Why capacity planning is vital for tax firms

You’ve probably heard Abraham Lincoln’s saying, “If I only had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe.” This quote is usually referred to whenever people are discussing the importance of having a plan before taking action. But it’s also applicable when it comes to planning capacity in your firm. 

Over the past year, as my team and I have jumped head-first into exploring Karbon’s use cases for our firm, I’ve also delved into learning the principles behind successful capacity planning. 

As a firm leader, I don’t just want to get work done; I want to get work done in a way that’s profitable for my firm and sustainable for my team. The difference between those two statements lies in capacity planning. 

How bad workload management impairs profitability and productivity

Knowing about capacity planning is one thing, but doing it is quite another, and many obstacles and scenarios can make capacity planning seem like a pie-in-the-sky dream. There are several ways bad capacity planning can block your firm from success.

Decreased morale and performance

If your team regularly deals with a heavy workload because of client demands, upcoming deadlines, and multitasking, they’re more likely to experience burnout and decreased morale. Long-term burnout degrades our creativity and problem-solving skills so that our quality of work starts to suffer. This results in more review notes than normal and more time spent on fixing work instead of finishing it.

Lack of standard operating procedures

At the heart of bad workload management is a need for more clarity about what is being done and how long it takes to complete. Without clarity about procedures, work will be completed in a way that’s already memorized or habitual rather than the way that’s most efficient and methodical. 

This variance in work completion also makes it difficult to estimate time-to-completion, meaning deadlines can never truly be established. Projects are easily thrown off track without realistic deadlines, and ultimately, client satisfaction suffers since work may not be done when promised.

Here today, gone tomorrow

Workload planning is built on knowing what must be done and how long it will take to finish. If you haven’t solidified your projects into clearly defined processes with estimated completion times, it will be much more likely that you’ll overburden your staff beyond their allotted capacity. 

Doing this regularly will cause your top performers to leave your firm, detracting from your firm’s overall work quality and collective expertise. If you’ve over-relied on these top performers to the point of neglecting your standard operating procedures, you’ll be crippling your firm’s growth by driving these key team members away.

Accepting limited capacity unlocks unlimited growth

We all get 24 hours in our day, but how we use each hour determines or undermines what we achieve that day. There’s a lesson in there about capacity planning: We all get a defined work schedule, it’s how we spend each hour of that workday that determines whether we’re productive and, by extension, profitable as a firm. 

The key point here is to realize that your team is made up of humans with limited capacity, both in terms of time and energy. Your job as a firm leader is to support them in allocating their time and energy toward areas that best drive your firm forward. 

While writing this article, I came across a great guide to capacity management by Karbon and Thriveal. I won’t spoil it for you (I recommend getting it here), but I do want to briefly touch on a few helpful points they brought out in the guide:

• The M.E.L.T. theory. This approach to capacity planning looks at four facets of personal productivity, including mind, emotions, time, and location. As a firm leader, you can only control the last two but you should be prepared to address issues impacting the first two with one-on-one conversations with each team member.

• Good capacity planning is a competitive advantage. Karbon and Thriveal’s guide goes into great detail here but I’ll boil it down to this: The firms that win aren’t just doing more. They’re doing it in a way that’s sustainable for their people and profitable for the firm.

• Capacity planning means being comfortable with ‘No’. The difference between busy people who get things done and busy people who get overwhelmed is their ability to say no to commitments and opportunities that aren’t aligned with their big-picture goals.

How to properly manage capacity and scope in your firm

Without capacity planning, you’re doomed to remain stuck in a cycle of overserving clients by routinely performing out-of-scope work and overburdening your team with so much work that they can’t consistently produce great results. 

As firm leaders, we must manage our team’s capacity well to ensure sustainable, profitable revenue for our firm and healthy productivity for our team members. The foundational strategy recommended by CPA Jason Blumer for managing capacity is Strategic Calendar Work Blocking (SCWB). 

Unlike time tracking, which looks backward and bills for past services, SCWB involves blocking out time on your calendar in advance so you can better envision your capacity, price services more effectively, and remain competitive. You end up controlling your schedule instead of it controlling you. 

Capacity visibility precedes capacity planning

While it’s tempting to blame headcount, sometimes your team can feel overwhelmed because of inefficient systems and processes or varying levels of seniority and experience by team members. 

Your job as the leader of your firm is to encourage each of your team to start placing their work on calendars using the SCWB method. Once you have visibility of your team’s capacity, you can begin understanding why work may take longer than expected and why team members are burned out. 

Once you have this information, you can assess and implement solutions for smarter capacity planning.

A firm with planned capacity is a firm with the upper hand

As you balance the intricacies of doing your work while navigating complicated relationships (either with bosses, colleagues, clients, vendors, or contractors), it’s up to you to establish boundaries that protect both your work and personal capacity. 

Only then can you make smarter decisions about hiring, profitability, and process standardization so your firm grows successfully and profitably.