By Paul Latham
Are your business owner clients (and their teams) as efficient as they could be? If they are not they will not be maximizing their business value.
This is an area that CPAs often over-look when they are advising their clients. It’s almost always of massive importance to the business value of your clients – and you have a fiduciary duty of care to help them maximize business potential.
If you are talking to business owner clients about their efficiency focus – then you should be pointing them towards the “7 Areas of Business Waste & Inefficiency”.
These areas provide 7 thought prompts to help your client team to brainstorm and identify where (and why) waste is happening inside their business.
The advisor just needs to prompt by asking the right questions as outlined below (by the way these questions equally apply to your own CPA business!)
1. Waiting for things to happen?
Where inside your business, do things regularly slow down, get “stuck in a bottleneck” or you often “wait for things to happen”?
Service businesses – especially professional service businesses – in particular are notorious for allowing things to “wait” to happen (either because the customer makes them wait for information or because the team wait to complete the task).
You can calculate the current business efficiency in terms of total hours actually worked on average (for any given task) divided by total average elapsed time (from when you could possibly have first started until when you actually complete that task).
As an example – let’s assume you are working with a design business. Imagine that the design process information is typically provided by their customer – and is (on average) available to be worked on by the designer – for a total of 2 weeks (in that case let’s say the elapsed time is 100 hours). If the average working time to complete the design is 10 hours – then in this case the average task efficiency = 10%.
If the design business can (e.g.) halve the average elapsed waiting time (to say 1 week) then the business efficiency rating in that particular task area would obviously be doubled to 20%.
Better still if the business can improve average design turnaround to 20 hours (elapsed time) from start to finish – then they will improve task efficiency to 50%.
That business could then further focus on billing for the completed design work quicker and receiving the cash quicker (and thereby reduce average waiting time in those areas as well). Suddenly their business efficiency is dramatically improved in every respect (and they will have money in the bank much sooner than currently).
Where do problems happen or things regularly need ‘fixing’, or often do not go right first time?
You should try to brainstorm the regular problem areas inside the business with the most relevant people (the more “junior” people working at the “coalface” will almost always know best). Once you have identified the most common/ most expensive regular “defect” areas you can start to put a plan in place to fix the regular defects – and measure efficiency improvement to drive behavior.
3. Wrong process?
Where do you have an outdated (or no longer needed) process? Where do you have a completely inappropriate process? Where do you have no process at all but really need to introduce one?
You would be amazed how many businesses have old and outdated processes in their business. Junior members of staff will say – “once upon a time we always needed to do this at a month end – and we still do it today (because nobody has told us to stop) – but we have no idea why we still do it – nobody ever looks at the information”?
Your client needs to regularly refresh old processes – or consider where new or more appropriate processes may be needed. Once they have identified where they need to improve “process” areas you can help them to begin to put a plan in place to implement – and measure efficiency improvement to drive behavior.
4. Over-Engineering the Solution?
Where do you regularly “do too much for the money” (that you charge the customer)? Where are you using someone that is over-qualified for a task that could be equally well done by somebody paid less?
Again – for service businesses in general (particularly CPAs) – this is often a “profit- killer” waste area – typically from a couple of perspectives:
(1) We often see really “clever problem solvers” who should be spending 100% of their time on the high value “clever stuff” – who are actually spending far too much time on the lower value “mundane stuff”. It’s a massive area of waste and an opportunity cost for many businesses.
You should regularly clarify where to focus the activity of your most valuable people – and put a plan in place to stop them drifting back to “easy” or “mundane” tasks.
(2) We often see businesses that do not properly and clearly define what they are going to do for a particular customer (albeit they have already agreed the price of delivery). This usually results in the business “jumping higher” than they intended for the customer – and “doing too much for the money” that they charge.
The business owner needs to clarify their value proposition – and really work hard to define the “jumps” in service level (different levels of “jump” for different prices). In this way they will reduce their “over-engineering” problem inside the business.
5. Motion – Inside the Business?
Where do you have inefficient motion or movement inside your business?
Inefficient movement might include poor operational layout or poor communications between people, departments or teams.
The biggest culprit nowadays is often where there is a breakdown of communications (the “movement of information”) inside a business. This aspect of inefficiency often impacts upon other waste areas (like “waiting” time or “defects”).
In today’s fast paced world – think about internal motion (particularly in terms of the process for ensuring accurate communication between areas “A” and “B” inside the business).
6. Transport – External to the Business?
Where do you have inefficient external transport? This might include communication with customers or vendors or regular logistical issues.
As with “internal motion” – the biggest transport problems today are often in the areas of communication with people outside the business itself (suppliers, vendors, sub-contractors, customers etc.).
Does your client have efficient communication processes that ensure important information is accurately communicated between the relevant third parties – and it always happens “right first time – every time”?
Where do you see poor inventory control inside your business? This includes areas like stock build-up, work-in-progress issues, speed of billing, slow collection of monies, unpaid bills due from customers etc.
Often inventory issues will connect with other inefficiency problems (like “waiting”). As an example – often in service businesses you will see that they wait too long to complete a particular task (see “waiting” above). This problem is then compounded – because the business then waits until (say) 2 weeks after the end of the month to raise invoices – and only then does the cash collection cycle kick in. Wouldn’t it be better if they raised an invoice as soon as they had finished (irrespective of time of the month) and then rigorously applied best practice cash collection? It could take weeks (and thousands of $) off the combined “inventory” cost.
As briefly demonstrated above – It is important to understand that the 7 waste areas are not usually mutually exclusive.
There will often be an element of “blurring” between the 7 waste areas (imagine the spokes on a moving bicycle wheel).
Your first step in any efficiency exercise with a client is not to try to “dive in” and solve a particular problem – but instead you should be trying to really identify where the problems (regularly) happen in the business through (properly facilitated) brainstorming with the client team. It is important that the brainstorming team cross-departmental boundaries and include “junior people” who work “at the coalface”.
Most businesses discover that if they properly brainstorm the 7 waste areas – in less than 2 to 3 hours – they can usually identify between 50-100 problem areas for potential improvement (if they don’t find 50 problem areas then they are really not trying).
Having identified the biggest inefficiency problems then they are well on their way to being able to build a plan to fix them – starting first with those that are costing them the most money!
By following a logical approach to waste and inefficiency – and understanding that there are 7 Areas of Business Waste & Inefficiency you can dramatically increase your clients chances of Maximizing Business Potential.
If you are a 21st Century CPA you have a fiduciary duty to help your business owner clients to maximize business potential and you should be encouraging your best clients to improve efficiency – and we can show you HOW.