For those of you who have avidly read my first five articles on this important topic. I trust this is all showing a clear picture on how you can improve job profitability.
Last week I had the privilege of presenting an online lecture to over 100 accountants. The course was entitled, “Power Up Your Accounting Firm Profitability.” The content was not exclusively about improving Job Margins, but this was, naturally, a key component. As usual I was asked to populate the course with Survey Polls. The first asked, “How many of you believe you can increase your profitability, and by how much”. Some reported they envisaged reducing profitability while 22% believed they could increase profitability by up to 10%. UK inflation is currently approaching 6% and so that is not a really great amount of extra profit. Three hours later at the end of the course I posed the same Poll Question. This time, no one reported making lower profits. While 28%, however, envisaged increasing profits by more than 15%. WOW! That is the power of applying targeted management practices. Being open to ideas and a willingness to make change.
Does that sound of interest to you? If so, do email me – and allow me to discuss how this NEW online LIVE course can add to your bottom line.
NOW BACK TO PART 6 OF IMPROVING JOB MARGIN.
To recap on Part 5. Gemma, Australia – thanks for your feedback. Sounds like you and your team are devouring these articles. I trust this one lives up to your expectations. We started to look at an example where there is an under recovery of 1,000 and then looked at two of the three time components:
- Time on the job before it commences – 1,000
- Manager and staff time ‘doing the job’ – 9,000
- Partner time Reviewing, Meeting with client and Signing off (RMS) – 1,000
So, Price – 10,000. Job cost – 11,000. Write down – 1,000
We looked at how to address 1 and 3 and then I left the article hanging and promised to look at the second item. Nazeem (USA) emailed on receiving the article and asked me to send him the next part – which I duly did.
WHAT ARE YOU SELLING?
Before I delve into this, allow me to ask a question? What are clients buying? The answer that springs to mind? Financial statements, an audit, a tax return, peace of mind; maybe you have other answers. I have five observations to advance for your consideration – I accept that you may or may not agree – always the right of the reader.
- No client ever buys time. Has a client ever said to you that they wish to hire you for x hours? Probably not. Clients buy Solutions to Problems.
Key Point: Clients do not buy time they buy solutions to problems. Clients buy your service for what they will do for them.
- Clients do not care how long it takes to do a job, they just want to know how much it will cost.
- Is the billable hour dead? In some firms, ‘yes’ in others ‘no.’ Most accept that telling a client that ‘it depends how long it will take to do the job’ is not sustainable. Whatever you think it is not a client-winning proposition. That increases the requirement for you to:
- Agree a price in advance, and…
- Communicate this clearly (verbally and in writing) the basis/assumptions for the price to be the price. This is not to advance the proposition that you give yourself “wriggle room” (that should be built into your price). Rather that if the unforeseen arises you can revert to your client. This is covered in the Client Caused Extras article.
NOW TO LOOK AT MANAGER AND STAFF TIME – ‘DOING THE JOB’
This is usually the greatest time on the job. Certainly, that is the case with the preparation of financial statements and audits.
- Is the budget owned? Has this been prepared by the manager? The manager has not been told to budget to the price right? And does it:
- Allow for the time for the job to be completed?
- Allow for review time (Advance Notice: this will be the subject of my final blog at the beginning of May – Nadeem – wait for this!)
- Are staff briefed on the alert process should they encounter client caused problems?
- Time recording systems almost all accumulate time
It is this last point that holds the clue as to my approach to better managing job time. I have made the following assumptions thus far:
- We have an adequate budget – including the PC sum for small unforeseens
- Staff are well briefed
- Job is well planned. Client briefed regarding expectations
Most, I accept not all time recording systems accumulate time. That is understandable because that is what accountants have told the programmers they want. I accept it also makes a lot of sense. There is however a drawback and that is that psychologically this does not provide a powerful driver to manage time effectively.
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I have a close family member who was trained by one of the global firms in Birmingham, UK. His calling was to audit – that is all he ever did. He told me that on one job his managers called him every day. After the usual pleasantries he was asked “Is the job on budget.” Laudable you might think. But, the reason for the call was well telegraphed and in the end the manager was told, “Look, I understand why you call me. Can I suggest that I will call you if and when we are not aligned with the budget.” As it was told to me, the manager complied and my family member was a lot happier.
SO HERE IS MY SUGGESTION FOR THE MANAGEMENT OF STAFF TIME
By now you are probably able to ascertain what I am going to suggest.
Let’s take the original example above with time on of 9,000 against a budget of 8,000. Have your team take the budget of 8,000 and then depreciate the time taken that week. That is in contrast to the accumulation of time on the job provided for by most time recording systems.
LET’S TAKE AN EXAMPLE: BUDGET 8,000
End of week 1 – time captured 2,000. Balance 6,000
End of week 2 – time captured 2,000. Balance 4,000
End of week 3 – time captured 2,000. Balance 2,000
Psychologically – is the team not focussed on doing the job on time in budget? After all the manager produced a good budget. The manager allowed for the unforeseen minor job diversions
So, now we have 2,000 left and the team are going to prove they are good at their jobs. They will be propelled to deliver the job on budget.
That is the advantage of the depreciating or reducing budget.
Can your software provide you with this functionality? If not, why not have the manager use one of those old fashioned tools that we accountants love – the spreadsheet?
As heralded above the next issue will include my final article in this series. It will complete the job profit improvement jigsaw and provide you with the components of how to better manage job time
As ever, honoured to serve this amazing profession that I have been privileged to be involved in for over six decades.