Designing a scalable organizational structure for your accounting firm

Ed Chan co-founded Chan & Naylor in 1990, which has since grown into one of Australia’s most successful accounting practices. Today, he acts as Non-Executive Chairman and has distanced himself from the day-to-day operations while still earning a passive income. He achieved this by building a scalable organization structure, designed to run without him. 

In a recent Karbon webinar, Ed shared how he built a business where he could achieve freedom and scalable growth.

The problem with traditional accounting organizations

The reason many accounting firm owners get trapped is because of their business structure. The typical structure, Ed describes, is a partnership model, which has nothing to do with the legal structure of the entity, but describes the roles in the company.

A partnership model is where the founders are heavily involved in all aspects of the business. They bill out their time on client work and simultaneously guide operations, accounting, and marketing. The organization is dependent on people, not on systems and carries damaging consequences.

Inefficient decision-making: Even though someone has started the company, it does not make them the best expert at marketing, sales, and operations. When a founder needs to have a say in every decision, the business is stifled and unable to move quickly.

Stagnant growth: For many accounting firm owners, growth is associated with pain. Growing the business means more work, more headaches, and more complexities when overseeing everything. This commonly causes an organization to stagnate around $1M in revenue per partner, Ed says.

Vulnerable to threats: In a partnership model, an organization is too person-dependent, and that brings risk. If one person is responsible for so much, what happens if that person leaves? If you have turnover, it will take months to sort out what that person was responsible for and how to replace their work.

Building a scalable structure

The goal for every accounting firm owner should be to build an organization that is not dependent on the founder or any one person. This requires a corporate structure. Rather than depending on the talent of individual people, the corporate model has defined tasks, roles and accountability. 

A corporate structure is systems-dependent, not people-dependent. You have job descriptions for each role and a documented process for each function. You can hold people accountable for their work and quickly find replacements if you lose someone.

When you are just getting started, the founders will be involved in many areas, because you have fewer resources. However, even early on, you should be creating systems that allow you to gradually remove roles off your plate and replace yourself. 

A simple way to break down the systems in an organization is to look at Ed’s seven key areas of an accounting business:

1. Board of Directors (Leadership)

2. Marketing 

3. Sales 

4. Production

5. Quality (Client success)

6. Office administration

7. Financial reporting

A systems-focused accounting firm will have a leader in each of these seven business units, and the ability to hold each one accountable. Eventually, the founder will only be in the leadership role, and will only need to review the other areas in a monthly meeting.

The sustainable benefits of a scalable accounting organization

Growth is not a problem: When you have a systems-focused organization, you don’t need to fear growth. You have a system for growing and can decide how big or small you want your company to be.

Staff expectations are clear: Rather than relying on every staff member to be a superstar and wear many hats, you have clear roles with specific descriptions. This allows your team to play to their strengths and you will never be vulnerable to a person leaving.

The company is more profitable: A systems-based accounting business is more profitable because you are data-driven and accountable. The alternate partnership model leads to wasted time and inefficiency, which eats into your cash flow.

Staff is easier to manage: With systems in place, you can manage your staff even as the number of them grows. You can delegate, build in structure for accountability, and have well-defined roles and managers. With this transparency,  it’s much easier to keep your entire business in check.

Create passive income: The final goal for founders should be to remove themselves from every role in the business. By hiring the right people in the proper roles, your business can be an asset that produces income for you every month. Then, you can enjoy a passive income stream and dictate what you do with your time. 

With the right systems in place, you are no longer trapped in your own business but can take control of what you want the business to be.

How to get started

The first step is to evaluate where your business fits on the spectrum between a people-based structure or systems-based.

Start with Ed’s seven key areas above and think about how your business defines each area. Once you lay out these functions, you can start to put leadership in the proper areas with clear descriptions of how the systems work.

Investing in systems is not a quick fix, but is extremely rewarding in the end. To dive deeper, watch Ed Chan’s full webinar on how to build a scalable organization here.