It’s easy to count inventory and track sales when you’re making or selling items of stock. How do you manage in a professional services firm selling time and expertise?
The thing with professional services firms is they don’t make stuff. They don’t sell stuff either. They sell expertise. That's their business, trying month by month like all businesses, to survive in the margin between total outgoings and total receipts. Working in this ecosystem requires business practices that inventory based systems simply don't support. They're not built for it.
When I left one of the big accounting firms to start Abtrac, I was adamant I’d never fill out another timesheet. "That's too coroporate for me. I don't need all that palaver." But by the time we had 12 staff I realised at each month end I was lacking the details of what staff had actually done, and thus what to invoice was at times a ‘best guess’. I realised if anyone queried an invoice, this particular business weakness could have been exposed.
Even though a lot of our work was on fixed fee contracts, I had to swallow my self-righteous pride and concede that having everyone keep up-to-date timesheets was the only way forward. I needed to know more about what was happening.
I then realised “If you measure it, you can manage it”, was a real pearl of wisdom. It mightn’t always be true in all facets of management. Sometimes you have to rely on intuition, comparatives, and broad ranging ‘assessment tests’ or personal feedback and opinion. But if you want to justify why you’re invoicing a client a certain fee value, you need some hard data to back it up. If you need to know how far through a project stage you've come and how far you still have to go, you also need hard data.
Confidence is not enough.
The biggest issue facing professional services firms of all sizes comes from not correctly measuring what has been done. In my former employment, we’d all joke about doing our weekly lie-sheet. It’s no joke to me now. Every week I hear from others who've started a business or taken over the management of a business to realise they simply aren’t on top of what is happening day by day and from one month to the next. They call us when they realise that keeping up-to-date timesheets is the only way forward.
"Second verse, same as the first!" (And by the way I’d love to know how many of you know where that sentence comes from - without first asking Google! Let me know.).
A fee of $50,000 is earned by putting in hundreds of hours of work in a typical professional services business. Nobody can manage a fee of that size unless they break it up into smaller chunks. Converting each chunk into ‘things to be done’ also means converting dollars into hours per chunk. Without being obsessive about it, (OK maybe I am, but it’s from experience), you don’t suddenly run over budget on a fee of $50,000. It happens gradually, literally hour by hour. You want to come in pretty close to your $50,000. That’s the budget. To achieve that you have to measure how each person on the team is performing vis-à-vis who is supposed to be doing what and when. Few chunks of work should be 40 hours or more. Much more than that and you’ll lose it. Many might be less than 4 hours.
Every day imagine you’re climbing Everest. Every step has to be planned, because every step counts towards the end goal. The success of the outcome is in the planning, and then keeping on top of how you’re going vrs your budget for each bit of work. Planned time is as important as actual time.
Honestly, the quality doesn’t cost any more. In fact it doesn’t cost at all. It saves! It could save you thousands of dollars on one job alone, and it’ll make a huge difference across all the jobs in your office.
As projects progress, sometimes the client changes their mind. And sometimes other parties or external factors force a change to the scope of work. The result is often “extras” or “variations”. You have an agreement and a planned fee for service. As the scope of work changes, signal this to the client ASAP. Agree on how each change affects the original fee. Changes are a fact of life and while the client may have relied on your professional knowledge to foresee the unforeseen, the longer you leave each variation as it arises, the more difficult it is to raise the topic and discuss the additional costs involved. I’m a bit of a sucker myself and we try to keep our clients as happy as possible. But a hard-nosed friend once told me “generosity breeds greed, not gratitude”. Whether that’s correct or not I’m never sure. Either way, there’s never any harm in raising the issue of 'extras' with a client and asking the question about payment.
Forget Your Spreadsheets!
To support all of this you need a quality business support system. For more details on what to look for, check out this earlier blog. It doesn’t have to be the most expensive. But it should tick all of the boxes above. I love Excel. But running a project on it is asking for trouble, and running your whole business on it and then also invoicing from it is not only risky, but it's totally unnecessary.
A good software package will enable significantly more sharing of information. The data in it will be up to date and everyone has access to whatever they need to access, be it simply entering their timesheet for the morning’s work, adjusting forward their schedule of planned time, or running their favourite project management report. You don’t want to find out at month end that you blew your budget 3 weeks ago. And you don’t want to spend hours of your time nursing custom spreadsheets to figure out what to invoice when a commercial system brings the value of input from thousands of people in businesses like yours.
How does your system measure up? We'd love to know.
If you have specific queries regarding the above, or for more information on Abtrac, please contact me at any time. I’ll be pleased to respond.