who should dictate how to run things? and are your accountants doing too much admin work?
by rob nixon
it’s interesting how accounting practices evolve with their clients. it seems that over the years, the clients have just turned up (via referral mainly) and you have accepted all who walk through your door – almost like your firm is a community service or a charity.
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as time passes, the clients stay with you and many of them are not that enjoyable to deal with. many of your current clients do not fit your direction and they supply information in a format and timeframe that suits them. it’s not your clients’ business, it’s your business!
it’s time to take control of your clients and redesign the sort of clients you want to work with. this post will explore how you can change the working relationship with your clients – for the better.
taking control
why is it that accountants’ work in progress (wip) management is well above 10 days and debtors are more than 10 days? there is only one to blame – you.
typically the client controls the cash flow of the firm. it has everything to do with the way the firm sets the client up and then works with the client. remember, it’s your business, not your clients’ business. the relationship needs to be on your terms.
consider this. a client is accepted into the firm by referral (normally because they are unhappy with the current accountant) and the new accountant sends a once-off engagement letter (in most cases only because they have to, according to professional body rulings) explaining charge rates (not a fixed price for the project) and broadly how the firm works with the new client. the client may or may not sign this letter.
when it comes time to do the work the accountant may send out a simple letter or checklist (most cases they do not) and generally the accountant simply lets the client send in the work in a format that the client chooses in a timeframe that the client chooses. the new work (called work in progress – wip) arrives and an accountant picks up the work to get started. as the accountant gets into the job, she realizes that something is missing. so she puts the job down, communicates with the client about the missing information and then waits. a few weeks (sometimes months) pass and the missing information turns up. the accountant then picks the job back up again, reacquaints herself with it, starts doing some more work and then realizes something else is missing. damn it! she puts the job back down, communicates again with the client and then waits some more. finally the other missing pieces turn up and the job is completed.
while all this madness is going on an accountant can be working on 15 to 30 jobs at a time – called “open jobs.”
i was once in an accounting office (four partners and 20 accountants) and casually asked, “how many open jobs do you have at the moment?” “no idea,” was the response. with a few keystrokes of their computer they worked out that they had 440 open jobs! that’s a whopping 22 open jobs per accountant.
“let’s take a look,” i requested. so we went past the facade of reception and into the engine room. you could see the open jobs. there was stuff all over the place. they said, “wait, there’s more.” one of the partners opened a cupboard door and there was more of it piled high on shelves. at that moment it started to fall out onto the floor. what a mess!
a couple of days later i was at a dinner party and i met a dentist. i was telling the dentist about the firm i had just visited and the amount of open jobs they had at any one time. he said, “that would be like me having five patients on five different chairs at the same time – no wonder they’re inefficient.”
you can’t make this stuff up.
the most efficient firms (in turnaround time per job) are limiting each accountant to work on no more than three jobs at a time and focusing on less than 10 days’ average workflow turnaround time for all jobs in the shop. i met a partner of a firm the other day and he has his accountants work on only one job at a time – turnaround time is less than three days average for all jobs. now that’s customer service!
as well as having too many open jobs per accountant i also find that fully trained accountants are doing a lot of administration work associated with the job – sometimes up to three hours per accountant per day. an example of administration work (that needs to be done – just not by an accountant) is setting up work papers, collecting information from clients, chasing missing information, data entry, making appointments, monitoring and managing workflow, filing, lodging work, and generally advising clients of mundane information – like their tax file number!
in our coaching process we have a list of 30 standard administration tasks (associated with accounting work) with on average 22 of them being done on a regular basis by accountants. when we do time and motion studies in firms, we find that on average each accountant spends an hour and a half per day doing (our definition of) administration tasks – sometimes up to three hours per person per day. if a working year is 225 days then that is 337 hours per accountant per year doing things that they should not be doing. if you have 10 accountants, that’s 3,337 hours per year at an average hourly rate (let’s say) of $200. that’s a huge $674,000 per year in opportunity cost. a small firm of 10 accountants might only have revenue of $2.5 million and to have 27 percent opportunity cost is just incredible.
what an opportunity!
you can unleash this opportunity cost by employing specialized administration people – what i like to call client service coordinators (cscs). if your accountants are spending 1.5 hours on average doing these administration tasks then you will need one csc per five accountants. their job is to keep the accountants busy by freeing them from all of the administration tasks associated with the accounting jobs.
if you think of your accounting business like a manufacturing business then you will manage your workflow management process vastly differently from the way you do now – and become more efficient in the process.
in a manufacturing business the salesperson (partner or client manager) scopes and sells the product. he or she then gives the order to the manufacturing manager (csc), who manages the overall production. the manufacturing manager (csc) works out what raw materials are needed, has those gathered by the warehouse person (csc) and sets the job up on the manufacturing line. the manufacturing team (accountants) produces the product and then it goes to the quality control manager (client manager) for final signoff. the shipping manager (csc) sends the product to the client and the salesperson (partner or client manager) follows up to add some value and then sell the next product.
to make that all make sense in an accounting business, here is a 18-step workflow process that when implemented drives
- faster turnaround time,
- less time on the job,
- exceptional cash flow and
- high client satisfaction.
our coaching club and proactive accountants network member firms have access to the position descriptions, tools, systems and processes to make all of this happen quickly, efficiently and seamlessly.
here’s an example:
a sole practitioner (brian) with $500,000 in fees joined my coaching club program nearly five years ago and at that time his total lockup (wip and debtors combined) was over 200 days. it was his first meeting and i told him he needed to reduce this dramatically in the next 90 days.
by the time the next meeting rolled around he had reduced it to around 50 days – combined. amazed at the result, i asked how he did it and how much time he spent reducing it – i was hoping he had not written it all off! he told me he
- went line by line through his wip ledger,
- billed everything he could and then
- put in place a diligent collection process.
total time of 40 hours’ work over a three-month period. i then asked what the material benefit was to the firm. brian answered with, “i have $100,000 extra in the bank.” i responded with, “wow, $100,000 for 40 hours work. at $2,500 per hour, a very good use of your time, brian.”
update on this story:
i just checked brian’s figures (now a two-partner, $1.5 million firm) on our online monitoring and benchmarking system and his lockup is typically 39 days – 14 days in wip and 25 in debtors. he cleaned it up once and kept it there.
take control of your workflow and re-educate your clients on the way that you want to work with them. change the system to suit your terms and be strong. it’s your business, not your clients’.