It’s never too early to plan ahead: Creating capacity in your firm

When should you be thinking about capacity? As a firm leader, you must always have two critical areas on your mind: capacity and leverage. Today, we will cover capacity.

First, let’s discuss what capacity is. It’s the ability for a firm to maximize its resources, at any given time, to meet the clients’ demands without causing organizational disruption or burning out employees. Capacity is a critical component of profitability and leverage, when it comes to a tax and accounting firm.

Why does capacity matter?

We need capacity to take care of our employees. It’s no secret that we have not been extremely good at maintaining and measuring capacity, as reflected by the number of individuals leaving the accounting profession or not graduating as accountants. Capacity allows us to understand the temperature in the room. It helps us when a particular project or job calls for more reinforcements to ensure our staff is well taken care of and not burnt out by the end of the job.

As a freshman hire working at a large firm, I realized that I was excess capacity. There were times when I was in the office and unbillable. I was also readily available for the firm if a new project or contract began and someone needed staff, or if the project got behind. I was capacity. Yes, sometimes I was possibly an unprofitable full-time equivalent (FTE), but at other times, I helped the firm to alleviate pressure on other staff by adding me to stressful and understaffed jobs, and providing the firm with the flexibility to staff projects immediately, if needed. As you can see, capacity can sometimes show up as an expense, but if appropriately managed, it can be an asset in waiting.

Why is capacity important? Capacity allows the firm to take advantage of short-term trends or surges, and grow their businesses without mass hiring to meet an immediate need. If it rained gold, you want to have a bucket in your hand—not spending time looking for one. For example, when new tax programs during the pandemic came out, some firms chose to participate in those endeavors. They increased their revenues substantially, while others decided they would not participate in the surge of newly available service offerings due to their lack of capacity.

Sometimes, capacity can seem like an excess expense, but it could be excess revenue if appropriately managed. For some firms, the decision not to participate in helping their clients during the pandemic was about lack of capacity. Some firms could not leverage excess capacity with their staff, or lacked outsourced staffing to take advantage of the new service offerings that would grow their business. Without capacity, it is relatively complex for a firm to capitalize on growth opportunities. We need capacity to take advantage of unforeseen opportunities throughout the year. For example, the Paycheck Protection Program application and Economic Injury Disaster Loan processes were windfalls to the firms with the excess capacity to leverage the opportunities.

What about too much capacity?

As the world has gotten smaller and technology has gotten better, there’s no excuse not to have excess capacity to take advantage of new opportunities and manage your staff’s health. There are several areas where firms can get excess capacity when needed, and it seems that forward-thinking firms are leveraging technology to make it happen. For example, some firms use robotic process automation, bots, or software programming to process transactions or execute processes in mass. Using technology, these organizations have increased their capacity to take on specific projects in-mass, based on their technology stack.

Some organizations have opted to use international staffing from other countries. This method had traditionally been an option for only larger, national firms. However, as the world has gotten smaller via technology, smaller firms can find outsourced international talent agencies or individuals who can provide them with excess capacity to manage and complete specific tasks or projects.

Some organizations subcontract work to other firms with good relationships and proven reputations to deliver good work. This method is often overlooked by smaller firms and solo practitioners who could use the excess capacity of similar size—or even smaller firms—to build good working relationships and even future partnership relationships.

Create capacity today

Capacity allows you to take advantage of present opportunities, and ensure that you can be an employer of choice to current and future employees. Without capacity, a firm leader can expect to pay for expensive staffing as wage inflation grows, and will be limited in the ability to develop new business or organically grow without paying a premium to acquire capacity.

It’s never too late to plan ahead—you don’t want to be the last firm in the line to the capacity table. With increasing client demand, there is no better time than now to be thinking about capacity.