Because much of the work done by professional service firms is on a project basis, work demands and cash flow can be very uneven, especially for smaller firms. For any industry, though, dealing with fluctuations is key to success.
Frank J. Pedicini, CPA, a principal at Skoda Minotti, says that one of the keys is to build growth through formalized processes.
“You’ll quickly find out that you need to be a lot more organized,” says Pedicini. “It’s difficult to build the infrastructure as you’re growing — it’s like having a 10-story building and then realizing you should probably build a foundation for it.”
Once you have an infrastructure in place, you can focus on your core business and take care of issues like work demands and cash flow.
Smart Business spoke with Pedicini about how professional service firms can work to minimize uneven workload and cash flow problems and how companies in other industries can do the same.
What can service companies do to improve their client acceptance process?
The key is doing your due diligence and looking at the type of industry a client is in as well as the type of work they need performed. You should ask yourself these questions: Is it work you can do profitably and work you can do with a certain level of expertise? Are there relationships there that you can leverage; are there opportunities for referrals?
Another aspect to consider is if a potential client positions your firm in a certain industry niche that you want to serve, but that you don’t necessarily serve — at least not to the degree you would like.
Then, do whatever you can do to maximize your cash flow. Cash flow is important to any business. Try to streamline the whole cash flow process from the time that the service is performed, until the invoice is delivered to the client, until payment is received. Obviously, the more you can shrink that period of time, the better off you’re going to be. That’s obviously going to be the case in any industry.
You’ll also want to be diligent in how you go about structuring services for clients and formally communicating expectations with them prior to getting started. For instance, the timing of work, necessary client preparation, the type of fee arrangement and how often they should expect to be invoiced. Professionals are responsible for billing but sometimes that can take a back seat to client work. You need to be focused on following through on all promises made to clients.
How can companies handle the issue of workload distribution?
You have to continually go out and generate business. That mindset has to start from the top and be pervasive throughout the organization. You can’t just rest on your laurels, and you can’t just assume the clients you have today will always be your clients and that they’re always going to grow. Things happen to businesses, and businesses in certain industries may get hit. You may lose clients through no fault of your own — such as a client getting acquired by another company and that new company taking their business elsewhere.
You have to continually go out and generate new business, but there are two thoughts companies should consider. No. 1, be a little more targeted, and No. 2, your world is very seasonal whether you like it or not.
It’s especially true in professional services, but most companies do a larger volume of business at one particular time of year than another. So, in an effort to smooth out the year, you talk about the industry of a prospective client, you talk about the timing of engagements, and you talk about business niches that you play in.
For an accounting firm, government or not-for-profit organizations would be a perfect example. So let’s say you have a situation where a not-for-profit organization has a June fiscal year-end and they require an annual audit and preparation of a tax return.
You’d like to get more traction in that area because it adds diversification. The work is good for your staff in terms of training, it helps serve the community, and the timing of the work is good. It could be August, September or October, and in our line of work, those are slower times than March or April.
So you’re hitting a lot of buttons there — type of work, the type of organization, type of entity, time of year. Usually, in those situations you’re getting a two- or three-year commitment. So now, you know you’ve got something that’s good for a few years.
How would being more selective help other types of companies?
Take a manufacturer, for instance. Maybe they have a certain product that they make and deliver, a certain expertise, and they have their peaks and valleys when the plant is a bit idle, so to speak. Maybe that void can be filled by seeking out clients in another type of industry. By diversifying into other areas, they will help cover overhead at a particular time of year. It can end up being a complement to their core business with their core clientele.
Any company can relate; every company has its own busy time. Case in point: landscapers — in the winter, they’re plowing snow.
Frank J. Pedicini, CPA, is a principal at Skoda Minotti. Reach him at (440) 449-6800 or [email protected]
