The most efficient way of billing
There is a massive amount of confusion out there in the land of Accounting as to whether we should use time, WIP or job management billing.
Back in 2010 at my accounting firm, I was one of the first Accountants in Australia to learn about Xero and the concept of the single ledger. It was then that I knew that my accounting firm was going to be more efficient than others. Single Ledger and Cloud Accounting were going to change our processes, and we knew we could complete jobs a lot faster.
But what did that mean to the accounting firm? Well, back then we were billing based on the time it took us to complete a job. So why would I want my team to be more efficient? No matter how long it took to do the job, we'd charge for that time X the accountant/s hourly rate. Also taking into account some sort of commercial value to the job. E.g. What we billed last year.
If the firm became 25% more efficient and we billed the same as the previous year, then I should have a write up on all jobs. Correct? Yes, but not very ethical. So, I went to my clients and said that from the 1st of July we are changing the way we work. We are going to quote you upfront for the work we do and invoice you 50% of the quoted value before we start. We'll also bill/write off all of our WIP at the 30th June.
Here's what we found:
Our clients said, "that’s fantastic!" - One even said "welcome to the real world"
Our mind set changed in the business and we became focused on driving greater efficiency.
We started to complete the jobs faster.
However, the team did not respond so well initially. They were a little confused and couldn't understand how they would still be able to achieve their objectives. We still wanted them to be productive but understand that productivity doesn't mean filling up their time unnecessarily. Being efficient means that they would be able to complete more jobs in the same amount of time and therefore still be productive. As business owners it seemed logical, but with years of focusing on and driving productivity (full timesheets), it was a difficult mindset to change.
Let me explain
We had a job that we billed $6,000 for the previous year, so the following year we quoted the client $6,000 again. Then we discussed as a team whether we could do the job faster and how. After a complete review of our processes and collecting the client's information, we all agreed we could do the work in around 8 hours. Then came the clincher. I asked the team why we spent 30 hours on the job the previous year. The response was "well as my charge rate is $200 and the fee is $6,000, so I have 30 hours to do the work and my productivity targets will be met".
I nearly cried, I'd discovered the problem!
We instantly had to change our messaging internally and team objectives. So instead, we told them we cared more about completing jobs on time and to budget. But if they achieved it quicker, then great. So were productivity targets met? No, but that doesn't matter. All of the work was done, and revenue was the same. Time to kick up the feet or dive into something new, business development, cash-flow and budgets, tax planning.
This is easy for a start-up or newer firm to grasp as they may not use time sheets. However, larger or older firms have massive issues with this change. And I still see this today.
Accountants think their job is to record their time, achieve their productivity, have the Partner analyse the WIP and then bill a commercial value. Hence the struggle with write offs, let alone spend hours and hours managing the WIP and billing. This had to change.
So how do you change from a time or WIP focused business to a job and efficient business?
Small firms can just do it. Larger firms need to gradually adapt by starting with budgets and discussing ways to get the job done faster. Focus on revenue rather than billings, and as your confidence grows with regards to budgets, start to quote and price jobs for clients.
But the biggest thing you need to change is the culture of the business. Educate them about why moving away from WIP/Time makes sense and make their new objectives are clear, as efficiency can be hard to measure. Efficiency is just about doing it quicker, the job still needs to be done and done well.
Realistically, how do you know how long you should spend on a set of accounts and tax return? Without some sort of guidelines, your team could spend unlimited hours trying to get it perfect. You need to figure out what key drivers get a job done. The client needs it? Tax deadlines? Partner having a meeting or set a target date with a budgeted number of hours? Whatever it is, set clear goals and focus on improving processes.
With all that said you still need timesheets, timesheets are still a good way to identify areas where too much time is being spent and whether the issue is firm-wide or just for specific individuals. You can then use this information to train/help the team members or revisit and improve particular processes.
The most efficient accounting firms we work with are heavily focused on improving processes and driving efficiency. They use the OnePractice Document Manager apps every day to reduce the time it takes to create, save and share documents and emails internally and with clients. They are job focused but also keep productivity high because they're able take on more work.
If you’re stuck in the WIP rut, take a look at the OnePractice Document Manager and focus on driving efficiencies in your practice.