Section 2.1: Motivating People and Aligning Compensation with Billing

Blake tackles the accounting profession’s staffing crisis, arguing that firms moving to fixed-fee or subscription billing need to stop paying staff based on billable hours. Using Summit CPA Group as an example, he shows how a book-of-business compensation model and fully remote work let people choose how much they work, which keeps working parents and career-level professionals engaged instead of pushing them out.

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Blake Oliver, CPA

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What is Building a Sustainable Accounting Firm?

This audiobook is more than a guide to building a sustainable accounting firm; it's an invitation to rediscover why you became an accounting professional. It's a roadmap for stepping off the transactional treadmill and into the transformation economy, where relationships thrive, lives change, and legacies are built. Professions aren't transformed by sweeping mandates or top-down reform decreed by professional bodies. They are remade by bold individuals who dare to reimagine what's possible. As you listen to this book, I encourage you to embrace the challenge. Be the change you seek for your firm and your profession. Because the future of accounting isn't something to observe—it's something to build. Building a Sustainable Accounting Firm illuminates the path forward. You'll meet some of the pioneers who are blazing the trail of new business models that challenge the fossilized status quo, while leaving behind maps for the curious. Whatever the design, the bold leap into the unknown is yours to create. One day, posterity will thank you.

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver, CPA: [00:00:00] Section two staffing. 2.1 motivating people and aligning compensation with billing. The accounting profession is facing a staffing crisis. A 2023 study by Caseware found that over 90% of accountants and 95% of auditors find it challenging or extremely challenging to hire skilled talent. Retaining that talent is just as difficult. With more than 85% of accountants and 90% of auditors saying it is somewhat or extremely difficult, according to researchers. As a profession, we need to face the hard truth. The traditional staffing model in accounting firms is broken. It no longer aligns with the needs and expectations of younger generations entering the workforce. Millennials and Gen Z prioritize work life balance, flexibility and being rewarded for their achievements, not just for the hours they put in. They don't want to work 60 hour weeks just to climb the corporate ladder. The rapid shift to remote work has only accelerated these trends. While 100% remote work has expanded the talent pool for hiring. It has also made it easier for staff to leave for other opportunities that better meet their needs and values. Forward thinking firms are adapting to this new reality by building business models that are more resilient to higher turnover. At the core of the staffing challenge lies the traditional time based billing model. This model incentivizes overwork and inefficiency, and causes firms to measure and reward performance based on billable hours. But as artificial intelligence streamlines many accounting tasks, clinging to hourly billing will become increasingly unsustainable.

Blake Oliver, CPA: [00:01:39] The future belongs to firms that adopt fixed fee, value based pricing and that align their staff compensation accordingly. Making the transition to a subscription based model is key to building a sustainable, modern firm. But this transition will fail if performance management remains tied to billable hours while client billing shifts to recurring fixed fees. Firms must align their team compensation to how they bill clients. The good news is that a flexible, remote friendly staffing model with a book of business compensation structure can be a powerful tool for attracting and retaining diverse talent. It can be especially attractive to working parents and others who need greater flexibility by valuing staff contributions beyond billable hours. Firms can tap into a deep pool of skilled professionals that traditional firms often overlook or push away. In this chapter, we'll explore how innovative accounting firms are reinventing their staffing models to meet the challenges of the future. We'll see how aligning compensation, incentives and performance management with a subscription based business model is key to building a sustainable, successful practice. In the coming decades, Joey Kinney, a virtual CFO at summit CPAs, told me on my podcast that aligning people's compensation with the firm's billing method goes back to value added billing. We've made investments in technology that allow us to do something that previously took 20 hours to finish, and we can now do it in ten.

Blake Oliver, CPA: [00:03:05] He shared. But if we just stick to the old time and hours approach, we would be making half as much money. There are only two ways to get the same amount of revenue for the same tax return, said Kinney. Either jack that bill rate up or move to a value added billing situation. According to Kinney, summit realized this conundrum years ago and aligned value added billing with value added compensation. Kinney said summit created a system in which there's a book of business that employees are expected to keep up with as part of their standard base salary. But summit doesn't require Kinney and the other virtual CFOs to work 50 to 60 hours to meet their numbers at summit. If you want to work more and earn more money, you can do so, especially if you can figure out a way to leverage your resources using staff, accountants, or outsourced resources, but you're not required to do so, said Kinney. Every month, summit totals the value of each virtual CFOs book and drops it into a formula to determine their variable compensation. Some people want to work more and make more money. Others want to work a regular 40 hour workweek. Either way, the comp is not based on those billable hours anymore, said Kinney. There's a place for everybody in every organization, noted Kenny. Not everyone wants to be a partner. Many firms make the mistake of saying, oh, you don't want to be a partner.

Blake Oliver, CPA: [00:04:24] There's no place for you. Let's push back on that, asserted Kenny. According to Kenny, some of the most valuable people in your organization are those who say, I just love being a senior accountant. I don't want all this responsibility. I just want to be really good at my job. I'm right in my sweet spot. I don't stress about it at night. I'm comfortable from a compensation perspective. Like Kenny, I saw this when I worked in public accounting. We had one of those career senior managers who was exceptionally good at her job and didn't want to go any higher, even though she was incredibly valuable to the organization. The partners wouldn't pay her more than they paid a manager, even though she arguably deserved more than me. She had more experience than I did and served more clients than I did. It was all hierarchical. Kenny said his mother faced a similar inequity. She began her career in the early 1980s at a predecessor firm to KPMG Peat Marwick. She was excelling in her career until she decided to start having children, which meant she had two options she could choose the partner track and never see her family, or go on what they called the mommy track. In those days when she chose to prioritize her family, her compensation was forever capped. Even though she had more billable hours and better utilization than every other person above her in that organization, she ended up leaving the industry not too long after realizing that and doing something completely different with her life.

Blake Oliver, CPA: [00:05:48] Women, especially have gotten the short end of the stick when it comes to how accounting firms are handled, Kenny said. But summit takes the opposite approach welcoming working moms. Hannah Hood, another virtual CFO at summit, has three school age children. The beauty of the compensation structure at summit, said hood, is that if I went to them and said, hey, my kids are really busy with sports right now, I need to cut back. They would say, okay, let's figure out a way to shift your clients around so that way you can maintain this. According to hood, as long as you're maintaining your minimum book of business Summit is perfectly fine, with you needing to take a step back. Hood says she has the opportunity to be a rock star in her career, but also to be very present for her kids as a mom, especially in the remote work environment. Hood said being remote was non-negotiable as she was looking for her next career move. Summit is almost entirely remote and has no plans to go back to everyone in the office. If Covid taught us anything, it's that businesses can absolutely function remotely and still thrive and succeed, said hood.

Blake Oliver, CPA: [00:06:51] Personally, I experienced the same absentee parent syndrome when I was working at a traditional big firm in Los Angeles and had an hour long commute both ways, I wasn't present for my family. My son was very young at the time. Often I would leave the house before he was up and I wouldn't get home until after he was asleep. But it doesn't have to be that way. We don't have to make moms and dads choose between work and family. Summit's business model takes good care of clients and employees, summit CPA co-founder Jody Grunden, CPA, told me on the earmark podcast that his firm's model scales well because clients not only get a virtual CFO, but often get an as needed accounting department or a tax person if they want the firm to do their tax prep, too. We can add all these different services and different opportunities for the client, and it's just a fraction of what they would typically pay an in-house person, noted Grundon. Again, you're rolling the dice every time you hire someone full time. Today, it's really hard to find someone who understands your industry well, understands accounting, and can also deliver a service level performance. About 80% of summit's 220 clients utilize its virtual CFO or comptroller level service, and for more than half. Summit does the 13 week cash flow forecasting. So summit meets with many of its clients and builds them weekly.

Blake Oliver, CPA: [00:08:13] If the client is doing the accounting and paying the bills themselves, then one of summit's senior level accountants will meet with the client's accountant and advise them on which bills to pay first and which to delay. Summit reconciles or oversees the reconciliation of bank accounts for almost all of its clients and does the tax prep for about 80% of them. It does bill paying for about 30% of its clients and payroll management for about 10%. Either way, the firm also oversees internal controls for its clients. For the majority of our clients, we close the books at the end of the month, noted Grondin. We'll make the month end journal entries, close the books and make sure everything's tied in. From there, 80% of our clients fall into that bucket in which we're providing a forecast for them. So we'll do a 13 week cash flow meeting with the clients, bookkeeper or accountant every week, as well as the weekly touch meetings. In addition to that, a summit CFO will meet with the client's executive team, usually as part of a leadership meeting. Conclusion. Thanks to the consistent year round meetings with clients, tax returns tend to go very quickly because there are very few questions or loose documents to chase down with high frequency meetings. Summit invoices. Most clients weekly and has faced very little pushback. Clients appreciate the simple, predictable invoices and bite size payments required.