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Improving profitability through better work planning & management

IMPROVING PROFITABILITY THROUGH BETTER WORK PLANNING AND MANAGEMENT - APRIL 2006

The market for professional accountancy services has changed quite dramatically over the last few years. Not only are clients far more demanding in terms of the range of advice they expect, but they are also prepared to shop around for the best price. Increased competition in the marketplace has meant that many firms are struggling to maintain the levels of profitability that used to be the norm, and the situation is compounded by surrounding issues such as increasing regulation and competition for high-calibre staff.

Whether the new reality represents a time of opportunity or difficulty will depend upon attitudes adopted within individual firms. Responding to these changes requires a greater concentration on the management of the business to ensure that the firm thrives and develops. This means that firms must make a more conscious effort to improve their profitability through better administration and organisation of basic management functions, work planning and financial control. Partners may also have to rethink their own roles, particularly in relation to specialist work where they will be acting as a pivotal introducer to whoever is undertaking the work whilst retaining the prime trusted adviser role.

Improving margins requires greater efficiency and attention to detail with a well thought out action plan involving everyone within the firm and including the following:

  • A clear distinction between compliance and advisory services, their organisation and the people who provide them. Different people concentrate on one or the other, with partners focussed on being the trusted adviser and staff on “factory processing” the compliance work.
  • Delegation of work to the most appropriate people – how much does each partner do that could be dealt with appropriately lower down in the firm? Likewise with staff; are they processing the right level of work? In our experience at least 20/30% of the work done by partners could be done by a manager or more junior level employee.
  • Charge appropriate fees – too often the price to the client does not reflect the quality of the advice they have been given, hence they do not perceive the value.
  • Benchmark to identify where the profit is earned in the firm. It is a fact that in most firms the partners do not report profitability by service line and do not have a fix on which services are the more profitable.
  • Better budgeting to reduce time over-runs; but ensure that the responsibility for why they have happened is understood and that where they do occur the client pays for them.
  • Improve staff training and IT proficiency and play to the strengths of everyone in the firm.

There is a further aspect to the profit improvement strategy for the busy practice, namely concentrating on improving fee recoveries (put another way, reducing under-recoveries). Although many fees produce a satisfactory recovery the question has to be asked about those that do not. The core compliance work is time phased and responsive to a “factory processing” in terms of organisation, budgeting and control. These ingredients depend upon the partners and senior staff ensuring that they work; any falling away from high standards and the recovery suffers.

So where do the problems lie? Which clients are producing the under-recoveries and why do they occur? Does it come down to poor planning, inadequate budgeting, the client failing to produce information on time, incomplete information or the wrong staff level/skills for the job? Maybe it is simply poor management of the jobs in progress. Have the managers, as the title suggests, had any training in the people skills needed to run staff effectively? (Most managers are promoted according to their technical skills not their people skills, but the latter are essential if the staff team is to operate proficiently)

The partners should target an improvement in recovery for each service line; examining more fully the reasons for the problem, and not allowing the same problem to continue year on year, will enable firms to deal with the issues.

The description “factory processing may not be a term normally associated with accountancy practices, and doubtless few partners would be very flattered if their firm was compared to an industrial unit. But the fact remains that the majority of general practitioner work is process led and if the attitude towards it is to treat it like a production line then the results will not only be speedier and more efficient, but also a great deal more profitable!

Unfortunately the traditional organisation of an accountancy practice – each partner with his own portfolio, manager and either dedicated staff or access to a pool of staff - does not make for effective work processing. Company directors and senior executives are seldom found operating the machinery on the factory floor and the situation in accountancy firms should be no different – delegation is the key.

This requires that everyone involved should know exactly what they are trying to achieve:

  • Better fees
  • Greater efficiency on individual jobs
  • Improved job turnaround
  • Lower WIP
  • Better recoveries
  • Higher profits
  • A better service to clients through speed and efficiency
  • Partners and staff doing the right work at the correct level
  • Overall, a smarter and more efficient practice

To achieve all this demands that everyone involved knows precisely what is expected of them and follows the procedures agreed for every job whilst monitoring the firm’s standards and quality control procedures. Controlling the workflow means that the firm should be in charge, not the client. Clients should be encouraged to produce their records at the firm’s convenience rather than their own and all records should be checked for completeness before starting work. Firms with problem clients who seem incapable of delivering their records on time need to consider strategies that will encourage them to be more punctual – up to and including doubling the fee if necessary.

Maintaining a constant flow of work into the practice means that assignments can be planned in advance much more effectively, but it is in the allocation and supervision of work that the production line really comes into its own. The first task is to ensure that the right level of staff is handling the work at every stage. This means that partners and managers are only involved in a supervisory capacity except in the direst emergency. Internal deadlines should be set for every stage of the assignment and a system of checks and balances put into place to ensure that these deadlines are achieved.

On completion of each assignment, if relevant, a meeting should be arranged with the client as soon as possible to approve the work and (if no payment on account agreement is in place) the invoice submitted immediately thereafter.

The entire process should be tightly controlled with work planned between one and three months in advance with weekly meetings to monitor progress and results. The mantra for everyone involved in the factory process should be ‘Get it in, turn it round, get it out’!

Improving practice profitability is not simply a case of adding more fees (a mistaken belief that so many partners are focussed on). The secret is to concentrate on the internal organisation and administration of work, coupled with a well thought out strategy for gaining new work, much of which will come from existing clients. Physician heal thyself!