‘Turnover is vanity and profit is sanity’… a well-worn phrase in the professional services community.
And well worn for good reason. Many advisers go into practice having excelled – and rightly focused – on their technical qualifications and honing their abilities, their experience.
But going into practice is a different beast. It’s not about passing qualifications but running a business.
And the moving parts of a business, including those in professional services, are complex. Where do you start? Is it deciding on which services to offer and sectors to operate in? How will you deliver, and where? People, automation or both? What metrics and KPIs deem what you do as a success?
I think these questions can actually be harder for an established practice. You may know things are working sub-optimally, but what changes do you make to improve things… is it a series of small things or a big bang?
Project profitability is, I believe, a really interesting place to focus on. It’s effectively the core of what you’re offering from an operational perspective: a service, or range of services, for a client, undertaken in a certain way, with a certain set of resources. If you’re tracking project profitability, then each one is a ‘case study’ to illustrate how your firm functions.
But it can be a symptom of a sub-optimal practice in itself. In other words, if you can’t track the profitability of any single project, it likely means that you don’t have the workflow, processes and data capture in place to understand your firm’s moving parts.
And, without that, any changes and tweaks you want to make to ‘improve things’ will be made blind; you can’t track how effective those changes are.
While there is no single solution or approach to organising your firm in a way to break down and understand profitability, here are some pointers towards achieving that goal:
- Ensure automation is in place – Okay, it’s a broad term, but from a project perspective I think of automation as supporting workflow and process. Once you’ve defined the scope of the project, from producing a tax return to a client’s launch into another country, then a system must be in place to not only track its moving parts, but alert your team members as goals or steps are achieved – or to flag up a blockage.
- Give your employees the tools they need – This is fundamental, and ties into the first point from a workflow point of view. Do your people have the tools, apps and technology to be able to not only help them deliver services, but track progress as well? Can they access client data as and when required, and feed back to them?
- Dashboards and reporting – Again, this is all interlinked. If you are sharing information between your firm and the client - alongside a good workflow system – then it’s much more likely that you will be able to capture salient points for internal reporting purposes i.e. what is project progress? Who is working on what? What is the ETA for completion? How is the work tracking against similar projects?
- Timely and accurate billing – Understanding where you are on a project is virtuous – it means you’re in a much better position to bill and manage your work in progress.
- Get a clear view of your cash flow – Good reporting systems (aligning work undertaken to receivables) and more timely billing / credit control means better, and more transparent, cash flow.
It’s not easy to put all the pieces in place. But your practice can take incremental steps towards improvement. You would look to continually improve as a professional; that same attitude should transpose onto the running of your organisation.
Kevin Reed is a freelance journalist and former editor of both Accountancy Age and Financial Director