Money Management for Accountants

Now that the annual 31st January deadlines are out of the way, many practitioners are coming up for air and taking a look at their own business in order to do a bit of what I call 'housekeeping.' Once again, I have prepared a summary list of what I think are the main challenges partners in practice face at the moment, together with suggested solutions. As always, I am basing my findings on over 20 years personal experience in public practice and, more recently, on what some of my clients in practice are telling me.

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' financial management. It is also embarrasing for a practitioner not to manage this area effectively when they frequently advise their own business clients that 'Cash is King!'

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?

  • Everything I am suggesting 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 memebers if 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.
  • During my time as Managing Partner at Landers Accountants, Accountancy Age Small Firm of the Year winner, most of my time was spent developing and implementing systems. I chipped away at it for years and had a degree of success resulting in partners being able to work a 4 day week and take 10 weeks annual holiday.We also were able to draw all our profits from the business and never had an overdraft - we were always cash positive with the bank, with money available to invest in the business. Systems are a subject in their own right and I am happy to follow up with any readers by e-mail if they want to pick my brains further on this topic. Just e-mail me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it
  • Some form of Fixed Fee Agreement is essential to both meet a clients service expectations and manage your own cashflow. It is now standard practice to have these in place whereby you 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 too as this both manages their and your own cash flow. 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 oftern 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 outide 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.
  • Gone are the days when firms billed annually or quarterly. The number one criticism clients have of accountants is the way they bill! Not only do clients hate receiving large irregular bills, it also plays havoc with your own cashflow and you rarely get full recovery on the time you have spent. Once you raise bills in this fashion you then have to wait sometime for them to be settled whilst you have probably started on another years work for the client. This is madness from a business point of view !
  • Try and change your attitude and culture. So many practitioners undervalue what they do and don't feel proud of the value they are providing to clients. This results in not charging for the work you do or not getting full recovery. Again, try and implement the mindset that you always have a discussion with a client before you do the work which is outside of your Fixed Fee Agreement and agree the fee for all work before you start it.
  • Late payers are a real headache. Of course, once you have the above in place they will be a thing of the past. In the meantime, you need to decide on a policy to deal with such offenders. Accountants hate chasing in their own cash and shy away from talking to their clients about monies owed for some reason! It is often helfpul to get someone other than yourself to act as credit controller. All debtors should be given clear settlement terms and followed up weekly by phone as a minimum. Ask a local solicitor to send a '7 day warning of legal proceedings' letter where appropriate for clients who have not kept their word. Once the warning time has elapsed, then follow up with action.
  • Looking at late payers will make you think about whether they are the right kind of client for your business. This is part of the client grading process that I would ask all firms to do on a regular basis. If a client is late in paying you and won't agree to a Fixed Fee Agreement then you need to think of sacking them so they can go and cause havoc in someone else's business and not yours. You will often find it is the late payers who are not ideal clients and they are always late in getting information to you, very demanding of your time, unpleasant to act for and never appreciate what you do for them....so why act for them in the first place!
  • 'I need the fee and can't afford to sack clients!' I hear you cry. In reality if you look at your recovery on these clients you will often find that you are actually losing money and would be better off not working for them in the first place. In my experience, you will also find that you could better use your time doing extra work for 'good' clients who appreciate what you do and are happy to pay you. This is the direction you want to be going in.

Summary

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.

15 years ago I bought a practice which had dire cashflow issues, a groaning overdraft, a horrible aged debtors list and a work in progress ledger that hadn't really seen the light of day in a review for years. With a little care and attention and slowly putting the systems I outline above in place, we managed to turn things around within 3 months. The result was positive cashflow, no overdraft and improved profit margins on the work we were doing. Partners time was freed up and we could plan to grow the practice and invest in people and technology as we now had cash to play with for the first time. It wasn't all plain sailing and of course there were painful times along the way. However, a consistent and committed attitude meant that progress could be made quickly. Little by little and step by step........that has always been my approach!

I do hope this inspires you to take action and I would be delighted to hear from any reader who wants more detail on the above or who wants more advice on any of the things I have mentioned.

 

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