leadership that loves their team and cares about an engaging and challenging culture.
This was not the situation of KRC, and they began to struggle in ways they couldn’t control anymore. Clients stopped buying certain services, more team left, forensic legal cases slowed to a crawl (thereby slowing retainers and billings). Their previous minimal marketing efforts meant that nothing was in place to help bring in new customers and their Marketing Specialist wasn’t experienced enough to know what to do to change it. Martin and Martha started missing some paychecks, they continued to ignore their technology and process woes, and failed to find suitable team replacements for the team that started to leave.
Follow our Automating Success webinar series to see how Martin and Martha can reimagine their firm to thrive in the future.