Practice Management

What’s the Best Way to Structure Your Practice – by Skill or by Client?

Written by Patti Scharf

Accounting Team - Structure your PracticeDuring the final keynote of Xerocon 2015 in Denver last month, it was suggested that one of the best ways for a successful firm to grow was to make that firm as efficient as possible by emulating the structure of large businesses. While such specialization (structuring by skill) offers undeniable benefits, is there a potential downside in regard to employee morale? The key point is that it’s critical to approach the decision with your eyes wide open. There is really no “one size fits all” approach—the answer will depend on factors like how many employees your company has and how large a range of services it offers.

Structure by Skill

The idea put forward in the Xerocon keynote is that the firm as a whole would operate much more efficiently by operating as big companies do, with departments of specialists in payroll, sales tax, bill payment processing, and so on. That is, the employees don’t have their own book of clients, and they don’t talk directly with the client. Instead, they work heads-down on one process very deeply and become experts at what they do. It’s like specialization taken to the granular level within the firm. In theory, this allows the worker bees to continue focusing on what they do without the distraction of client interaction or having to be an expert at everything.

An added benefit of this structure is that you have entire departments with similar skills, so if you lose an employee you have other employees who can step in and fill that need.

In this structure, if a problem arises, the issues are escalated to a customer relationship manager who has complete interaction with the client—basically, a customer service representative for your accounting clients. The accountants are not distracted or interrupted by conversations with the client. Someone else gets to be touchy feely with them in bringing an issue to resolution, and the worker bees get the answers they need to keep on working. In my mind, the customer service representative would ideally be a person with accounting knowledge so they could talk intelligently to your clients about the issues at hand.

Structure by Client

Let’s compare that structure with the idea of structuring your firm by client. In this scenario, each accountant is given her own set of clients to manage and maintain. They handle all aspects of the work for the client regardless of the task and become skilled in all service areas (i.e., payroll, sales tax). The accountant is fully responsible for servicing the clients and will call them up directly when there’s an issue without a middleman.

Cogs in a Machine

Far and away my biggest concern about structuring your business by skill instead of by client is how the structure would impact the team’s satisfaction with their jobs. We’ve worked hard to find the right linchpin people because we believe they bring creativity and energy to the company and help us be a company that customers don’t want to leave.

When presented with the idea of structuring the business according to skill, I leaned over to one of the accountants who works for our firm and asked, “Would you *like* doing the same exact thing on every client day in and day out?” To paraphrase the response, it was basically, “Oh hell no.”

It may make more sense in theory to have different cogs in the machine dedicated to one function, but employees aren’t cogs in a machine. They are living, breathing human beings, and it’s generally the connection with clients that makes a job more fulfilling. In my experience, the best employees don’t just clock in and clock out each day with their heads down, doing what they are told to do. They are provided with challenges and given the opportunity to overcome those challenges in their own unique way.

Doing the same thing every day gets old fast, and although I have no statistics to support this, I have to imagine that employee turnover is much higher when you aren’t being exposed to new experiences on a regular basis.

Technical Complexity

One thing I’ve noticed in the firms I’ve owned and managed over the years is that with the increased ability to automate and create systems, the amount of specialized technical accounting knowledge necessary to run an outsourced accounting department for small businesses is dwindling. (I will say that the specialized technical IT knowledge necessary is increasing, but that’s another article for another day.)

I’ll take payroll as an example. When I processed payroll twenty years ago, I needed to know a lot about how payroll was calculated, how to prepare the payroll tax filings, and how to troubleshoot problems. Today we use ZenPayroll, and my team needs to know virtually nothing about the inner workings of payroll in order to maintain a working system. They just need to know how to contact support if an issue pops up, and be able to effectively communicate issues back to the client. Any advanced questions can be escalated to the controller on that account.

Specialization

A major factor in determining your structure is what services your firm offers. Part of the argument for structuring by skill is that there’s more cross-training and it’s easier to make substitutions if anyone is on vacation or leaves the firm. I can see that, but if your business focuses on a particular vertical, you can create entire systems (including payroll, bill payments, etc.) that are standardized, so you can still have this type of cross-training. Instead of coverage for just one skill, like payroll, you can have coverage for an entire client.

Our firm only offers one thing: outsourced accounting department services for ecommerce businesses. So we do payroll, sales tax, pay bills, and the other stuff a regular accounting department would do. We don’t do taxes. We don’t do audits. That makes it much easier for our firm to focus and to train our team.

On the other hand, if you have a larger firm that offers all services to all people, it’s going to be a lot harder for all your employees to be great at everything. In that case, it can make a lot of sense to specialize internally.

In short, if you don’t specialize externally, you should probably specialize internally.

Size of Firm

I pulled up some stats from the AICPA on the average number of employees in a firm in March 2012, and that number was five. In my opinion, five employees is really too small a number to have “departments” of specialization by skill set, as you’ll still only have one or two people in each department and that cross-training notion kind of goes out the window.

I think you really need to have 10 or more people working for you before you can effectively emulate the structure of a big business.

What Does Your Firm Do?

As you can probably tell, I’m not really convinced that there’s a “one size fits all” answer for how to structure your firm. Firms that offer more services (tax, audit, consulting, backoffice, CFO) and have more employees may find more of a need to departmentalize than smaller firms that focus on a particular offering or niche.

So, what about you? How have you structured your firm, and how is it working for you?

About the author

Patti Scharf

Patti is a blogger, speaker, and thought leader in the accounting technology industry and is the co-founder and Chief Controller for Catching Clouds LLC. She is a CPA and holds several current software certifications: Xero, Bill.com (Guru), QuickBooks Online, and FreshBooks and was previously an Advanced Certified QuickBooks ProAdvisor. She absolutely loves designing effective accounting systems for ecommerce businesses and is committed to advancing the artistry of accounting through the use of technology.

13 Comments

  • Great post, Patti. I was at Xerocon in Denver, as well, and found this part of the keynote particularly interesting. Our firm is about 50 people and while we’ve historically had our resources structured by client, we’re considering adding some specialization by skill. The skill that we may add that would work across clients would be a payroll specialist. I think your point about ZenPayroll was dead on, but we’re starting to experience some challenges when clients add employees in other states and we’re having to helping them file a bunch of the state regulatory filings just so that they can even run payroll. It’s been been pretty disruptive to some of our employees, so we’re considering just having a payroll specialist manage all of this for the whole team.

    That said, when I think back to another session at Xerocon that I sat through (the panel discussion that Christina Garza led on what business owners think of their accountants), all of the business owners emphasized how important it was to have an advisor/accountant that was “personable and proactive” and how their technical ability didn’t matter that much. I found that perspective fascinating….as it really indicated how important it was to clients that we, as advisors, have a personal relationship with them. And I’m not sure how well we’d be able to do that if we moved to structuring our resources by skill versus by client.

    Sorry I didn’t get a chance to meet you at Xerocon. Maybe next year or at the upcoming Sleetercon!
    Kenji

  • Hi Kenji,

    Sorry I missed you at Sleetercon. Next time… :o)

    Thanks for your input. I do see that it’s not even an either/or choice (by skill or by client), but it can also be either/or/both choice when your business gets large enough.

    I didn’t attend Tina’s panel discussion, but I couldn’t agree more. I recently read somewhere that’s it’s no longer B2B or B2C but rather H2H (Human to Human). Business owners want to work with people with whom they have a connection. Technical competency is assumed, but that human “spark” is rare, particularly in our industry, unfortunately. And I agree with you that if your team doesn’t have connection with the clients, it can put you at a disadvantage as our industry starts picking up on the H2H trend.

  • Hi Patti, Good article and analysis of a very interesting topic. Sparks may fly.

    Glad to see the questioning by you and Kenji. The industry is changing as technologies change. But technologies are repeating themselves, too.

    Human values are still the most important. People still like doing business with people. Sharing, learning and skill sets are ever changing and repeating.

    While we did not attend Xerocon Denver, we have been following these “practice management” sessions and marketing, from both Intuit and now, Xero, on the web, in sessions, events, and at their conferences.

    Both Intuit and Xero have rolled out these Practice Management concepts.

    We believe it started with Intuit. And it was for a very different reason than helping and information. It was more about lack of control. Xero appears to be getting caught up in competitive fever, as they feel compelled to, as Intuit is doing it. For most markets, this is not a good approach. We say drop it.

    Do what software companies do best: software apps., development and build platforms for 3rd party Add-on’s. Separate advisers can discuss these topics.

    Partners will build the best practice for themselves. Survival will demand it.

    Xero has been successful without re-engineering itself or others’ practices. It has an openness and it appeals to all, through that openness, worldwide.

    Financial, accounting, and/or consultancy practices vary in style from country to country and culture to culture. If they have clients globally, they are chameleons by nature. And that is a composite of all these structures.

    Some Accountancy Practices have also made Bookkeeping a commodity, as well. For some clients that is o.k. But others refuse to work that way. With new technologies, most look for Partners with business vision not just tasks.

    We actually think Xero and Intuit should stay away from these topics. These topics can be very divisive, both classically and/or culturally, with different ways of running businesses and practices, worldwide.

    We have seen some practices drop Intuit, as they feel that Intuit’s goal with this is to make their practices an arm or department of Intuit’s needed service offering for QBO. Intuit is restructuring. Xero does not need to emulate this.

    We hope others will express their opinions on this. We understand we might be in the minority on this. We like it when Vendors have a variety of Partners.

    Variety and freedom are the spices of life and business. Vive la difference!

    Sincerely,

    Tamra

    Tamra Groff, Senior Consultant, GASC/GHFG

    • Tamra,

      Turning bookkeeping into a commodity is exactly what is happening now. I think it’s an economic change and it will happen whether or not a software provider provides classes or presentations on it.

      It’s happening because any small business can now download information at a fairly good clip to a remote bookkeeper. That bookkeeper can now provide good quality solid reporting without visiting the client.

      I think there are smart people looking at ways to change their practices to adapt to this new reality. I hope the software providers do more classes on this subject. They might be providing the tools, however the pressure to operate remotely at a lower cost is coming from business owners.

      I hope you are having a great day!

      Laura Dodson, CPA

      • Hi Laura,

        Fully agree with your assessment of the current economics, business changes and it’s affects on Bookkeeping and the Firms that provide those services. Building a practice for the future is challenging.

        We would just rather see the industry, such as AICPA, Journal of Accountancy, Consultant’s articles and expert forums, like this Sleeter Group, with Patti Scharf and/or comparative groups like Digital First and LinkedIn Accountant Groups discuss this, provide articles, classes, advice and services to help these firms.

        We think that Vendors of software should focus on providing the software, apps. and tools for this industry. Through critical analysis of their apps., especially tools, Accountant Practice apps., and Conferences with these Industry Professionals, they can focus on development, improvements, and technologies.

        Our concern revolves around the “tail wagging the dog syndrome” and also there is a tendency with “thin technologies” such as Cloud computing, that the Vendor will eventually own and control the marketplace, the products, the services and the data. That is a very controlling, not open, lucrative market and the small practice that will be allowed, will do as told or fail.

        We see signs of this with Intuit. Intuit could offer outsourced offshore accounting services along with their apps. to cut out their middle layer of partners, such as Pro Advisors. They already do it with their Intuit tax services. They could just take it to the next level, Bookkeeping. What next?

        IBM and Oracle both did this in two different technology cycles of thin computing, in the past. Once in the 70’s to early 80’s with IBM. The advent of the PC marketplace broke that control, with networks, Apple, HP, Microsoft, and others, etc. And Oracle did this in the mid 80’s to early 90’s with the ownership of all database structures, until Microsoft and other SQL Servers broke that apart.

        Oracle invested first in Cloud technologies. They also funded Cloud Accounting apps. for the SMB marketplace, too.

        The accounting software industry is very mature and others could easily do this, too, at all levels: Micro, Small up to Midsize.

        Of course, like all cycles, any one extreme will eventually collapse. Control and dictators are not appealing to human nature. Just look at history. We are just not that smart to not repeat it, over and over. Those who remind and point it out are ignored or chastised in every era. Those who ignore, enable it.

        We would rather be cautious, so as not to come to any conclusions prematurely. Time and practice will tell. Cloud and mobile computing is still changing and relatively young, globally.

        Our experience in all this tells us, just because a business owner, it’s employees and offshore Bookkeepers can click and point, it still does not educate, add value, or teach them Accounting or how to run or grow their business.

        We cleaned up a lot of Cloud-based accounting app. selections and implementations this year. We are already scheduled on these types of projects, in the coming year. Because as you stated, Business Owners selected directly by clicking and pointing on the web, Accounting Vendors sold directly, the implementations and/or support failed with Outsourced Systems Consultants and Bookkeeping support. The business owners felt stuck, lost and that business was languishing.

        The Accounting Vendors will not be advertising this, either. And, we do not bad mouth Vendors, Associates, or Business Owners, as mistakes are to be learned from not criticized. We see this as the consequences of the Cloud Vendors selling all too much to valued businesses, both to Clients and their Customer, Partners.

        All of these clients are now happy. As we do not approach each with a one size fits all, or outsourced, is a bad approach, either. They just need to be enabled, not controlled, to choose their own destiny, choose their Vendors wisely, and in line with their businesses. And, Accounting Professionals and Partners of a Vendor are not immune from this, either.

        Hope all get the classes they need and grow their businesses.

        Cheers. I hope you are well too Laura. I always enjoy our chats.

        Sincerely,

        Tamra

        Tamra Groff, Senior Consultant, GASC/GHFG

  • Hi Patti, thank you for a great post. You raise many great points for a firm to consider. I think you are correct in your assessment that organizing by skill works better in a large firm.
    My career has been quite diverse going from private accounting jobs as bookkeeper/controller to tax and audit at Coopers & Lybrand to finally starting my own firm 20+ years ago. I would hate doing the same thing every day. One of the advantages of a small firm is the ability to work on many different clients with different technical needs. I like to hire staff with entrepreneurial attitude of client-first and self-starters in terms of researching technical questions and professional development. Even today’s applications (Xero, QBO, and the many add-ons) can require us to think outside the box in terms of customizing solutions for clients. Some employees are quite happy specializing in one technical area like payroll. They like to know exactly what they have to do every day and don’t particularly want to. Others are bored specializing on a single skill. It is important for owners and managers to match the right people with the job and the firm culture. Of course, this is rarely easy!
    Small firms can always collaborate with external specialists in areas where they need additional expertise.
    When it comes to technical complexity, on the surface, the automation of today’s applications make specialized technical skill seem less important. However, we have to be careful. Complex rules for accounting, income tax, sales tax nexus, and payroll tax jurisdictions create traps that can be easily overlooked because the systems seem so easy.
    Advanced questions can be advanced to a controller only if the technician recognized there is an issue in the first place. One of my favorite quotes is by Confucius: “True wisdom is knowing what you don’t know.” One of the hardest things to teach an employee is how to recognize what they don’t know and that research or consultation is necessary.

    As accountants, we have the technical knowledge and expertise that our clients need. All of these applications are just tools for us to use serving those clients.

    I prefer a variety of vendors and best of breed solutions when it comes to practice management and client service. I am not all that comfortable being beholden to one vendor.

  • Great article and good points. Most of my career has been spent in two very large globally known corporations Caterpillar and Archer Daniels Midland) and I did, for the most part, work in one area – for example Fixed Asset Manager but I also wanted to know how my work impacted others when I sent in paperwork so I could customize my work to help down the road if possible. There are some people in large companies that have blinders on and don’t want to know how other departments work but it makes someone more rounded and useful especially when and if a new position were to open up to transfer to. Cat and ADM both were very focused on cross training people so that when an employee was on vacation someone else could step in and help ease the backlog. Moving to my own company was a shock to my corporate system to say the least but I do enjoy the day to day interactions with clients – no one day is ever the same and boring is never a word I would use to describe any day for me

  • Thanks, everyone, for your input!

    Tamra – I think there are lots of solo accountants out there who do their best to run their practices efficiently and effectively, and it’s natural for them to reach out to anyone and everyone who might be “in the know” and ask how other accounting firms structure their practices. I don’t really think it’s a bad thing for either Intuit or Xero to tell them what they see others firms doing. With that said, I’m not sure that it’s good for every firm to emulate how someone else is doing it… there’s a lot to be said for blazing your own trail. I completely agree with your statement, “Partners will build the best practice for themselves. Survival will demand it.” But I’m a big fan of gathering as much info from as many sources and possible and then synthesizing everything down to what’ll work best for our firm.

    Linda – Yes, I would hate doing the same thing everyday too. That’s one of the things I love most about working with small businesses – every day is a new adventure. You make a great point about having a team that’s sophisticated enough to understand what is a potential problem, and I can’t agree more. The desire for our firm is to automate everything we can so we can free up our team’s brains to concentrate on anomalies and potential problems for our clients… I think that’s where we can really add value.

    Sue – I totally agree. I started my journey in a small business, and I don’t think I would’ve pursued a career in accounting if I was unable to see the big picture and how everything fit together. I think it’s also what kept pulling me back into that world after venturing into larger accounting firms and corporations.

  • I had to add another reason you might want to restructure. When a bookkeeper/accountant leaves a firm; clients might move with them. How does that happen? The bookkeeper/accountant has built a relationship with that client. So when they leave, it’s easy to pull a few clients with them. I think that’s the reason at some CPA firms that juniors are not allowed to directly talk to clients. 🙂

    Good article!

    Laura Dodson, CPA

    • I really don’t think there is a way to stop that short of enforcing a non compete contract. Even then it would take time and money to fight. I was doing some subcontracting work for a gal when I first started out and was really still looking for a traditional job and two of her clients approached me directly to ask if they could use me instead of paying her as the middle person. I not only said NO but I also immediately alerted the gal who owned the place I was working for. Never crossed my mind to take what I didn’t earn.