One of the first things I do with all of my new clients is to create a long-term roadmap.
It’s the part where we sit down and figure out exactly what they want their life and business to look like in 10 years’ time, and then reverse engineer the exact route that we need to take to get there.
Think of it like getting into your car and putting a destination into your satnav.
Without this destination in mind, you’re not going to know the best route to take.
Now over the last 7+ years I’ve done hundreds of these with practice owners from the UK, Ireland, Australia, South Africa and the USA and I’ve started to spot a trend…
When looking at their current weaknesses (as part of a SWOT analysis) there were a number that kept popping up time and time again.
In fact, there are 3 that stand out as being the most common across all geographies. They are:
- Poor cash flow/high lock-up
- Over reliance on the owner
- Lack of marketing
Now the good news is that all of these can be rectified – some easier than others but they can fixed nonetheless.
And in this first article in a 3-part series I want to look at how you can improve your cash flow and lock-up so that you have cash to invest in growing and developing your accountancy practice.
Weakness 1 – Poor cash flow/high lock-up
As accountants you know more than anyone that poor cash flow can kill a business. And yet many practice owners are facing daily struggles with their own cash flow.
A recent survey by IRIS found the following…
“We surveyed our clients and found that 30% said they weren’t getting paid, 40% said credit control was their biggest issue and 71% spent time chasing payments”.
Over the years I’ve found that the cause of this is two-pronged:
1. Lack of control over debtors
Clients dictate how and when they pay. Practice owners (especially in smaller practices where these clients might contribute to a large chunk of revenue) are often worried about rocking the boat. There is no single person or system in place to follow up with overdue invoices and to chase for late payments, which often means it doesn’t get done.
2. High WIP
Inefficient systems, inefficient processes and possibly even inefficient people mean that work isn’t being completed as quick as it could. While ever jobs are sat unfinished on your desk or in your workflow system you aren’t getting paid for them.
There are a number of solutions to the above causes that can make a real impact to your cash flow…
- Having a dedicated credit control person and/or software e.g. Chaser to follow up on overdue invoices will help bring your debtors days down
- Focusing on systemisation and setting targets for reducing turnaround time should help bring your WIP down
…but the one thing that will have the biggest impact is to implement a monthly billing + direct debit system.
For new clients it’s easy, you say here’s our process, here’s how it works, and you sign them up.
It’s unlikely that a new client who isn’t used to you billing them in a specific way will object to signing up to a monthly direct debit for your services – after all, it’s better for their cash flow.
It’s for existing clients that it can become a more challenging process.
Does it take courage? Absolutely.
Is it worth it? Absolutely.
So how do you do it?
Here’s one example from one of my clients who has recently done this over a 12-month period.
They started by signing up to GoProposal. As well helping maximise your fees, this will help automate a lot of the ‘extra admin’ resulting from monthly billing and collecting payments. Practice Ignition is another great alternative.
Then they ordered their clients by year-end, this was the order they were going to go through them. You’ll see why in a second…
Then, when each client’s year-end fell due, they invited them in to the office for a meeting where they sat down and looked at:
- Current financials (the boring part…)
- Where you want your business to be in next 3-5 years
- What services you need to get you there (choose from GoProposal)
- Oh and by the way this will now be billed monthly which is much better for your cash flow and helping you achieve your goals
Was there some resistance? Yes, a little. Although with an open and honest conversation about the benefits of moving to a direct debit it can be quashed.
Did some clients drop off? Yes, some did. Although the increase in fees more than covered what dropped off.
Has cash flow gradually improved? I’ll leave you to figure that one out…
The point being, there is a process that you can follow that with the right amount of courage and persistence can drastically improve your cash flow over a 12-month period.
Reducing the reliance on you…
Stay tuned for part 2 of this series where I’ll be looking at the exact steps you can take to reduce the reliance on you, including how one of my clients managed to go from working 6 days a week to now only working 1-2 days max…