Here is a theory that I have. It’s not based on research but rather on 25 years of personal observation across many business and accounting practices. It is that the average person spends approximately 20% of their work time engaged in non-productive activities.
This equates to around 1 day every week and includes dealing with personal matters and other activities that don’t contribute value to a business. In a typical eight-hour day this means that 6.4 hours are productive and 96 minutes aren’t. Mostly, it’s not their fault – they’re just doing what they’ve always done.
But what if you could reduce this non-productive time to 10%, or 48 minutes per day? Would this have a significant impact on your practice? Utilizing the power of the 80/20 rule can help to unlock this time.
The 80/20 rule, also known as Pareto’s Principle, means that in anything a few of the activities (20%) are critical and many (80%) are not. The actual percentages are not really that important – they could be 90/10 or 50/50.
What is important to understand is that a few things will have a much greater impact than many others. Or if you flipped the concept over, 20% of activities are simply wasting time or not even related to the job, personal matters. This 20% needs to be stopped.
20% do more – 60% continually improve – 20% stamp it out for good
In the accounting world this could mean that 20% of any time and effort expended on managing the practice will actually produce 80% of the effective results. Conversely, 80% of practice management time produces only 20% of the results achieved.
Imagine as a leader of an accounting practice what would happen if you focussed on removing as much of the “bad” 80% as possible. Stamping out that bottom 20% would create extra time to pursue the 20% that does matter, a significant upside potential.
Here are some examples of the 80/20 rule:
- New Clients – 80% of your past 12 months conversions have come from 20% of the prospects you have met; and at the other end, 20% of your pipeline will never be your clients.
- Staff Problems – 20% of your staff will cause 80% of your staff problems; conversely 20% of your staff will most likely be the ones who solve your problems
- Top Clients – 80% of your sales will come from your top 20% of clients; 20% of your clients are costing you time, money and energy. They are hard to work with, whinge and whine or DON’T PAY YOU
- Service value $ – 20% of your services are highly valuable and clients will pay big $ for, 60% are the bread and butter ; 20% of services are not worth doing as they costs you more than you will ever be able to charge for. (eg offering to take your fees from clients tax refunds)
Time management is a key part of applying the 80/20 rule effectively. At the top level, management should determine the small number of matters that will have the greatest performance impact. This is the hard part. If you can’t identify what they are, you won’t be able to focus on them and you won’t be able to discard or delegate the less important matters.
This reminds me of an accounting practice that I mentored a few years ago. It had a grown over the ten years of being in business to have a solid turnover and was well respected with a good market position. Whilst turnover and client numbers were growing the previous two years prior to my involvement they had decided to diversify their offering and grow their practice by offering more services to the good clients. They approached a few good clients, talked with them about the new services and the clients engaged the practice to do more.
It was a disaster from day one. The clients, not just the good ones who engaged for more, demanded more of the partners time, the account team within couldn’t keep up with doing more of the partners work. Suddenly write offs increased, there was more mistakes happening and the compliance program slowed down. The partners had no choice but to step back in, do what they knew they could do and took back the tax work. Longer hours, less profitability and more headaches.
It was at this point that I entered the picture. What was immediately apparent to me was that the transition was a poor one. It didn’t fit the partners and the teams clashed (the team didn’t know what was expected or what to do), the clients started to be more demanding thus were not communicated with effectively and more importantly the practice management methods did not change in order to deliver the new model. The partners and senior accountants had diverted more than 60% of their time to doing work and managing client demands. Worse still, the core practice, which had always been profitable, was now losing money and needed a major FOCUS injection to turn things around.
Left with no other viable option, I recommended that the practice close its doors for two days and take stock of where they were at. The current picture did not look good and the team feedback was very discouraging. This was a bitter (and expensive) pill for the partners to swallow but they agreed that the practice was solid and that with the right plan and structure and communication it could achieve what they originally set out to do. Following the “close the door” planning session the partners and team refocused on what the practice was good at and bit by bit rebuilt the practice. Two years on the 80/20 rule revisited “20% do more – 60% continually improve – 20% stamp it out for good” is now engrained as a core fundamental culture throughout the business.
- Core compliance is better than ever,
- Workflow is effectively managed
- Client and team communication is excellent
- Additional services have been added successfully
- Profits tripled
- Partners are doing less compliance and are working closely with key clients
- New clients are now walking in the door
The 80/20 rule is a useful daily reminder to focus most of your time on the small number of matters that will create the most value. It is not a rigid rule but more of a guiding principle to keep you focused and on track. At the end of the day the key is not just to work smart but to work on the right things…