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This is your destination for feeling empowered in building your business.
These are the real, raw stories of entrepreneurs and business owners who have built their businesses through the messy middle of $1-20 Million, hosted by serial entrepreneur Matt Tait.
Matt knows what it’s like to scale past the first million, and on this show he’ll be bringing on other serial entrepreneurs and business owners who have been there, done that (or, are currently in it) to share what’s worked, what hasn’t, and what’s next.
Matt Tait (00:00):
The statement that I've hated since I was a kid and has never changed is "this is the way we've always done it". It's not a reason. It's an excuse. The way we've always done it isn't going to be possible. Heck, it's probably not possible now. It's not going to be possible into the future. It's time to find people that are willing to change. Hi, I'm Matt Tait, founder of Decimal and host of After the First Million podcast and like you, I've taken the leap not just to start a business but to scale and grow it. I've hustled from zero to that first million and now I'm building for the next 50. I know firsthand what the messy middle looks like and we need more than just numbers. We need strategy, we need community, and we need real conversations about what growth takes. In our line of work, scaling beyond a million means going beyond the spreadsheet. This is where you learn how to grow. This is After the First Million.
(00:59):
Hey everybody, it's me, Matt Tait, host of After the First Million Podcast and the founder and CEO of Decimal. Hopefully this is the show you've come to know as the place where firms can go to learn how to grow beyond the first million. For this episode, we decided to do something different. Instead of having a conversation with a guest, I wanted to answer all of the questions that we've been getting lately, particularly regarding franchising. So you're going to hear me today instead of interviewing a guest, I'm going to answer questions. I'm going to state the question first, but I really want to dive into all of the reasons that we are doing what we're doing and really trying to change our business to help more of you.
(01:43):
After our announcement a couple of weeks ago at Scaling New Heights, we talked about franchising and I have to tell you that things blew up. Whether it was DMs or emails or texts, phone calls, people are curious and quite frankly, I think they should be. We are at a pivotal point in the accounting industry, whether it's AI, whether it's globalization, whether it's hiring, whatever it is, private equity. There are a lot of things going on right now and we hope and we really do think that franchising is a solution to all of them. So this episode today is particularly for accountants. Those of you that feel stuck, you want to grow, you want to feel like more of an entrepreneur and a business owner than just an accountant. And I think you should. I think that we are at a point where you can run a very well run successful business, and this is for people that also have asked me, why are you giving it all away?
(02:44):
That's one of the top questions I get. Why aren't you just growing your company the way you have? Why not keep going? Why give it all away? So this is going to be my honest take on all of that. I'm going to talk about why we're doing franchising at Decimal, why it's important, why it matters, and I think more importantly, why now is the perfect time to do it.
(03:06):
Alright, the first question that I get probably most frequently and from the most sources is what made you decide that franchising was the next step for Decimal? I think that's an easy question for me to answer, but it's got a lot behind it. When I looked at accounting firms, when I looked at people that do bookkeeping, what I see is the same thing you see in just general business economics. Over 50% of businesses fail before their first fifth year and accounting firms are no different.
(03:42):
It is hard today to balance all of the things that you need to do to run a successful accounting firm. And over the last couple of years, Decimal has made some acquisitions, bought a company from KPMG, we bought another company last summer. We looked at hundreds of firms to maybe acquire. We really thought that that might be a model of growth for us, but what it really did was it showed us how different and how much better our operating system was. And our operating system is a combination of technology. We've built a technology that we use that's off the shelf like a Keeper for instance, for workflow management and also just how we have structured our teams both in the United States and the Philippines and how we have structured work. And it's very different from how firms traditionally do it, but what it's allowed us to do is to have best in class margins and also start implementing AI at a much faster pace than other firms.
(04:40):
And that was evidenced by the big partnership we announced with Puzzle transferring a couple hundred clients over there earlier this year. But so as we looked at these firms, we saw how hard it was for them to run it. In my first career, I'm an attorney by trade. I joke that I'm a recovering lawyer, but what I see is when I have lawyer friends that are running their own practice and maybe it's a million dollar practice, they're making four or $500,000 a year running that single million dollar practice. When I look at the same accounting firm, I see the owner of that accounting firm making 175. If they're really good, maybe $200,000 a year. That is an astronomical difference that shouldn't exist. But what we've done is we've made it hard to run accounting firms and the technology, all the tools, all of that stuff is harder than it should be.
(05:30):
And so I and we as Decimal decided that, you know what? Why don't we just give this operating system to firms? Let's let them run the businesses they should be running, make the money and economics they should be making and let's help them succeed. Let's give them everything we can because you have to balance a lot. Any business owner, doesn't matter if you're an accountant, a lawyer, a manufacturer, whatever it is, you are wearing a lot of hats. So how at Decimal can we make it easy for an accountant, a business owner, a franchisee, a Decimal firm? And so ultimately we designed a model and the team worked really hard on this that all our franchisees need to do is sell new clients and make the clients they currently have happy. All of that is also creating space to give them the ability to help clients and advise them better.
(06:25):
Right now, accounting is so stuck on helping businesses survive. Let's help you pay your bills, get paid, track it all. It's time to really transition into helping businesses succeed and Decimal's franchising model is based on and built on that premise. The next question that I get is what in the market told us that now was the right time? There are other franchises, a lot of older ones out there that already do some franchising in accounting and they run very old models and very old technology stacks and haven't really, they might be a generation or two or five behind where franchising and where the infrastructure of a firm should be. So what would the signals in the market that really helped show us that it was time. And to be fair, it was a lot of them.
(07:16):
Number one, AI. AI is going to and is already having a massive impact on how work is done right now. So many accountants are stuck on doing the work. How do we get the work done? And what AI is going to force the transition to is how do we do as little work as possible, but use the extra time to help advise businesses on how to succeed better? And the problem that we see in all technology adaptations and movements is accountants are slow. They're behind. They are worried we don't move fast enough as an industry, but AI is moving too fast to go slow. And so ultimately we looked and we said, Hey, we can either continue to just be on the forefront and leading the pack and the implementation of AI and accounting ourselves, or we could go start thousands of firms that are doing it the way they should be. Let's take all the baggage from the past, let's remove it and let's just start firms with the right structure. And so that's AI as a market factor.
(08:26):
There's also private equity. Private equity right now is a massive talking point in accounting and I think in a lot of ways it's a good thing. I think there are going to be some bad parts about it, but one guarantee that you see in every private equity industry, rollup is the most senior people in the firm, in the company get the biggest payout. They are the ones that do really, really well. You then see the lowest employees, the newest and youngest, all of a sudden having a better economic track to success within the company. So you have a much better structure for the lowest end of the workforce, a good economic payout and incentives for the upper end. But where you see people really getting screwed over are those junior partners and senior managers. And what we're going to see there is we're already seeing it today.
(09:18):
Those are the people that are going to leave the rolled up firm and go start their own. There are 80,000 accounting firms out there in another 320 bookkeeping and payroll firms. We live in a very entrepreneurial industry, but we live in one that fails rapidly. I think that we have created a structure that will make it so that failure rates improve dramatically. There are statistics out there that show that failure rates are halved if not more, when people are given the right community and structure in a franchise system. So to me, this isn't just franchising, this is creating a community of people that can succeed together and a system of proven success, proven success in how to operate as well as proven success on how to sell. Decimal's five and a half years old as a company and we've already helped a thousand clients. There are very few firms out there that can say that this isn't just how you operate. This is also how do you sell and grow to build the lifestyle business that you want.
(10:17):
So we have number one, AI as a market factor. Number two, we have private equity as a market factor. Number three, we have globalization of workforce. Most people are already thinking, how do I use somebody in the Philippines or India or wherever you might think. There's also a lot of good stuff going around in Central and South America. For Decimal, though, we have further structured work differently, we have been able to structure work so that our US accountants are doing no accounting work. Their entire job is how do I make the clients happy and how do I do final quality to make sure that the work product is as good as it possibly can be. Then we have a team in the Philippines that is doing most of the accounting work outside of bookkeeping.
(11:00):
We look at the transactional work, we look at the bill pay, we look at the tax filings. We've built that into a queue system that is rapidly being replaced by AI. We are working to take work away from each group and replace it with AI and use that group to check quality and make sure that the clients are happy. So it's globalization, it's restructuring globalization, it's all of these different factors. The other part, and I think this is the final market factor that I think is really important when you talk about the Decimal franchise community and that is advisory work. If accountants are not doing the work that they are today, what are they going to do? How do we train a workforce to be better advisors? And to me, that's the other power of what we're building at Decimal. We are giving people the space to then be advisors.
(11:53):
We're also helping train and teach people. That's one of the biggest fears I hear from people is yes, I know we need to get into advisory, but I have a staff that's unprepared for that or untrained for it. Great, let us help you train them. Let us help you hire for that. This is all about all of these different market factors and I think they're all coming together at the right time and to me, we've created a system that nobody can build on their own. One of the other things that I hear, and this would be a third question, is I just implement AI myself. Short answer, yes you can long answer sort of I guess yes and sort of are kind of a different sort of, is a longer word, but when I think about it, the real power behind AI is when you can implement it at scale.
(12:40):
Large firms, the big four on down are going to be able to implement AI at scale. Small firms simply aren't going to be able to do it all in a franchise system. Decimal can do it for you. We can implement AI at scale and give you all the benefits of a big firm, all the benefits of scale while also having the benefits of running your own small firm. You get the independent small business that's owned by you so you can have that entrepreneurship while also having the benefits of the scale. Things like, hey, you may use tools like a puzzle or maybe QuickBooks as the AI improves, we'll do more work in the ledger for you. What about communications? What about how do I update documentation? What about the things that know no tool in the market is going to do things that big firms are figuring out and paying for that you'll simply never be able to pay for yourself.
(13:34):
Those are the things that a Decimal operating system can give you and do at scale. The next question I get asked a lot is, I've personally made it my mission for years now, but very publicly for the past year or so to just be willing to help firm owners. I've talked to dozens of firm owners and for years I've just given them our playbook. Here is exactly what we do at Decimal. Here's exactly how it works. Here are the tools that we use an open book when it comes to everything we've already done. What I get asked about, and I made this statement on the stage at Scaling New Heights is I got fed up because I felt like it wasn't enough. I got sick and number one, let me pause and say I will always help anybody that asks whether it needs help finding a job or networking.
(14:21):
It's just in my nature to be that type of person. I love helping people. I love helping companies. I've failed a business. I've succeeded at business. I know what the whole roller coaster feels like and I love just helping make it easier on people. What I've found to be hard is in giving firm owners the playbook for Decimal. People are overwhelmed right now. They don't know how to change or they don't know how to start. How do I start my firm? How do I make it so that I'm building the right economic structure? I have to do stuff at the beginning, but I know I can't do it at the end. I've built a million dollar firm. I've got seven or eight or nine employees, they all count on me. I need to build a business that I can sell, but I know I can't sell this.
(15:07):
All of these things, people are overwhelmed by what to do and how to do it, and there's no playbook that is easy to implement. All of this takes sacrifice and hard work unless you start in a system that just gives it away and that's what I want to do. I get frustrated when I give people the exact roadmap on how to improve the economics of their firm or improve the tech stack and then a year later I have the exact same conversation and a year later I have the exact same conversation. I don't blame that person. That person is doing the best they can, but it's exhausting. I want to give people the ability to just buy something and a team that is there to support them, to do it with them together. I want to take the hard stuff off. This franchising system isn't just about operations.
(15:59):
It's not just about sales. It's also about how do we take all the hard stuff away from you? I talked to a firm owner the other night that said, I have to spend three days every month figuring out my billings and my AR and how to get proposals out and then I have to collect and all of this stuff. You know what I've never had at Decimal? AR. You know what I've never done at Decimal collections. I want to help people put that in place and we're going to do it for them. We want to offer them benefits. We want to offer you're a one person firm, a two person firm. Here are benefits and payroll. You can get payroll no matter what, but benefits? You cannot get that on the open market and offer that to employees. We want to give that to people.
(16:38):
We also want to help you hire. In this business, you are a byproduct of how great the people you hire are, but you have to hire the right people. We want to help do that both in the us we want to help do that in the Philippines. We also want to create a system that pulls work away that when you bring on a new client, you know that the bookkeeping is already done by your Decimal franchise solutions. You want to know that your tech stack is already there. You want to know that all the pieces are in place so that all you and your team that you hire and your Decimal firm are doing is client relationships, making sure the work product is there, making sure the relationships is there. I want to narrow the aperture, narrow the risk factor for these entrepreneurs, for these firm owners so that they can focus on a few things rather than a million things.
(17:26):
I've done it my whole career, I've been an entrepreneur. I know how hard it is. If you can start to limit where you have to focus, life gets easier and you can be more successful. So we've unpacked this a little bit, but when I start to talk to people who are interested in franchising, one of the biggest things that they ask is, alright, you say you're giving away the Decimal operating system. What does that actually mean? So I'm going to outline that in its entirety. Number one, it is the technology that we've built plus the technology that we choose. We buy where we can and we build where we can't and when we are structuring things, we also structure it in a way that we can replace stuff. Too many times businesses in general, let alone accounting firms will make a choice when they start and then continue that choice because change is hard based on the technology stack that a firm tells me.
(18:21):
I can tell you within 12 to 18 months of when they started, because I can tell you what tools were there, what was cool at the time. At Decimal, we have structured things much, much differently. So the first thing that we look at is we've built the foundation of technology. So our operating system is Keeper for workflow management. We use Front for email communications. I've gotten one email from my internal team this whole year really in the last 18 months. So we've removed email, we use Slack for internal communications and we'll use it for franchise communications. Not with your clients mind you, but with your team and with the franchise group as a whole. We also use Keeper for transaction communications with clients. Clients use that portal as well. It means that you can stop emailing clients, Hey, what are these five transactions? And you can just put 'em in Keeper and they'll see the transaction in the question.
(19:14):
It greatly simplifies communications and makes the client's job a heck of a lot easier. So that's our tech stack. We have also built things that help AI, that helps crawl through communications to determine is there an escalation that I haven't heard of. Siloed information is a problem in our business source switching costs we build to try to eliminate both as much as we can. That's part of our operating system is that technology. The other part is deliverable aligned teams, so making sure that each person has a very specific role and that you understand the costs of everything. It's another problem you see in all professional services, but accounting in particular is very few people actually understand the true costs of what they do and hourly rates are a really bad metric for that. So I would number one, eliminate. We've never charged an hour. I rarely track an hour and I don't think that you need to or should in this business.
(20:08):
So deliverable aligned teams. Back to the structure. We have a set of queues teams, so all of our transactions, all of our bookkeeping runs through a queue system. It's a group of people that have very little client specific knowledge, if any, and they're going through and saying, here's a transaction, looking at documentation, booking it, and we have the same with a BillPay team that we work specifically in Ramp and in bill.com. We may be adding Brex later and they work in one system that we've built that pulls in, here's a bill, here's a system it's in, get it done pay. We've very greatly simplified that, which also cuts costs out. We also have a tax filing team. We're building an invoicing team and a payroll team. We want to make as much of the manual labor very easy to do by these queues. What this will also do is as AI becomes better and more cost effective, we'll start to fold that in more and more into those teams.
(21:02):
Right now, I think we're at a stage where it's kind of like buying the first TV. You should never do it. You should wait for the second one because it's half the price and double the features. I think that's kind of where we are right now with AI in terms of the manual labor of bookkeeping and some of the other kind of transaction work, but we've built a queue system that'll easily fold that in. On top of that queue system is what we call delivery support in the Philippines, and these employees will be employees of our franchises and they have client specific knowledge. They're the ones that do the remaining work. The queues can handle about 80% of transactions, but there's a 20%, maybe it's a new vendor or it's some complication or there wasn't enough information that's handled by delivery support in the Philippines and most of the time they have worked their way up through the queue system and so they know the whole Decimal infrastructure, how to work at Decimal, how important documentation is, and very clear documentation.
(21:54):
That is your next step in the system. The operating system is delivery support. The final step is your accounting managers in the United States, and these are people that also have client specific knowledge, but their entire job is let's hop on calls with clients or answer emails or do a Zoom or whatever it might be. Let's advise these clients on how to create a better tech stack, something that saves them time and money or let's look at your business. It's kind of controllership work on down and they also are doing a final check. Every layer is checking the work of the layer below it, so the delivery support is checking the queues work. The accounting manager is checking the delivery support work, and that's how we've really structured the entire system and it's what allows us to get better margins than anybody else in the business.
(22:41):
It's also what creates the space to give our teams, particularly in the US the ability to focus on advising and helping small businesses succeed. That's our operating system from an how to do the work standpoint. Then there's on the sales side, clear expectations and how to make sure that you have the right client starts on sales. You never want to sell something that you can't really do and you want to make it clear the entire time. Sometimes that means, hey, if a client comes in and they're on Sage Intacct, we don't work in Sage Intacct, so we either have to convert you to QuickBooks Online or you're not a great client. For us, that's a great opportunity to find a good referral source and to build a partnership. It's really making sure that things are clear in terms of what we can offer, what we're doing, what that cost is.
(23:31):
That starts in sales. Sales is the first impression operations gets to make. The second impression is in onboarding. So we really work through all of that and have created a good operating system on how to sell and how that combines operations so that in its totality is the Decimal operating system that we are giving away to people that create Decimal firms. It's a system that quite frankly, I don't think anybody can replicate without a lot of cost and money, but we want to be able to give it away to people within our system. The next question that I get a lot is what is the right type of franchisee? What's the right firm or accountant that would work out great? And we see people that fall into a handful of categories. Number one, we love people that are starting their own firm or looking to acquire a firm.
(24:22):
It's a big problem when it comes to acquiring a small bookkeeping or accounting firm, and that is the transition costs and the costs of moving a legacy firm onto a new system is astronomically high. It will take, it's like building a house. It will cost you twice the money and take twice as long. It's the same when it comes to an acquisition. We've seen it in the acquisitions that we've done and I've done acquisitions at other companies. It is always the truth and it oftentimes is way worse than that. Sometimes it's three x the money and three x the time, but it just depends either way. That's a lot of costs that people don't necessarily take into account. So we love finding people that want to start their own firm or acquire because we can help them get to their point of economics in a much sooner and a much better way.
(25:10):
The second group of people that we have been having a lot of success with and where I think it works out really well is those people that have already started successful or are building successful fractional CFO shops because that's who we've partnered with for years. We have dozens of fractional CFO partners who they do the fractional CFO work, but guess what? They need the bookkeeping, they need the bill pay, they need the operational work too, and so we've always been able to do that while they do the advisory work. Now we can give them all of it. They can have a Decimal firm combined with their own fractional CFO shop and offer all of it. We've seen a lot more clients, a lot more businesses right now that want things bundled. So if you're a fractional CFO, you can now offer tax. You can do the bookkeeping.
(26:01):
You have your own Decimal firm, you have all of it. The other thing that we've seen with these fractional CFO shops is businesses struggle, which a lot of small businesses are struggling right now, may not be in a recession, but to a lot of businesses, it certainly feels like it. For those companies that struggle, the thing that they remove first is the fractional CFO. They go to survival mode rather than success, and that's okay because that's what happens when you get scared when things get tough is, Hey, I just need to make it through this. The thing they have to do is pay their bills, get paid in track at all. That's what Decimal succeeds at really, really well that controllership work down, and so it gives them the ability to stop churning clients that are struggling because you can keep the tax work, you can keep the bookkeeping work you can flex in and when they start succeeding again, you're right there to offer the fractional CFO work or to help them with a budget to make sure that they're succeeding into next year.
(26:52):
So fractional CFOs are the third group. The final group that we're seeing a lot of as well are more legacy firms. Firms that are, they've built a good business, but it's struggling. They're struggling to build a saleable asset. They're struggling to understand how to implement new technologies. They're just struggling to hire people. There are a lot of people that are struggling. They don't understand how to make a team of doers into a team of advisors. They just don't know what the next five years looks like, and we're seeing a lot of those firms that we can bring into the Decimal community, bring into our franchise system and transform them into a Decimal firm, keep all their branding. They've built amazing businesses. I don't want to take that away from them. I want to give them something. I don't want to take anything. And so helping them transform, those are the types of firms that we're also seeing.
(27:44):
So it's people that want to buy or start professional CFOs that want to do more and firms that are ready to transform but just don't know how to do it, and those are the three biggest groups that we're seeing today. I also think down the road, this is a great way for other groups to start building their own firm and to turn a cost line item into a profit center. So those are the models that I see when I look at people and when I talk to people, there are also mindsets that I'm looking for. So all of those groups of people I want to help. I'm willing to advise. Decimal is willing to help, but as we look at people to join our community, we are looking for a very specific subset of people. We want firm owners and Decimal firms that want to sell, that like to go out and find new business.
(28:39):
Maybe they don't know how to do it, that's okay. We can train and teach that, but I don't want people that are afraid of the sale. I want people that want to grow and want to help more businesses. I've never viewed what we do as selling. I view it as consulting to help, and I want people that have that mentality that really look at it. The other thing is I want people that are willing to change and try new things. The statement that I've hated since I was a kid and has never changed is this is the way we've always done it. It's not a reason. It's an excuse. The way we've always done. It isn't going to be possible. Heck, it's probably not possible now. It's not going to be possible into the future. It's time to find people that are willing to change.
(29:21):
We want to do the work at Decimal, but we're going to continue to improve the system. We want people that are okay with that. We want people to that want to be part of a community that want to work with the other Decimal firms that want to, Hey, this is something that's worked for me. It can work for you. I also want people that want to be entrepreneurs, business owners. If you're starting a firm to have a job and do the work, Decimal might not be right for you. If you are wanting to be an entrepreneur, if you want to build a really successful business that gets you the lifestyle that you want and deserve might be right for you. I want people that want to collaborate, want to work together. Are we going to be perfect? Absolutely not. I fail every single day and we work with so many clients.
(30:05):
My team makes mistakes every single day. You are going to make mistakes. I want people that want to work together to make less mistakes and to continue to fail forward. We're going to fail. Let's fail forward, and that's what we're looking for. We want people that want to be part of something bigger. We can be the size of a big four. We can build a community that can change an industry. That's what I'm looking for is people that want to be a part of that, people that want to be successful within a community and not just alone. I really think that accounting has gotten to a point where we're craving community, we're craving working together, but we struggle to improve along with that community. And to be fair, I think some of the people that lead these communities are doing so with an old school mindset sometimes with the best of intentions, but I saw something come out the other day from a top influencer and it was how to structure your firm at various sizes and it had a million dollar firm with nine US employees.
(31:03):
That's ridiculous. You can't make any money doing that at Decimal. You should be able to run a million dollar firm with two US employees and two Philippines team members. Your economics should be able to get you there. You just need the right operating system. That to me is what we want to be able to build is to give people that this tailors into the next question and that's just culture fit. What does it look like when we bring in new partners into the model? Culture is really, really important. It's really important when you have your own company, but it's also important within the franchise community. We want those collaborators. We want people that want to work together. We want people that are curious, that want to figure out how to do things better and change. That's ultimately where I want us to go. Alright, kind of some rapid fire questions.
(31:50):
I think I've answered some of these, but what's the biggest problem that we're trying to solve by doing franchising? We live in a very entrepreneurial industry, but we fail too much. It's really hard to run a small accounting firm. I want to make it easier. It's never going to be easy, but I want to make it easier and that's what Decimal is solving.
(32:10):
I think the next question, rapid fire. How do I think this is going to change the industry over the next five to 10 years? I think we can have thousands of Decimal firms. I think we can set the standard for how to use AI, how to structure, how to create the lifestyle that you want. I think we can create a community that succeeds together. That's what I want to do. I want to change how we implement technology, how we succeed together, and I want to take the isolation away from running this big picture here.
(32:41):
I think that if you are a firm owner that adopts this model, you can work less, make more money. I mean, it's the thing that everybody promises and talks about, but we've used this at Decimal for years and it works. That's why we're giving it to people. We've used it and it works and things are changing really fast and we want to be able to keep up with that for you so you don't have to do it.
(33:06):
These are the questions I get pretty much from everybody. Economics of what it takes. Willing to talk about that at some point too, but ultimately this is about helping create a community and making it easier to run your own accounting firm. I really believe that franchising is a really important evolution and I think that Decimal is the company to do it. For years I've talked about you can give a man a fish and feed him for a day, or you can teach a man a fish and let him feed himself for a lifetime. I'm sick of giving away fish. I'm going to keep doing it 'cause that's in my nature, but it's time for us to not only teach people how to fish, but give them the pole, the boat, and just throw the fish in. I want to make it easy. That's what this is designed to do. The industry's ready for it and we're the right choice to do it.
(33:56):
Alright, so another question that I get frequently is how do you build for the economics of a really good firm? Too often what I hear firm owners talk about is I have a controller, that's what we call 'em, accounting manager. So accounting manager, and I'm able to give them five or 10 clients and maybe 50. That's the wrong way to measure that. There's no economics put on top of that. So number one, the first thing that I always advise people to do is to put the economic structures together around it.
(34:30):
So instead of 10 clients, let's use $15,000 in monthly recurring revenue. MRR is what each accounting manager at that firm has. Okay, that's a good starting point. It's really bad economics. It's not atypical though. Where we look at it at Decimal is every accounting manager at Decimal has about 40,000 plus in MRR overhead. So if you think about what a traditional accounting manager costs, it's usually, let's call it on the high side, 80 85, could be as low as 60 65 and you're able to put $40,000 of monthly recurring revenue over them. How do you do that? That seems impossible. It's very doable, but you have to put in the right structure. The way that we've done that is that Accounting Manager is just there to manage the client relationship and to check the quality of the work. So we've removed a lot of the doing. So a lot of the stuff that most firms are having people do, the accounting manager isn't doing.
(35:32):
So who is, that's a delivery support person, high level controller in the Philippines, and they're the ones doing the work for those clients. So now you've added cost in there, but you've also massively increased the revenue. So you have that delivery support person that's doing some of the work. That delivery support person can get really overburdened too. So what we've done is we've further pulled work away from them and we've moved it to a queue system. As we all know in accounting, you really don't need a ton of client specific knowledge to do basic transaction work, basic bookkeeping or to process bills. You really just need a little bit of documentation about what a little documentation and a little history of where that transaction is. So if you're able, in our case, we're able to pull about 80% of the transaction work away from that delivery support person, which means they're doing 20%.
(36:27):
So if they're doing 20%, if we're going to fill them back up to a hundred percent, we can give them five more clients. So we're able to dramatically increase their workload. Well, we're able to dramatically increase their capacity. Their workload remains the same. And then same thing with the US accounting manager. So that's where we've built queues and that's just a team of people that goes in and handles every transaction, handles every client, handles every bill, different teams for bills versus transactions, but they're the ones that do that work and then delivery support comes in and handles the 20% where they didn't know or had questions and checks the work of the 80% just flying through making sure it's correct. So you're able to create this structure. We've created this operating system that is a pyramid structure, which allows for those economics. It allows for 40,000 plus in MRR overhead because you're pulling work away from people.
(37:24):
You're also making it so that client relationship, the accounting manager controller is doing is advising. It's not just, Hey, here's your report. Let's look at it, let's make sure it's correct, but it's like, Hey, here's an insight from it. Let's look at this. If you did this, it would help you save money. Or have you thought about maybe making more sales in this category because the profit margins are higher versus this category. You're able to create the space to train and teach people how to do that so they can do it. So that's kind of the economic structure is a really important thing, and that's where you have to start to build from. When we talk about this is where our economic structure is, that's where I see people's eyes just glaze over and they're like, I could never do that, and that's okay. We can, and now we want to give it to you.
(38:10):
That's a big part of franchising is how do we help you create this economic structure? Also, if you think about that, you're pulling yourself out of the business. You're pulling yourself into being that entrepreneur so that down the road someday you want to sell the business, you're going to be able to get higher and higher multiples for that because you've built the right technology, the right operating system, the right infrastructure, the right types of clients. So that I think is really important. The other question that I get that's kind of tailored to the capacity versus economics versus MRR, overhead, et cetera, that I think is really important is we have really worked hard at Decimal to help, and we're going to help people do this, but to bring in clients that are bigger. So at Decimal, our average MRR per client, per new client for the last two years has been $3,500 a month.
(39:04):
Our clients are paying us between three and $4,000 a month to do this work. We do have a few that are in the 1500 to 2000, but we have very few that are below that, particularly very few that aren't legacy or friendlies. So to me, it's building towards bigger, more mature businesses, which also means they fail at a lower rate. They are more susceptible to wanting advice. They're thinking about how do I succeed and not how do I survive? They're just the right types of businesses. And so part of what we're doing here is helping people sell into those types of clients because that also helps with the capacity. It's easier if you have three clients at 10 K versus 10 clients at 10 K. Switching costs are a really big thing in our industry, and so helping people sell bigger and bigger businesses is really important.
(39:53):
Those are also the businesses that want advisory. So as we push into advisory, we need to push towards people that can and will pay for it. And so that's a big part of what we're doing too, is not just helping people operate better, but helping them sell better. I can't tell you how frustrating it is for anybody to tell me they just sold a $500 a month client. It is fundamentally impossible to run a profitable growing business with $500 a month clients. It's not possible. Your actual cost economics don't work that way. Inflation has made it so that 15 years ago, $500 a month was still probably low, but now it's unbelievably underwater. Now we've seen it with Bench, we've seen it with scale factor. We've seen it with small firms. This is why firms struggle is also because they are bringing in clients that are unwilling to pay good economic numbers. We want to be helpful, but you deserve to get paid what you deserve to earn, and that is extremely essential to running a successful business. Is that... So that I think is really important.
(40:54):
The other thing that I talk to people a lot is I'm a huge proponent, and I talk about this on LinkedIn, I talk about this with people that I advise and friends. I think if you're going to be a successful entrepreneur, you would need to focus on three things. You need to focus on your mental health. What does that mean for you? How do you mentally stay sane? How do you stay healthy? How do you stay happy? What does balance look like? Really fundamentally understand that for you. Number two is your physical health. What does that mean to you to be physically healthy? Your mental and physical health is number one thing.
(41:29):
Number two is find a coach. Find somebody that you pay to help you be better. And number three is find a community of people that are like you. Running a business is extremely isolating and it can be very lonely. If you have a group of people that are also lonely, all of a sudden you have friends and you could talk about the problems that you're dealing with and all of that stuff. Part of what we're creating with Decimal isn't just we want to sell you a firm, but we want to create that community and give you that coach. So franchisees, Decimal firms, they're going to have their own success coach. In fact, they may even have two. Somebody that's helping them be successful operationally and somebody that's helping hold them accountable and be successful from a sales and growth perspective.
(42:13):
We are moving to the most important thing. For us, the most important priority is helping our firms be successful and grow. Period. To do that, we want to give them coaches. We also want to create communities of Decimal firms, people that are all doing things the best way possible, the same way, and we want them to work together. We're also going to encourage people to join other groups in your local community. There's so much power in selling local and in being that local advisor. Joining a CEO group puts you in a position with other business owners of different types of businesses to learn and grow. So to me, it's your own physical and mental health. Finding a coach and finding a community of peers and that peer group and that coach are going to come with Decimal, and hopefully that gives each of our Decimal firm owners the ability to figure out what physical and mental health means for them, because all of that's going to help people be more successful. So to me, this isn't just about how to do it right, but how to create the community, the structure to allow people to do it well together, because it's always better if you're doing it together.
(43:25):
Thanks so much for listening. After the First Million is presented by Decimal. To listen to more episodes and find tips to help make running a business easier, visit decimal.com/afm. Want to join the conversation? Reach out to me on LinkedIn and let's explore the messy middle.