The Key to Cash Flow Management in Professional Services
Services businesses generally boast one of the highest skilled workforces across the globe – and as a result, some of the highest paid as well. Paying employee salaries, covering software purchases, G&A expenses, and more; when it comes to assessing cash flow in professional services organizations, outflows are already pretty well defined.
Inflows, on the other hand, can be less certain. Ideally, they would be based on when the organization expects to deliver on a customer project and bill for it; however, with unexpected changes in scope and resources, it can be difficult to hit the anticipated deadline on time. For that reason, a services organization’s ability to forecast when they receive cash inflow is limited – causing a dangerous imbalance in cash flow statements. Money regularly goes out with little to no control over what’s coming in, which can eventually lead to major disruptions in operations and tough times moving forward. Eventually, managing the business grows increasingly more problematic until the process is entirely unpredictable.
This, of course, is not sustainable. The only way to make cash flow predictable is to ensure that several key efforts happen first:
Start With A Strategy
The likelihood of a project-based organization’s success is set in motion long before the work actually begins. Laying the groundwork for a reliable cash flow begins with intention; this is defined by scrupulous project planning, communication, and research. Referencing historical data – like previous costs, billing, or hours – can be key in accurately pricing a project, building timeline estimates, and ensuring the right resources are available when needed. Keeping everyone on the same page throughout a project’s lifecycle is an active and ongoing challenge, and maintaining transparency between team members and (both internal and external) stakeholders should always be a part of the process.
Manage Delivery Properly
Services firms are often caught in a strategic balancing act between scheduling, resource management, costs, and customer satisfaction – all equally important pieces of the project puzzle. To master this formidable task, projects should be set up for delivery from the outset through deliberate collaboration and communication within teams and between departments. Setting expectations is important and arranging a proper handshake between sales and delivery can ensure all promises to the client are realistic and unambiguous.
Many project-based organizations already have cash flow problems due to the inherent gap of time between billing and receiving payments. Bills sent out today will still have a lag of thirty, sixty, or even ninety days before the cash starts rolling in. It only exacerbates the problem when services firms delay their own billing. No one does it on purpose, of course, but when timesheets aren’t completed, when supervisors aren’t sure how much to bill, when finance teams are kept out of the loop, delay is inevitable. Professional services organizations should invest in streamlining the time to bill processes with support for each uniquely complex project’s billing and invoicing needs. Collaborative efforts and unified metrics will help businesses view a project through the same lens.
Account for Every Minute of Time
But metrics can never truly be accurate without 100% visibility into project time. Time is the unifying factor, especially in professional services; it ties into all metrics and directly affects both current and future project successes. Visibility into every minute of employee time is necessary to see emerging patterns hidden within complete data sets. Then, meaningful adjustments can be made that positively affect a service firm’s productivity – and by extension, profitability.
Only by collaborating on a single source of truth – time – can a professional services organization truly understand and effectively conduct their cash flows. With everyone on the same page, services firms can account for 100% of their costs and resource time and get true visibility into their employees, clients, and billing collaborations.