Panalitix is working with a US Accounting business which has grown rapidly in the past two years. Existing clients are buying additional services, fees were increased and they’re taking on new business clients, mostly from referrals.

That’s good news… but the frenetic activity of growth and serving clients has come at the expense of business management. The owner wants to build a valuable business in the long-term, so we wanted to get more clarity on current business performance. That provides a platform for identifying and implementing improvement plans. 

Here’s an overview of the process we’ve been through.

Time Sheet Data

The team were tracking their time… but inconsistently. They were re-trained on the time-tracking system and the owner insisted they set aside time for daily input. This led to complete confidence in the underlying data.

Weekly Meeting

A simple report was created for weekly review by the Production Team – comprising a Client Manager, two Accountants (on shore) and two Accountants (offshore). The focus of these meetings is revenue (fees) especially:

• Fees in the current month
• Year-to-Date fees
• A comparison for the same period last year
• A forecast for the remainder of the year

These weekly meetings highlighted where things had fallen behind with certain clients and solutions were developed. Successes such as the recent growth were celebrated. Importantly, the team started to look ahead and care about how the year will end up in financial terms. (It helps that performance-based incentives are on offer!)

Monthly Management Meeting

The agenda for this meeting includes the topline metrics above BUT ALSO:

• Cost of Goods Sold. That means getting really clear on the costs incurred as Accountants do billable client work. We felt that Gross Profit (Revenue minus COGS) at 60% of revenue was too low and set a target of 66% by year end.
• EBIT. By subtracting the overheads allocated to this group, there is more clarity on Net Profit. This is of great interest to the owner who wants to grow cash reserves in anticipation of making an acquisition some time next year.  
• Efficiency. We gained visibility into which Accountants were working more efficiently than others. The ‘Productivity’ percentage (% of total time billed to Clients) is a useful metric but we also started to track ‘Number of Jobs Completed’ to highlight how quickly people were getting through the work. 
• Days in Receivables. We noticed that the invoicing process was disorganized and clients were accustomed to paying slowly. Introducing upfront billing greatly improved cash flow and many clients appreciated the clarity on this.
• Work in Progress. The WIP balance was high, stretching back over 180 days. We needed visibility into why projects were not getting completed and what should be written off. This process brought on increased accountability and a cultural shift so that even those most challenging jobs would be completed. 
• Fees per Full-Time Equivalent (FTE). The average fee was at $172K per annum and we set a target of $187K, knowing that this level would enable a net profit of around 25% (after notional partner’s compensation). 
• Growth Metrics: While the business had enjoyed growth, tracking won and lost fees showed that client retention was lower than originally thought. We delved into why these clients were leaving and started strengthening client relationship management. 

This analysis continues to help make important business decisions but there have been other positive developments. Notably, 

• The team is more energized. They are thinking ahead and making improvements rather than dwelling on the past. There is a culture of growth and evolution.
• New routines have created a positive sense of accountability and discipline.
• The owner can focus on building long-term business value, for example, reducing dependence on himself and planning for more growth.

There’s more to do… but fundamental to a strong, growing business is tracking important metrics and basing decisions on this data. For more on this topic, please get in touch.