Balancing Risk and Reward in Your Firm

Jason Blumer

The year 2015 was a year of me learning all about the depths of the risks we face in our firm. I think I was mostly blind to the risks we were bearing in how we pay our team, how our clients pay us, and the rewards we were assuming we were receiving as a result. But my partner, Julie Shipp, helped me to see how serious the risks were.

An Example of our Risk

I’ll take a diversion and give an example. Each client is assigned to one of our CPAs to lead the relationship with that client. The CPA is called a Customer Ally. We feel this is a differentiating position for our firm to take and allows our team to remain focused on just a few clients at a time (each CPA can handle about 10 to 12 clients). Mid-year 2014, we had to let one of our CPAs go, and this caused HUGE problems we are still working out in our firm. When a CPA leaves our firm, then there are clients that go without service. This is really bad. Most clients were understanding as we searched for a replacement but still we lost a few good clients because of this fiasco.  

And yet we still operate our firm under this model of Customer Ally service. “Are you crazy?!” you might say. We’ve just been burned and lost clients because of this heavy risk we bear. But we had to also look at the rewards we receive as a result of this business model.

An Example of our Rewards

Our team has to be autonomous and super smart to be able to work under this model of business. Our CPAs are effectively on the front lines of serving our clients. This brings HUGE rewards. We get to hire the best team anywhere in the country. They do not need to be managed, and in fact can execute some of the new services I dream up and sell. All of the current CPAs we have now are incredibly gifted in their work, and none of them could (would) work in our firm UNLESS we had the current model we have now.   So, we had to ask ourselves – “are the rewards we are receiving worth the risks we are bearing?” Before you can answer that question, you have to first be honest with yourself and seek the truth: on the risks… “how big is the risk we are bearing? could it cause irreparable damage to our firm?” on the rewards… “is the risk worth the assumed reward we are receiving? if is really a reward?”   The past 1.5 years has forced us to face the truth of the size of the risks we are carrying, and the wonderful rewards we are receiving in return. Honestly, I don’t think I ever would have faced these things if I had not brought on a partner who pointed them out and insisted that we manage the balance of risks and rewards differently.  

Seeking Balance

After you become well acquainted with the risks of your business model (or whatever risks you are carrying) and have identified the rewards you receive as a result, the next step is to balance the two. This is where my partner is key. I do NOT balance anything in our firm. In fact, the past 12.5 years of running my firm has been an exercise in being out of balance. My partner is tasked with balancing the risks and rewards in our firm.

How Are We Balancing Our Risk and Reward?

First, we are building a savings account, which could support us if we have to make these CPA transitions again. Even that has proven difficult, but we are almost there. Cash in the bank is a ticket to take risks. And taking risks is the lifeblood of any growing business.

Second, we are networking for our next Customer Ally before we need them. That is my job. I must always be seeking to network with CPAs who could become our next Customer Allies. I am the salesman for our company. I sell our services to potential clients, and I sell our culture to potential team members.

Third, we are being careful about who we take on as clients. We’ve always done this through our Client Onboarding processes, but it is becoming more and more critical. A wrong fit for our firm means we have a client who could jump ship and leave us in a lurch. We need clients we can commit to, and who will commit to us in return for the long term.

Fourth, a team expansion has been underway in our firm. Now, our CPAs lead a team of Specialists to serve a client, instead of the CPA being on their own. This will take a while to fully implement, but we are seeking to serve larger agencies that can support our team, instead of supporting just one person. In this way, if a client leaves, or a CPA has to step out for a time, the team they lead can step up and continue to serve the client while under contract with our firm.

Fifth, creating a culture of project management around tightly scoped agreements is another way to balance our risks and rewards. Doing this well will ensure great service, avoiding unmet expectations, and potential client losses. Honestly, we have just brushed the surface of this need in our firm. We’ve only just begun experimenting with this in the past year, but this will be the next step that makes us great.   This learning has not made me shy away from taking risks, but instead to take more calculated risks. My partner helps with those calculations. She poses details and metrics that helps us make informed decisions on fact, instead of gut (though gut is not always bad). And we must always ensure that our risks come with rewards. We are on the lookout for rewards now as we strategically take our risks.

What risks are you taking? What rewards are you gaining as a benefit of taking risks? How are you balancing the two?

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