Your browser (Internet Explorer 6) is out of date. It has known security flaws and may not display all features of this and other websites. Learn how to update your browser.
X

Revenue Profit & Cash in an Accounting firm – video # 7 – Accountants Receivable days

Why is it that a firm will engage a client, start working on the project, wait for the client to send in missing information, finally finish the project 60 days later then at the end of the month send an invoice and be paid 30-60 days after that? A 120+ day process!!

It just doesn’t make sense. You have to pay the labour, the insurances, the rent and everything else in that time yet due to your management processes your client treats you like an interest free bank!

Remember this… “Thee who makes the rules – wins the game”

Why do you operate under this model? Just because you always have is not a good enough reason.

If you ask for some money upfront (and make new rules) many of your clients will pay. If you ask for 100% upfront before starting many of your clients will pay. If you give your clients some choices (and not the pay in arrears choice) many of your clients will pay.

Your monthly receivables balance should be less than 6% of annual fees – or 20 days of annual revenue.

Stop being an interest free bank. Today!

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 7.

Revenue Profit & Cash in an Accounting firm – video # 6 – Work in Progress days

Work in Progress (WIP) is your inventory. Like any good cash management program you would advise your clients to ‘turn their inventory over’ more frequently to improve cashflow.

There is no difference with an Accounting firm. Your inventory should be invoiced every single month. If you are pricing up front (and I hope you are) then why not ask for some payment up front as well. That’ll help your WIP balance!

If you have done the work then send a bill. If the client is being difficult or the project is taking a long time then send an interim bill.

Your WIP balance at the end of each month should be less than 3% of your annual revenue – or 10 days of revenue.

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 6.

Revenue Profit & Cash in an Accounting firm – video # 4 – Average Hourly Rate

If you are like most firms you will have a range of charge rates in your firm. Normally charge rates range from $100 – $350 per person depending on salary & experience level. If this is the case then your Average hourly rate (AHR) or net firm billing rate for client hours will be around $150-$200.

It’s pretty pathetic to think that is all you believe you are worth! This is such a silly system for pricing.

I think you are worth much more but you have to believe it and you have to change the way you price projects.

There are 2 measures of Average Hourly Rate.

1) AHR – client hours. Take your revenue (let’s say $2M) and divide by client hours billed (let’s say 10,000). In this case it is $200.

2) AHR – hours worked entire team. Take your entire team (incl. partners, admin & professionals) and multiply by the working hours in a year to get total hours worked (say 12 people X 1750 hours each = 21,000 worked hours). Now divide revenue ($2M) by total hours worked (21,000). In this case it is $95.

It’s important to look at both of them. You can have a fantastic AHR for client hours (>$400) yet very poor on all hours worked (<$150) because of the productivity, people mix & administration process.

The ultimate measure is to be focussed on AHR – hours worked entire team. It’s this one that will ultimately drive your profit before partner salaries.

If you are pricing projects up front then there are only 4 ways you can dramatically increase your AHR.

1) Charge more for the same project – straight price rise
2) Be more efficient and have less time on each project
3) Sell higher value projects based on value created
4) Change your administration mix and get more out what you have got

Your AHR should be improving every single month. If it is then that is a reflection on your pricing / sales prowess and your efficiency of throughput.

If it’s not improving (or going backwards) make sure you mention this to our coaching team when they do your Business Performance Review.

I have written an extensive report on Accounting firm performance. You can download the full report here with all 12 KPI’s in it.

Enjoy video # 4

Revenue Profit & Cash in an Accounting firm – video # 3 – partner productivity

It’s very easy to increase profits in an Accounting firm. Simply have the most senior people (partners) charge more time. The partners generally have the highest charge rates and theoretically the most experience.

Yes you will increase profits but for the short term only.

David Maister, author of many outstanding professional services firms’ books said it best:

“What you do with your billable time will determine your income.
What you do with your non-billable time will determine your future”

Assuming that the partners of the firm are partners for the right reasons (not a glorified / expensive senior Accountant with the title of Partner) then the partners should only be doing 3 things:

1)     High end advisory work for a small percentage of time <30% of time.

2)     Nurturing existing clients making sure each client has every service they need to satisfy their goals in life.

3)     Acting in a leadership position – driving performance, winning new clients & innovation.

If Partners spend 2 hours analyzing phone bills and scrutinising the colour of the receptionists new chair - not a good use of partner time.

If Partners spend 2 hours doing compliance work for $200 per hour. Hmmm - not a good use of time.

If Partners can spend 2 hours in a client meeting and bring back a $10,000 project with a 75% margin then I would consider that a good use of partner time!

Enjoy video no. 3

Revenue Profit & Cash in an Accounting firm – video # 2 – team productivity

The relationship between profitably and ‘productivity’ (or ‘utilization’) in the old revenue model has always been about ‘billable hours’. How many can be charged to the client/project. As mentioned previously driving billable hours is a ludicrous business model.

Many partners of firms want to drive billable hours and they are quite proud of the fact that they, a team or team member has more than someone else. WARNING! Excessive focus on this metric promotes the wrong behaviour. Team members ‘hog’ work, they ‘pad out’ time sheets and are generally inefficient.

If you want to be as efficient as possible then price the project up front, have an hours budget on the project and then drive the time down – thus running out of work and creating capacity.

The measure is simple – charged time into available time. So if there were 40 hours in a (working) week available to charge and your team member ‘charged’ 30 of them then that would equate to 75%.

If there is plenty of work to do and you have sufficient team members then a healthy mix of ‘productive time’ is expected –around 75% of a normal working week. But not much more.

Enjoy video no. 2