Investing and Taxes

The E-Myth Accountant Series – Estimating

CPA Blog |

The sixth topic in the book “The E-Myth Accountant: Why Most Accounting Practices Don’t Work And What To Do About It” by Michael Gerber and M. Darren Root, CPA is all about estimating.

Michael Gerber shares that one of the greatest weaknesses of accountants is accurately estimating how long services will take and then scheduling their clients accordingly.

Since accountants believe they’re incapable of knowing how to organize their time, they build a practice based on lack of knowing and lack of control. They build a practice based on estimates.

His solution – interest, attention, analysis. Try detailing what you do at the beginning of an interaction, what you do in the middle, and what you do at the end. How long does each take? In the absence of such detailed, quantified standards, everything ends up being an estimate, and a poor estimate at that.

Unfortunately, too many accountants have grown accustomed to thinking in terms of estimates without thinking about what the term really means. Is it any wonder many accounting practices are in trouble?

He shares that you can’t go to work every day believing that your practice, the work you do, and the commitments you make are all too complex and unpredictable to be exact. With a mind-set like that, you’re doomed to run a sloppy ship. A ship that will eventually sink and suck you down with it.

Thankfully, he explains, this is so easy to avoid. 

Sloppiness—in both thought and action—is the root cause of your frustrations. The solution to those frustrations is clarity. 

Clarity gives you the ability to set a clear direction, which fuels the momentum you need to grow your business. Clarity, direction, momentum—they all come from insisting on exactness. 

But how do you create exactness in a hopelessly inexact world? The answer is: You discover the exactness in your practice by refusing to do any work that can’t be controlled exactly.

He shares that you have two choices, and only two choices:

  1. Evaluate your practice and then limit yourself to the tasks you know you can do exactly, or
  2. Start all over by analyzing the market, identifying the key opportunities in that market, and building a practice that operates exactly.

And how do you achieve a level of clarity and exactness?  With systems.

In short, with a systems solution in place, your need to estimate will be a thing of the past, both because you have organized your practice to anticipate mistakes and because you have put in place the system to do something about those mistakes before they blow up.

Co-author, M. Darren Root, CPA shares that his approach to the estimating problem is value billing  He explains that he’s never understood the logic behind billing engagements by the hour. 

Hourly billing does not take into consideration the efficiency of a particular staff member or the technologies that support the process. And in clients’ eyes, the hourly billing structure has historically been a major source of irritation. 

When clients visit your office, call, or e-mail, they know they are ‘‘on the clock.’’ This sometimes creates frustration and pushes the client to search for answers independently. Such a situation is not good for the client or the accountant, and it certainly fails to strengthen the professional relationship.

He explains that value pricing allows accountants to take on the role of trusted advisor to their clients, because it frees them from tedious time-tracking. This model also alleviates clients’ concern about being billed for every phone call or email.

The main point – build your business around systems, predictability, consistency, and efficiency.  

Source – “The E-Myth Accountant”