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Can Intuit and Accountants Find Symbiosis in QuickBooks Live Expert Assisted?

Earmark Team · July 9, 2024 ·

In a recent episode of The Unofficial QuickBooks Accountants Podcast, hosts Hector Garcia and Alicia Katz Pollock delve into the implications of Intuit’s new $50/month QuickBooks Live Expert Assisted service. This move represents a significant shift in Intuit’s strategy, prioritizing direct revenue and control over its long-standing partnership with accounting professionals.

What is QuickBooks Live Expert Assisted?

QuickBooks Live Expert Assisted is an add-on service for QuickBooks Online users that provides on-demand support from QuickBooks-certified bookkeepers. For $50 per month, users can get assistance with how-to questions that require more bookkeeping expertise than standard phone support.

While QuickBooks Live virtual bookkeeping services has been around for a few years the new QuickBooks Live Expert Assisted marks a departure for Intuit in two key ways:

Aggressive marketing to all QuickBooks Online users, even those already working with an accountant.
Significantly lower pricing compared to typical bookkeeping rates.

The Shift in Intuit’s Strategy

This approach signals a clear change in Intuit’s strategy. Previously, the company had committed to not marketing QuickBooks Live Bookkeeping, a competing service, to accountants’ clients. By altering this promise and targeting QuickBooks Live Expert Assisted to all users, Intuit is demonstrating a new willingness to bypass accounting professionals and monetize QuickBooks users directly.

As Hector Garcia points out, “Intuit will market this to every single QuickBooks Online client, whether they have an accountant or not.” For many accountants, this feels like a betrayal, leading the accounting community to “make a much bigger deal and dissect and analyze” the implications and repercussions.

Impact on the ProAdvisor Community

QuickBooks Live Bookkeeping and Expert Assisted have both become a flashpoint in the broader debate about Intuit’s relationship with accountants and its long-term strategy. While Intuit frames it as a way to serve users better, some accountants see it as a direct threat to their livelihoods. The low $50/month pricing can potentially disrupt accountants’ business models and client relationships.

Hector speculates that Intuit may be taking a “gym membership” approach, hoping that many people will pay for the service but not fully utilize it. This could allow them to boost market share and gather valuable data even if QuickBooks Live Expert Assisted operates at a loss.

The Disruption of a Symbiotic Relationship

To understand why QuickBooks Live and Expert Assisted has sparked such intense controversy, it’s essential to understand the historical context of Intuit’s relationship with accountants:

The ProAdvisor Ecosystem: For decades, Intuit has nurtured a thriving ecosystem of accounting professionals (ProAdvisors) around its QuickBooks platform through training, certification, support, and community-building.
A Mutually Beneficial Partnership: This investment paid off as grateful ProAdvisors became QuickBooks’ most effective evangelists, recommending the platform to their clients and providing free support and training.
Cracks in the Foundation: Recent moves by Intuit, including QuickBooks Live, Expert Assisted, and the sunsetting of QuickBooks Desktop, have led many ProAdvisors to feel that their needs are being deprioritized in pursuit of short-term profits.

Collateral Damage: The QuickBooks Ecosystem at Risk

The fallout from Intuit’s strategic shift extends beyond its direct relationship with accountants. An entire ecosystem has emerged around QuickBooks, including app developers, trainers, and bookkeeping services. As Intuit pivots to direct monetization through offerings like QuickBooks Live, many in this ecosystem fear being caught in the crossfire.

Alicia uses the metaphor of a multi-legged stool to illustrate the risks. Just as a stool becomes unstable if you remove one of its legs, the QuickBooks ecosystem could falter if Intuit alienates the accountants, app developers, and other professionals integral to its success.

Seeking Symbiosis: Opportunities for Collaboration

Despite the tensions, Hector and Alicia see the potential for Intuit and accountants to find a mutually beneficial path forward with QuickBooks Live:

Include the ProAdvisor directory alongside the QuickBooks Live Expert Assisted sign-up, allowing users to find local accountants for more comprehensive services.
Provide referral credits to ProAdvisors who recommend QuickBooks Live Expert Assisted for basic support.
Leverage QuickBooks Live Expert Assisted as a resource for basic client questions, freeing accountants to focus on higher-value advisory services.

However, the success of this collaboration depends on Intuit delivering high-quality service with well-trained, knowledgeable support staff. If QuickBooks Live Expert Assisted consistently answers basic questions and provides reliable bookkeeping support, it could be a valuable tool for ProAdvisors to augment their services.

Navigating the New Landscape: Challenges and Opportunities

The introduction of QuickBooks Live Expert Assisted presents both challenges and opportunities for accounting professionals:

Addressing an Industry Pain Point: The accounting profession is facing a labor shortage. There are not enough bookkeepers and CPAs to serve the growing small business segment. This service provides a low-cost solution for micro-businesses and startups
Supervised real-world training: Fledgling and underutilized bookkeepers can gain hands-on training with professional oversight.
Differentiation: While QuickBooks Live Expert Assisted may provide instruction for basic tasks, it can’t replace the personalized, context-rich service that experienced accountants provide.
Upselling Opportunity: Accountants could incorporate QuickBooks Live Expert Assisted into their service offerings, potentially increasing their rates to cover the cost and using it as a first line of support.
Focus on High-Value Services: With basic Q&A support tasks potentially handled by QuickBooks Live, accountants can shift their focus to more complex advisory services that showcase their expertise.
Potential for Collaboration: If executed well, QuickBooks Live Expert Assisted could become a valuable tool in an accountant’s arsenal, allowing them to serve more clients efficiently.
Continuous Learning: The changing landscape underscores the importance of staying adaptable and continuously expanding one’s skill set to remain competitive.

As the accounting software ecosystem evolves, professionals who can navigate these changes and find innovative ways to add value will be best positioned to thrive. While QuickBooks Live Expert Assisted presents challenges, it also opens up new possibilities for those willing to adapt and leverage the service to their advantage.

To learn more, listen to the full episode of The Unofficial QuickBooks Podcast.

Alicia Katz Pollock’s Royalwise OWLS (On-Demand Web-based Learning Solutions) is the industry’s premier portal for top-notch QuickBooks Online training with CPE for accounting firms, bookkeepers, and small business owners. Visit Royalwise OWLS, where learning QBO is a HOOT!

From Tax Updates to Yoga: The Surprising Evolution of Accounting Conferences

Earmark Team · July 8, 2024 ·

Imagine walking into an accounting conference and finding a yoga session next to a tax update seminar. Sound far-fetched? Welcome to the new world of accounting professional development.

In a recent Unofficial QuickBooks Accountants Podcast episode, hosts Hector Garcia and Alicia Katz Pollock discussed the transformative changes sweeping through accounting conferences. From the evolution of QuickBooks Connect to Intuit Connect to the emergence of niche events like Appy Camp, these industry gatherings are undergoing a radical makeover.

At the heart of this transformation is a simple yet powerful idea: modern accounting conferences are moving beyond technical skills to address the whole professional. They’re integrating topics like wellness and communication, reflecting a growing recognition of the multifaceted challenges faced by today’s accounting professionals.

The Rise of Specialized Conferences

Gone are the days of one-size-fits-all accounting conferences. Today’s professional gatherings are becoming increasingly specialized, catering to specific niches within the accounting world.

Take Scaling New Heights, for instance. This conference has become a cornerstone event for many QuickBooks-focused accounting professionals. As Alicia explains, “Scaling New Heights is one of the best conferences for really good tangible education in the sessions. And also the community is just huge and vibrant.” The conference offers deep dives into QuickBooks functionalities, advanced reporting techniques, and strategies for growing your accounting practice.

Specialization doesn’t stop there. Appy Hour Camp takes niche focusing to another level. This invite-only conference is specifically designed for educators in the accounting space. Alicia describes it as a place “trying to find up and coming trainers who need to kind of grow into their voice and stand in their confidence about what it is that they have to contribute to the world.” The conference fosters collaboration among trainers and even explores cutting-edge topics like the integration of AI in accounting education.

This trend towards specialization mirrors the broader changes in the accounting industry. As roles become more diverse and technology more complex, there’s a growing need for targeted, in-depth knowledge. These niche conferences are stepping up to meet that need, providing spaces for deep learning and community building.

Integrating Wellness and Personal Development

As accounting conferences evolve, they increasingly recognize that professional success requires more than technical expertise. Enter conferences like Bridging the Gap, which is pioneering the integration of wellness and personal development topics into the traditional conference format.

The origin of Bridging the Gap speaks volumes about its mission. As Hector explains, “Randy himself ten years ago had a stroke. And he blames the stroke on overwork, on stress, on all the things that plague our profession – bookkeeper, CPA, tax attorney or otherwise.” This experience led to a conference that blends technical accounting concepts with wellness topics, featuring unique offerings like yoga sessions, meditation workshops, and even massage rooms alongside traditional technical sessions.

This shift reflects a growing awareness of the accounting profession’s stress and mental health challenges. For QuickBooks professionals, managing multiple clients, keeping up with software updates, and ensuring accurate financial reporting can be overwhelming. By addressing these issues head-on, conferences like Bridging the Gap acknowledge that a healthy, balanced professional is ultimately more effective.

Adapting to Changing Technology and Industry Trends

As the accounting industry evolves, so too do its conferences. Perhaps no example illustrates this better than the transformation of QuickBooks Connect into Intuit Connect.

When QuickBooks Connect launched in 2014, it had a broad focus. As Hector recalls, “QuickBooks Connect was about the word connect, which was a play on words for multiple things. It was connecting small business with accountants… Connecting developers with accountants.” The conference served as a melting pot for stakeholders in the QuickBooks ecosystem, with sessions ranging from basic bookkeeping to advanced app integrations.

However, the conference has shifted to a more accounting-centric approach over time. In recent years, we have seen an increase in advanced technical sessions, discussions on advisory services, and workshops on leveraging QuickBooks data for business insights. This change reflects the growing complexity of the accounting profession and the evolving needs of QuickBooks professionals taking on more advisory roles.

The rebranding to Intuit Connect signals even broader changes. As Alicia speculates, this could indicate a move towards integrating Intuit’s other products, like Credit Karma and TurboTax, into the conference content. This shift mirrors the trend in the wider industry towards more integrated, comprehensive financial services.

Other conferences are also adapting to technological changes. For instance, Appy Camp is incorporating sessions on AI in accounting education, reflecting the growing importance of this technology in the field.

These changes in conference focus and content provide a window into the future of the accounting profession. They suggest a move towards more integrated services, increased specialization, and a growing emphasis on emerging technologies. For QuickBooks professionals, this means opportunities to expand your service offerings, deepen your technical expertise, and stay ahead of industry trends.

Your Next Step: Leveraging Modern Conferences for Professional Growth

The evolution of these conferences reflects the broader transformation of the accounting profession itself – from number crunchers to strategic advisors, from software users to technology integrators. By adapting to address the changing needs of accounting professionals, these conferences play a vital role in shaping the industry’s future.

From specialized gatherings like Scaling New Heights and Appy Camp to wellness-focused events like Bridging the Gap to the technology-driven evolution of Intuit Connect, these conferences are adapting to meet the multifaceted challenges faced by today’s accounting professionals.

The accounting profession is evolving rapidly, and staying connected with these trends through conference attendance can be a key factor in your professional success. These events offer invaluable opportunities to learn, network, and glimpse the future of our industry.

Ready to explore this transformation in more depth? Listen to the full episode of the Unofficial QuickBooks Accountants Podcast, and consider which of these innovative conferences might be your next game-changing professional development experience.

Avoiding The Mental Traps of Modern Accounting Firm Ownership

Earmark Team · June 29, 2024 ·

In the age of social media, CPA firm owners face a constant barrage of curated success stories and polished personas. Scroll through your LinkedIn feed, and you’ll see post after post showcasing glowing client reviews, skyrocketing revenue graphs, and beaming teams at glamorous retreats. It’s easy to feel like everyone else has it all figured out while you’re stuck in the trenches battling deadlines, difficult clients, and endless to-do lists. But behind the glossy veneer, a more complex reality lurks.

In this episode of the Who’s Really the BOSS? podcast, Marcus and Rachel Dillon explore the psychological pitfalls of modern firm ownership, focusing on the mental traps of comparison and perfectionism. They also share their firsthand experiences navigating social media’s highlight reel while building an authentic, thriving practice.

The Comparison Trap

One of modern firm owners’ biggest psychological pitfalls is the constant temptation to compare themselves to others. In today’s digital age, this trap is more pervasive than ever. As Marcus puts it, “Comparison – that is the mistake that you have to avoid as a firm owner because you never know what’s going on on the other side of that screen or the other side of that camera. One person’s dream firm may be another person’s nightmare and vice versa.”

Social media platforms like LinkedIn and Instagram are curated highlight reels, presenting a polished version of success that can make firm owners feel inadequate or behind the curve. But the truth is, every firm’s journey is unique. What works for one practice may not work for another, and the challenges and sacrifices behind those glossy posts are rarely visible.

Falling into the comparison trap can erode firm owners’ confidence and authenticity, leading them to chase an illusion of success rather than building a firm that aligns with their true values and goals. As Rachel notes, it’s easy to get caught up in comparing vanity metrics like revenue or client roster size while losing sight of the deeper factors that drive fulfillment and sustainability.

So, how can firm owners escape the comparison trap and stay focused on their authentic path?

Overcoming Comparison

One key approach Marcus and Rachel recommend is seeking authentic connections with leaders you admire. By building genuine relationships with your role models and learning about their experiences – warts and all – you can gain a more balanced, realistic picture of what it takes to build a successful firm.

Another crucial strategy is surrounding yourself with supportive accountability partners who understand your unique goals and challenges. As Marcus notes, having trusted peers or mentors who can offer encouragement and honest feedback can be a game-changer when staying focused on your own path.

Some practical tips for finding and cultivating these relationships:

Attend industry events and seek out genuine conversations with leaders you admire
Join a mastermind group or peer network of like-minded firm owners
Work with a business coach or mentor who can offer personalized guidance and accountability
Cultivate vulnerability and authenticity in your own content and interactions to attract genuine connections

The Problem with Perfection

Alongside comparison, pursuing perfection is another major psychological pitfall for CPA firm owners. In a profession built on precision and attention to detail, it’s easy to think that everything in your firm must be flawless. But as Marcus points out, this mindset can quickly lead to frustration and burnout.

The reality is, perfection is an unattainable moving target. No matter how much you achieve, there will always be a new goalpost, a new standard to reach for. Constantly striving for perfection can breed dissatisfaction and detract from enjoying the journey of building and growing your firm.

Moreover, the fear of imperfection can hold firm owners back from taking risks, trying new things, or putting themselves out there. As Rachel shares, embracing imperfection and being okay with making mistakes along the way is essential. No successful leader has a spotless record – what sets them apart is their willingness to learn, adapt, and keep moving forward.

Chasing perfection can also erode firm owners’ mental well-being and authenticity. When you constantly hold yourself to an impossible standard, it’s hard to show up as your true self and find joy in your work. This impacts your fulfillment and can trickle down to your team and clients, creating a culture of stress and unrealistic expectations.

So, what’s the alternative if chasing perfection is a recipe for burnout and frustration? As Marcus and Rachel explain, the key is consistency over perfection.

Consistency Beats Perfection

As Rachel puts it, “Consistency will always yield better results than perfection. So there might be the best way to do something or the optimal way to do something. But if it’s not practical, if you can’t apply it on a consistent basis, then it’s not the perfect way for you or for me.”

The key insight here is that consistent, sustained effort – even imperfect – will drive better results than short bursts of perfection that can’t be maintained. Like crash diets or unsustainable workout regimens, forcing your firm into a “perfect” mold will only lead to burnout and backsliding.

Instead, firm owners should focus on developing strategies and habits they can stick with for the long haul. This might mean:

Choosing a manageable client load rather than chasing every opportunity
Investing in systems and processes that can be consistently applied, even if they’re not the most cutting-edge
Prioritizing regular team communication and feedback over sporadic, intense check-ins
Setting realistic goals and timelines that allow for flexibility and course correction

Of course, embracing imperfection doesn’t mean settling for mediocrity. As Marcus and Rachel note, striving for excellence and continuous improvement is still important. But the key is to pursue these goals in a way that aligns with your capacity, values, and long-term vision rather than burning yourself out chasing an impossible ideal.

Embracing Imperfection in Leadership

As a CPA firm owner, it’s easy to think that your leadership needs to be flawless. After all, you’re responsible for setting the tone and direction for your entire team. But as Marcus and Rachel point out, this perfectionist mindset can actually hold you back from being an effective and authentic leader.

The truth is, no leader is perfect – and that’s okay. In fact, it’s essential for building trust and rapport with your team. When you try to present an invulnerable, always-in-control image, it can actually create distance and make it harder for your team to relate to you.

Instead, Marcus and Rachel advocate for embracing your humanity and showing up as your whole self – flaws and all. This means:

Being transparent about your own challenges and mistakes
Admitting when you don’t have all the answers
Showing vulnerability and asking for help when you need it
Encouraging your team to do the same

To start embracing your own imperfection as a leader, Marcus and Rachel recommend a few key practices:

Regularly share your own struggles and lessons learned with your team
Encourage team members to take calculated risks and view failures as learning opportunities
Celebrate progress, not just perfection
Build in time for reflection and self-care to avoid burnout

By modeling these behaviors yourself, you create space for your team to do the same.

Moreover, when you let go of the need to be perfect, you free up energy to focus on what really matters: supporting and empowering your team. Instead of getting caught up in micromanaging every detail, you can step back and trust your team to handle challenges and seize opportunities. This not only helps your firm be more agile and innovative but also gives your team the autonomy and growth opportunities they crave.

Of course, embracing imperfection doesn’t mean lowering your standards or tolerating sloppy work. As a leader, it’s still your job to set clear expectations, provide guidance and feedback, and hold your team accountable. But you can do all this while recognizing that mistakes and setbacks are inevitable and often valuable learning opportunities.

For More, Listen to Who’s Really the BOSS?

Building a successful CPA firm in the modern age is no easy feat. Between the constant pressure to keep up with curated social media highlight reels and the ever-present specter of perfectionism, it’s all too easy for firm owners to get trapped in a web of psychological pitfalls that can hold them back from true fulfillment and success.

But it doesn’t have to be this way. By proactively addressing the mental traps of comparison and perfectionism, firm owners can cultivate the resilience, confidence, and authenticity they need to not just survive, but thrive amid today’s challenges.

Ready to dive deeper into these powerful insights? Be sure to tune into the full episode of Who’s Really the BOSS? and start implementing these strategies today. Your future self – and your firm – will thank you.

Rachel and Marcus Dillon, CPA own a Texas-based, remote client accounting and advisory services firm, Dillon Business Advisors, with a team of 15 professionals. Their latest organization, DBA | FIRM, supports and guides accounting firm owners and leaders with free resources, education, and operational strategy.

How One Accounting Firm Transformed Their Business Model and Thrived in a CAS-Driven World

Earmark Team · June 3, 2024 ·

As client expectations shift and technology advances, many firm owners find themselves at a crossroads, wondering: How do we transition from a traditional tax practice to a thriving Client Accounting Services (CAS) model?

In this episode of the “Who’s Really the Boss” podcast, Rachel and Marcus Dillon share their experience transforming their firm from a traditional tax practice to a successful CAS provider. The Dillons learned that to transition successfully, firms must adapt their processes, technology, and management approach while carefully balancing client relationships and financial stability.

The Catalyst for Change: The Last Worst Tax Season

For Rachel and Marcus, the decision to transition from a traditional tax practice to a CAS model was sparked by a pivotal moment in their firm’s history: the “last worst tax season” in 2017. With over 1,000 individual clients and 2,000 tax projects, the couple became overwhelmed and exhausted, working long hours and sacrificing precious time with their family.

Marcus recalls, “We walked away exhausted and were beyond our tipping point and decided that was it. Nothing like that ever again.” This experience was a wake-up call, prompting the Dillons to reevaluate their business model and seek a more sustainable and fulfilling path forward.

As the Dillons’ story demonstrates, recognizing the need for change is often the first step in a firm’s journey toward a more sustainable and rewarding future.

The Reality of Client Attrition

One of the most significant hurdles firms face when transitioning to a CAS model is convincing existing clients to embrace the change. As Rachel and Marcus discovered, many clients who were satisfied with their current arrangements resisted adopting a new approach, even when presented with the potential benefits.

Despite their best efforts to communicate the value of CAS, the Dillons found that only a small percentage of their existing client base was willing to make the transition. As Marcus shares, “We were a very heavy annual-only client roster in 2017. We were not able to convert 95% of our client base to CAS. And so the oversimplified advice of people that just tell you, hey, you should go convert all your clients to CAS is probably not going to hold most of the time.”

Because many clients will not make the change, firms need to be prepared for client attrition and have a plan to refer clients who don’t fit the CAS model to other providers.

To mitigate client attrition during the transition to CAS, consider the following strategies:

Communicate the value of CAS services and how they address clients’ pain points.
Offer a phased approach to transitioning clients, allowing them to adapt to the new model.
Provide exceptional service and support during the transition to demonstrate the benefits of CAS.
Regularly seek client feedback and promptly address concerns to maintain trust and loyalty.

Embracing Cloud-Based Solutions and Real-Time Collaboration

As firms transition from a traditional tax practice to a CAS model, they quickly discover that their existing processes and technology may not be well-suited to the demands of ongoing client engagement.

Firms must adopt processes and technology that effectively track project frequency, timeliness, and client communication to succeed in a CAS model. Cloud-based solutions and remote access become essential for collaborating with clients and providing real-time insights into their financial performance.

The Dillons’ experience illustrates the necessary changes firms must make to their processes and technology to thrive in a CAS environment. By embracing tools that facilitate seamless collaboration and real-time data sharing, firms can position themselves to deliver the high-touch, proactive service that CAS clients expect.

Shifting from a Partner-Centric to a Team-Based Approach

One of the most significant challenges firms face when transitioning to a CAS model is adapting their management style to support ongoing client engagement. As Rachel points out, “We have to hire and then empower our team to work with the client to deliver the information, to have conversations, to have a relationship. We have to trust our team so that we can serve clients. If not, the practice isn’t scalable, so you’re not really better off one way or the other.”

In a traditional tax practice, partners are often clients’ primary point of contact, handling everything from client communication to project management. However, in a CAS model, this approach quickly becomes unsustainable, as the ongoing nature of client engagement requires a more distributed approach to client service.

To scale a successful CAS practice, firms must shift from a partner-centric model to a team-based approach, empowering staff members to take on greater responsibility for client relationships and project delivery. This requires a significant mindset shift for many firm owners, who may be accustomed to maintaining tight control over client interactions.

Learning from the Challenges and Triumphs of Others

As the Dillons’ story illustrates, transitioning from a traditional tax practice to a CAS model is a journey filled with challenges, surprises, and growth opportunities. While every firm’s path is unique, there is much to be gained from learning from the experiences of those who have gone before.

By sharing their struggles and successes, Rachel and Marcus offer valuable insights and guidance for other firms considering a similar transition. Their story serves as a reminder that change is rarely easy, but with perseverance, adaptability, and a willingness to learn, it is possible to navigate the complexities of the CAS landscape and emerge stronger on the other side.

Charting Your Course to CAS Success

For firms embarking on their own CAS journey, the Dillons’ experience offers several key takeaways:

Embrace the need for change: Recognizing when your current business model no longer serves you is the first step towards a more sustainable and rewarding future.
Communicate the value of CAS: Clearly articulating the benefits of CAS to both existing and prospective clients is essential for building a successful practice.
Adapt your processes and technology: Embracing cloud-based solutions, streamlining workflows, and eliminating inefficiencies are critical for delivering high-quality CAS services.
Empower your team: Shifting from a partner-centric to a team-based approach is key to scaling a successful CAS practice and providing exceptional client service.
Stay committed to the journey: Transitioning to a CAS model takes time, effort, and a willingness to learn from both successes and failures.

By remembering these lessons and staying committed to the journey, firms can chart their own course toward CAS success, building a profitable and personally fulfilling practice.

Are you ready to take the first steps toward building a successful CAS practice and shaping the future of accounting? If so, tune in to the Who’s Really the Boss podcast and hear Rachel and Marcus Dillon’s inspiring story.

5 Key Metrics for Boosting Manufacturing Profitability: Insights from a CPA Industry Expert

Earmark Team · May 30, 2024 ·

As a CPA serving manufacturing clients, you hold the key to unlocking hidden profitability and driving sustainable growth. By strategically managing the following five financial and operational metrics, you can help your clients navigate industry complexities and achieve long-term success.

In a recent episode of the Best Metrics podcast, Leslie Boyd, a principal at CLA’s Manufacturing Industry Group, shared her expertise on the key metrics CPAs should leverage to help their manufacturing clients thrive. With over 15 years of experience in public accounting, Leslie provides valuable insights into using these metrics to identify opportunities and guide clients toward increased profitability and growth.

EBITDA: The Cornerstone of Manufacturing Profitability

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a critical metric that indicates profitability and cash flow health. Banks and investors rely heavily on EBITDA when assessing a company’s creditworthiness and growth potential.

“If you have a negative EBITDA, it’s probably a pretty clear indicator that you are going to struggle to generate cash flow,” Leslie warns. “And quite frankly, if you’ve got banks looking at you and you’re struggling to generate positive EBITDA, they’re going to be hesitant to lend to you.”

EBITDA also plays a vital role in business valuation and succession planning. With an estimated $140 trillion in wealth expected to change hands over the next several years due to the aging baby boomer generation, manufacturing companies must focus on maximizing their EBITDA to ensure a smooth transition and secure the best possible valuation for their business.

To help your clients improve their EBITDA, consider the following strategies:

Identify opportunities to reduce costs through operational efficiencies, such as lean manufacturing practices or automation.
Explore ways to increase revenue through product innovation, market expansion, or strategic partnerships.
Optimize pricing strategies to ensure competitively priced products while maintaining healthy profit margins.
Implement effective financial management practices, such as budgeting, forecasting, and cash flow management, to minimize financial risks and maximize profitability.

Employee Retention: The Hidden Driver of Manufacturing Success

While financial metrics like EBITDA are essential, CPAs must also recognize the critical role that employee retention plays in driving manufacturing profitability.

As Leslie Boyd explains, high turnover rates can lead to many challenges that directly impact a company’s bottom line: “If I’ve got turnover, then I’m retraining people all the time. And if I’m retraining those people, then I probably have a lot of training costs, probably have a significant amount of scrap rate as well. And it could also be indicative of the fact that I’ve got culture issues or other underlying issues going on.”

The costs associated with constantly replacing and retraining employees can quickly add up, eroding profit margins and hindering growth. Moreover, high turnover can lead to decreased productivity, increased scrap rates, and potential quality control issues, damaging a company’s reputation and competitiveness.

To help your manufacturing clients improve employee retention, consider the following strategies:

Conduct employee engagement surveys to identify areas for improvement in job satisfaction, work environment, and company culture. Use the results to develop targeted initiatives that address employees’ needs and concerns.
Encourage open communication and feedback between management and employees to foster a sense of trust and collaboration. Regularly schedule one-on-one meetings and team discussions to ensure employees feel heard and valued.
Invest in employee training and development programs to help workers acquire new skills and advance their careers within the company. Offer a mix of on-the-job training, workshops, and external courses to cater to different learning styles and needs.
Implement competitive compensation and benefits packages to attract and retain top talent. Regularly review industry benchmarks and adjust compensation to ensure your clients remain competitive in the job market.
Recognize and reward employee contributions to show appreciation and boost morale. Implement a formal recognition program that celebrates individual and team achievements and encourages managers to provide regular feedback and praise.

Inventory Turnover: Optimizing Cash Flow and Profitability

Inventory turnover is another crucial metric that CPAs should focus on when working with manufacturing clients. This ratio measures how quickly a company sells through its inventory, providing insight into its operational efficiency and cash flow management.

Leslie shares a powerful case study highlighting the impact of improving inventory turnover on a manufacturing company’s financial performance: “We had a company that really got themselves into some issues post-COVID. And many companies did. They had $50 million of inventory and we worked it down to 10 million. And you can imagine how much cash that unlocks on your balance sheet when you’re able to do that.”

This example demonstrates how optimizing inventory levels can free up significant amounts of cash, which can then be reinvested into the business or used to improve liquidity. By reducing the amount of money tied up in inventory, manufacturing companies can improve their cash flow, reduce carrying costs, and ultimately enhance their profitability.

To help your clients improve their inventory turnover, consider the following strategies:

Implement just-in-time (JIT) inventory management practices to minimize the amount of inventory on hand while ensuring that materials are available when needed. This approach involves closely coordinating with suppliers and streamlining production processes to reduce lead times and minimize waste.
Use data analytics and forecasting tools to predict demand more accurately and avoid overstocking or stock outs. Leverage historical sales data, market trends, and customer insights to develop more precise demand forecasts and optimize inventory levels accordingly.
Collaborate with suppliers to establish more flexible delivery schedules and reduce lead times. Work with key suppliers to implement vendor-managed inventory (VMI) programs or consignment stock arrangements that allow for more responsive replenishment and reduced inventory carrying costs.
Regularly review and adjust safety stock levels to balance minimizing inventory costs and maintaining adequate buffer stock. Use statistical methods to calculate optimal safety stock levels based on demand variability, lead times, and service level targets.
Implement lean manufacturing principles to streamline production processes and reduce waste. Conduct value stream mapping exercises to identify non-value-added activities and implement continuous improvement initiatives to eliminate waste and improve efficiency.

Value Added Revenue and Capacity Utilization: Unlocking Hidden Profitability

Value-added revenue and capacity utilization are often overlooked metrics that can significantly impact a manufacturing company’s profitability. As Leslie Boyd explains, value-added revenue represents the true value that a company creates through its production process, while capacity utilization measures how efficiently a company is using its available resources.

Essentially, value-added revenue focuses on the incremental value a manufacturer generates by transforming raw materials into finished goods, excluding the materials’ cost. By analyzing this metric, companies can identify opportunities to increase the profitability of their products or services by optimizing production processes, reducing waste, or finding ways to add more value for customers.

On the other hand, capacity utilization measures how much of a company’s available production capacity is used at any given time. Many manufacturers operate in a fixed-cost environment, where a significant portion of their costs remain constant regardless of production volume. By increasing capacity utilization, companies can spread their fixed costs over larger units, reducing the cost per unit and improving overall profitability.

To help your clients improve their value-added revenue and capacity utilization, consider the following strategies:

Conduct a thorough analysis of the company’s production processes to identify areas where value can be added or waste can be eliminated. Use tools like value stream mapping and process flow diagrams to visualize the current state and identify improvement opportunities.
Encourage the adoption of lean manufacturing principles to streamline operations and reduce non-value-added activities. Implement initiatives like 5S, kaizen events, and total productive maintenance (TPM) to improve efficiency, reduce downtime, and increase value-added revenue.
Help your clients understand their fixed and variable costs and how they impact profitability at different production levels. Use cost-volume-profit (CVP) analysis to determine the breakeven point and identify opportunities to optimize the cost structure.
Work with your clients to identify opportunities to increase capacity utilization, such as by accepting additional work or optimizing production schedules. Conduct a thorough analysis of capacity constraints and develop strategies to remove bottlenecks and improve throughput.
Assist your clients in developing pricing strategies that accurately reflect the value they provide to customers and ensure adequate profitability. Use value-based pricing techniques to capture the full value of the company’s products or services and avoid leaving money on the table.

Becoming a Trusted Advisor: Guiding Your Manufacturing Clients to Success

As a CPA, your role extends beyond crunching numbers and preparing financial statements. By understanding and leveraging the key metrics discussed in this episode, you can position yourself as a trusted advisor to your manufacturing clients, helping them navigate the complexities of their industry and achieve long-term success.

To become an indispensable partner to your clients, consider the following approaches:

Proactively educate your clients on the importance of metrics like EBITDA, employee retention, inventory turnover, value-added revenue, and capacity utilization. Help them understand how these metrics impact their financial performance and provide guidance on improving them.
Review your clients’ financial and operational data regularly to identify trends, opportunities, and potential challenges. Use this information to provide insights and recommendations that help your clients make informed decisions and stay ahead of the curve.
Collaborate with your clients’ management teams to develop and implement strategies that drive profitability and growth. This may involve working with other departments, such as operations, human resources, or sales, to ensure a holistic approach to business improvement.
Stay up-to-date on industry trends, best practices, and emerging technologies that can help your clients optimize their operations and gain a competitive edge. Share this knowledge with your clients and help them evaluate the potential impact of these developments on their business.
Foster open and transparent communication with your clients, regularly checking in to discuss their goals, challenges, and concerns. By building strong relationships based on trust and mutual understanding, you can become a valuable resource that your clients rely on for guidance and support.

To Learn More, Listen & Subscribe to “Best Metrics”

To learn more about how you can help your manufacturing clients unlock hidden profitability and drive sustainable growth, listen to the full podcast episode of Best Metrics featuring Leslie Boyd. With her wealth of experience and practical advice, Leslie provides a roadmap for CPAs looking to take their manufacturing advisory services to the next level.