Firm Fitness “Your Workout Plan”

Firm Fitness“Your Workout Plan” An Effective Profit Improvement Process

Before We Start, a Few Points to Consider… • Business Consulting, CFO Services, Controller Services, all higher level services (call it what you want) require Financial Analysis as the starting point. • For decades, thought leaders in the industry have been emphasizing the critical importance of conducting financial analysis for clients. It is important, but is it enough? • How many of you believe that providing financial analysis for your clients is enough to help them significantly improve company performance and succeed at a high level? • Has the thought crossed your mind that financial analysis is simply step one? That what they really need is a doable action plan to guide them to improved company performance?

The Business Owner Viewpoint • When our team interviewed business owners, we learned a lot. We discovered the vast majority would like advice on a few items they can act on this month that will impact their bottom line. • They know they can realistically implement just a few action items at a time without introducing major chaos. “Just tell me one or two things I can do this month that will make a difference”. We are sure you feel the same way about your own Accounting/Bookkeeping business. • This is where we all get stuck. THIS IS THE COMMUNICATION “GAP”. Your clients need guidance on how to use the financial analysis you provide to produce tangible results. A systemized, simplified process.

A DOABLE Action Plan So, let’s assume you have run the financial analysis for you and/or your client. Now… What do you need to take this knowledge and convert it to an action plan? • A process? • A system ? • Training? • A way to measure results? What if a simple, comprehensive system existed that made it easy to take financial analysis and convert it to an easy to implement strategy…

IT DOES EXIST And if you are committed to “get fit”, we have your action plan… Let’s break this down

Case Study To further demonstrate our point, let’s take a look at a real Case Study. We introduced this firm in the last session, but for those who did not attend, here is a quick overview: • Full Service Accounting firm (CPA, Accounting, Bookkeeping, Tax and Consulting Services). The Company Name has been changed, but this is a real firm that has been in business for 5 years. • They have 3 partners who do most of the work. • They have two part-time employees. • Gross Sales have been stagnant for the past 5 years due to client turnover, billing issues, etc.

Case Study For our analysis, we looked at 5 key numbers: • Accounts Receivable Days to Collection • Sales Per Employee • Profit Per Employee • Net Profit before Taxes • Accounts Receivable as Part of Total Assets

Here is how they stack up IndustryOur Firm Accounts Receivable Days to Collection 40.34 68.02 Sales Per Employee $133,158 $110,593 Profit Per Employee $27,172 $52,455 Net Profit before Taxes 21.32% 47.43% Accounts Receivable as Part of Total Assets 24.21% 47.74% For this firm, A/R is a big problem. They have more than 50% higher Accounts Receivable Days to Collection and it is hurting cash flow. The other item to note, is that Accounts Receivable accounts for almost 50% of their total assets. How would you fix this firm? Stats furnished by ProfitCents

How this Affects our Case Study Cost of Carrying Receivables A/R Amt. Cost % Total Cost • 1-30 Days 14,661 • 30-60 Days 9,389 0.0182 170.88 • 61-90 Days 9,883 0.092 909.24 • 91-120 Days 6,315 0.1774 1,120.28 • 120 + Days 31,883 0.2671 8,515.95 72,131 10,716.35 Probability of Collection A/R Amt. Collectability % Net Realizable • 1-30 Days 14,661 14,661.00 • 30-60 Days 9,389 0.899 8,440.71 • 61-90 Days 9,883 0.813 8,034.88 • 91-120 Days 6,315 0.69 4,357.35 • Over 120 Days 31,883 0.521 16,611.04 • 180+ Days 27,2866,221.27 Totals 72,131 44,110.24 28,020.76 + 10,716.35 = 38,737.11

What we learned: • If they reduced Average Time to Payment by only 5 days this month, from 68 to 63 days, it would put $5,600 of cash flow. • If they were to implement an A/R policy that prevented receivables from going past 90 days, it would save them $9,636.23 per year. • The collectability of A/R, if an account never went over 90 days, could save them 17,229.61. Think small action steps don’t make a difference? If they could get better at this ONE thing, they would put $38,737.11 of profit back on the books and into their pockets.

So what is our clearly defined Action Plan to help this firm? • After conducting a financial analysis, we met with the firm to discuss results. • We asked them to identify what they perceived to be the 3 biggest problem areas from the chart below.

Client: The 3 areas they identified included Accounts Receivable, Pricing, Budgeting. What three areas would you identify as most pressing concerns and in what order would you tackle them? It is critical to allow the client to establish the order.

The First Step • We scheduled a time to conduct the A/R client interview (a copy is included in your handout). QBE QuickTip – We learned this should be conducted face to face and not sent to the client as it fosters a better client relationship. • At this meeting, the client provided the required reports to run an A/R Analysis. • We scheduled our next follow-up meeting to discuss the results and deliver their action plan.

In the Client Interview… We discovered they do not have an A/R policy in place. Because of that… • They do not invoice timely. • They do not collect payment at time of delivery or service. • Past due accounts are not consistently worked. • Each partner has their own method for billing and extending credit. No standardization across the firm. • They do not leverage technology to automate the billing and collection process. • They do not have goals in place for improvement or consistently measure results. Do these same issues plague your firm?

Following the Client Interview… We determined these first three action steps: • Create a written A/R Policy • Automate billing • Decrease time to payment by 5 days We did not just tell our clients, “Here are the 3 things you need to do this month”, we gave them a detailed PROCESS to accomplish these tasks. This is the KEY!

Step One: Create a Written A/R Policy Process: • We provided our client a sample Accounts Receivable written policy in WORD format for ease of editing. (See Sample) • We discussed A/R best practice key points. • We assigned one person in the firm the task of completing the first draft and assigned a realistic due date. • We had them schedule a partner meeting to review the policy for edits to get everyone in the firm on the same page. • We asked them to submit the policy to us 5 days prior to our next meeting for input.

Step Two: Automate Billing and Collections Process: • We helped them set up recurring monthly billing in the Accounting Software • We provided a letter to send clients (easy to edit) notifying them of new billing policies: • Invoice and Statements will be emailed beginning the first of next month • ACH or Credit Card drafting options for all payments. Payment will be run 5 days from date of invoice. • All recurring monthly services will be billed and due in advance of service. It is important that the firm develops a mindset that no work goes out the door without payment. There are many technology solutions that will further streamline operations, but this is the starting point.

Step Three: Decrease Days in A/R Process: • Next we helped the client establish a realistic monthly goal of reducing their time to payment by 5 days in the next 30 days. The systemized action plan included: • Catching up all billing that has not gone out the door • Collection calls and letters to accounts over 45 days • We assigned a partner to customize the 3 sample collection letters our team provided. • We asked partners to identify clients to receive a collection call and those whose first touch would be a letter. • We asked each partner to commit to calling 5 past due clients per week to collect payment or arrange payment terms and had them commit to reporting progress each Friday until our next meeting.

Does this Feel Doable? Your MOST IMPORTANT TAKEAWAY A few small action steps per month can produce an enormous impact on a business. It is the 80/20 rule. 20% of your actions will produce 80% of your results

How Did Our Client Do? • At the end of the first month, they had a written policy in place that goes into effect the first day of month two. • They notified clients via a letter of the new billing policy to be implemented the following month. • With all new clients, they immediately implemented the new A/R policy by incorporating the new policy into their engagement letter. • They created recurring transactions in their accounting software. • They decreased Accounts Receivable Days to Payment by 6 days. They did a little better than their goal. • On larger past due clients, they set-up an agreed upon payment schedule to have the balance paid off within a year.

How Did Our Client Do? • Created $6,720 of cash flow from decreasing AR by 6 days • Setup payment terms with 3 Clients with large over 90 balances. (Set a Reminder in Calendar to check on it each month and assigned Admin staff member to follow up.) Produced $1,975 a month • Set a reminder in Calendar to Review and email Statements on the 10th of every month. • Aggressively monitored A/R Aging weekly to prevent anyone going to 60 days. Partners called at 45 days. • Work billed upon completion and invoice emailed to client. • Saw the difference this made and created goals for month 2. You can see the positive impact on Cash flow from a few simple action steps!

What Did Our Client Do in Month Two? • We met with the client to discuss the results of Month One. At the meeting all partners were energized and excited about how much measurable progress had been made in a short time. • After our discussion and analysis of the progress, we helped them establish their month two goals which included strictly adhering to the new A/R Policy and: • Decrease average to payment another 5 days • We reviewed the collection letters we asked them to edit last month and provided feedback • The partners agreed to review the A/R aging report in all weekly meetings to identify clients to receive letters and/or call • The Admin employee was given a schedule upon which to mail the collection letters • Each partner committed to continuing to calling 5 past due accounts per week until all were contacted • Began implementation of new billing policy • No work left the office without payment • All non-subscription services billed at time of completion • All subscription services billed in advance • Took first step in implementation of automated solutions • All statements and invoices emailed • Follow-up with clients who did not return the drafting agreement

What were their results? • The firm decreased Average Time to Payment by 3 days. They did not achieve their goal, but were still excited about the positive results. It put another $3,360 back in cash flow and they continued to establish and collect on payment arrangements. In the first two months, cash flow stress was drastically reduced. • 4 clients called with questions/objections to the new billing policy. The partners met to discuss these 4 clients at their weekly meeting. 2 were D clients who never paid on time and created chaos in the firm. They sent them a letter notifying them that they would need to move to the new billing policy or consider this a 60 day notice of termination of the engagement. (We are confident they were losing money on these clients.) The other two were B clients and a partner called each to discuss the new billing policy, the reasons for the policy (keeping fees down, etc.). The clients got on board. • The new billing policy significantly eased cash flow.

Month Three In our month three meeting with our Case Study, we were amazed at the change in the mood of the firm. The partners realized that it was not overwhelming or complex to get back in control now that they had a system in place to manage this area of their business. They were more productive and having fun again; they were not worried about getting paid or paying staff. THEY HAD A PROCESS

Accounts Receivable We helped them understand the power of combining 3 doable action steps: RESULTS

Now that you are armed with knowledge of how powerful simple action steps can be for both you and your clients, • What are the next steps? • Establish a starting point by running the current financials. • Review the information with the client and discuss “Understanding your Financial Statements” (A guide for business owners to help them understand their financial data – see Resource Section). • Allow the client to establish priorities.

The “Secret Sauce” • Develop a 12 month strategy and simply focus on one area of the business per month. (See QBExpress Model) • Focus on a few action steps that will have the biggest impact on that area of the business. • Track progress to maintain a high level of motivation. By year-end, you/your client will have a written policy in place for every aspect of the business and will be implementing best practices throughout by tackling this “ONE DOABLE STEP AT A TIME”

Let’s look at the details of the QBExpress Model…

Research conducted within our network made it clear two separate “workbooks” per area of the business were needed: “Accountant Workbook” (per area) with clear guidelines on how to lead clients (or their own firm) through the process. We included: • Letter to client outlining this month’s consultation (including reports needed) • Discussion Points • Client Interview • A detailed process to conduct financial analysis on this area of the business, focused on the most important KPIs. (The 80/20) • 3 critical actions steps the firm should take this month and why • Follow-up process and tracking

“Client Workbook” with clear guidelines for the business owner. Instructions on how to implement the 3 recommended action steps. We included: • Compelling reasons to focus on this area of the business, including statistics, wow facts and more. • Results of the analysis. • 3 action steps with supporting checklists, documents, technology recommendations, etc. making it “DOABLE” to implement new process and procedures. • List of best practices pertaining to that area of the business to help educate the client.

YOU CAN DO THIS • Business owners want and need this kind of structured guidance. The vast majority of accountants recognize this, but have not been able to consistently implement and offer this service due to the lack of a systemized process. • All businesses, and that includes all Accounting and Bookkeeping firms, need doable and systemized procedures to implement best practices and improve company performance. • We have OVERCOMPLICATED a very simple deliverable. This is not rocket science. Do not over-think how to help your clients. Walk them through a few simple steps each month for amazing results.

Want to learn from other Accountants how to implement this high impact system? Stop by our booth for additional information. Thank you for attending!

To Download Materials • Go to www.qbexpress.com/cloudfest to download our slideshow, the A/R Module Accountant and Client Workbooks, etc. • Visit our booth for more information on the QBExpress “Profit Improvement Process”. Questions or comments? We would love to visit with you anytime during the Cloudfest conference or you can reach us at: Kim@qbexpress.com Pam@qbexpress.com Darrell@qbexpress.com jfranz@bookkeepingservicesonline.com

Firm Fitness “Your Workout Plan”