How many of you ask yourself why you seem to be so busy whilst your bank account or drawings never seem to reflect what you spend your time working so very hard on?
Sometimes, practitioners are so focused on marketing and winning new clients that they fail to address the really basic issues that impact their cashflow and profitability. Without getting your own house in order, there is little benefit to be derived from adding to the 'top line' and ignoring what is going on with your own business's financial management. It’s also embarrassing for a practitioner not to manage this area effectively when they frequently advise their own business clients that 'cash is king!'
Systems and fixed fee agreements are the key to managing your cashflow issues. Once you start to put these processes in place, so many other issues will come to the fore and allow you to make sensible business strategy decisions about what you want from your practice going forward.
Everything I’m going to suggest here is underpinned by the need to have good systems in place. With systems, you can ensure the basics are done every time with every client-not just when you remember or when you are in the right frame of mind! Similarly, systems mean that you can delegate tasks and be confident that the same action will be taken when you are away from the office by other members of your team. It means you can leave the office or go on holiday, secure in the knowledge things won't fall apart in your absence.
Some form of fixed fee agreement is essential both to meet clients’ service expectations and manage your own cashflow. It is now standard practice to have these in place.
- Agree with a client what their fee will be for the year ahead, what you will do and when you will do it.
- Get clients on standing order or direct debit (this manages both their cashflow and your own).
Clients love these agreements as they never receive an unexpected bill. You also will love them as it means clients are effectively paying in advance, you have no bad debt collection issues and carry minimal work in progress. This frees up your time which you can now use to work 'on' and not 'in' your practice- something you probably rarely do as you never have the time.
When implementing fixed fee agreements you will need to spend some time doing a clean-up operation on debtors’ collection and unbilled work in progress. Client by client, you need to start with a clean slate and agree collection terms for outstanding debtors balances, talk to them about unbilled time then set the plan for the year ahead. You may have to do this in bite sized chunks over a period of a couple of months to complete the process for all clients. It is time well spent as you will only have to do it once and the rewards are fantastic.
In order to draft a fixed fee agreement you will be forced to review what you actually do for a client, the time it has taken in the past and what the budget should be for the year ahead. Once you have set these budgets you need to ensure you have systems and training support in place with your team so they can follow them and see the benefits. Budget setting and client service is a separate subject in its own right and one with which I do much work on with practices. It is a fundamental cornerstone which underpins the success of every practice and drives the level of client service you deliver too.
Partners are often fearful of reviewing work in progress in detail and use the 'carry forward' excuse month on month in order to avoid bad news. Painful as it may be, it is imperative you face the reality and either bill out or write off irrecoverable balances. This is a wake-up call in itself and will help you focus on planning ahead.
A word of caution with fixed fee agreements - you must also put a system in place whereby any 'extra work' that a client needs you to do or asks for which is outside your agreement is agreed with them in advance and billed on completion. Clients are usually happy to pay for extra work as long as they know what the fee will be in advance. The worst that can happen is that they say 'no' and you don't waste time doing work which will not be paid for.
Got any questions or comments on this topic? Post them below.
In my next blog post, I’ll be offering my top tips for effective billing and outlining how best to deal with late payers.
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