To achieve maximum profitability, all aspects of a firm must be running as efficiently as possible. This might mean looking at some firm processes that normally go un-examined, to find hidden problems and potential areas of improvement. For example, many people think billing is a hassle, but they rarely try to improve it. Billing has a significant effect on your firm’s bottom line, but a few common billing mistakes can make a big difference in profitability.
If time capture is too difficult, time doesn’t get captured. This can lead to delayed billings, which in turn lead to delayed cash receipts. Making time capture easier, through mobile time capture apps and automatic timers will help staff log time more accurately and on time. When managers don’t have to track down missing time, invoices go out sooner. And the sooner clients receive their invoices, the faster they will pay.
Not sure what to bill
In a busy office with a lot of WIP, it can sometimes be difficult to keep track of what should be billed or written down. Setting WIP thresholds can ensure your staff doesn’t carry too much WIP, so billers can make better billing decisions. Fewer write-downs will lead to better billing realization.
Mistakes and inaccuracies can lead to under-billing. By adding notes to a time entry transaction, staff can include more detail so that billing amounts are more accurate. Fewer mistakes adds up to more revenue, with less money left on the table. Adding detailed notes can also prevent over-billing a client, a mistake that can be embarrassing to the firm and harm client relationships.
Value billing doesn’t make time capture irrelevant
Of course, many of these common billing mistakes can also be solved by moving to value billing, which is quickly becoming the preferred pricing model for future-ready accounting firms. But value billing doesn’t make time capture irrelevant. Figuring out the right amount to charge is extremely important and can be a sticking point for many firms.
In value billing, getting the price right can take some time. You’ll need to look at historical data. Analyze the types of projects you engage in and the number of hours normally spent on each one. Determine common benchmarks and identify where overages typically occur. To move to value pricing, you will need to have some very good intelligence on your current processes, and you will probably have to make some adjustments along the way.
But once you have it right, the benefits are invaluable. Instead of a relationship in which your clients expect you to get them out of trouble, you can foster a proactive partnership that prevents trouble before it starts. This is good, not just for your clients, but for your bottom line as well.
To learn more about improving your firm’s profitability, including a 6-step Firm Management Action Plan, download our whitepaper, “Managing Partner’s Guide to Building a Future-Ready Firm: Translating Operational Efficiencies into Dollars.”