Time and Billing Software  – afraid to change?

Recently, one of our long-standing clients agreed to update to the newer version of our time and billing software. Prior to installation we conversed about what the new version included.  The client wanted assurances that the newer version “will function in basically the same way”. After twenty years in the software business, I understand the valid concern regarding software updates. Experience has shown that buggy or ill-conceived updates have the potential to wreak havoc on daily operations.

The Inmates are Running the Asylum

The Inmates Are Running the Asylum published in 1999 uses the author’s experiences in corporate America to illustrate how talented people continuously design bad software-based products and why we need technology to work the way average people think. I often wonder how talented computer programmers can write good application software for particular industries without direct work experience. Software products should provide users an experience based on their perception of how software should serve their business needs.

As a result, many accounting firms are reluctant to change fearing lost time and profits that could result when new software fails to implement properly. To that end, many CPA and accounting firms still use spreadsheets or old “DOS” based programs to perform important time and billing software functions. Others use Quickbooks® to track and bill time. Although these products attempt to accomplish the needed result, the process used is not the most efficient or effective. Consequently, it often costs your firm extra time and effort as well as reduced billings.

Effective Time and Billing Software

Effective time and billing involves multiple tables linked in a relational database. Spreadsheets are one-dimensional whereas relational databases implement a one-to-many relationship. For example, work code descriptions need not be redundantly stored within each time slip – instead a link to the work code record is saved in the time slip record. This saves time, space and improves data management. All these features are ‘under the hood’ and not necessarily revealed directly to the user.

Does the software shoe still fit?

Older “DOS” and Windows-based databases such as “Unilink Dos” implemented database relationships and were great programs when first released. By today’s standards, however, these programs are obsolete relics and limit your firm’s ability to compete. First generation time and billing products lack the horsepower to generate sophisticated performance reports and are unable to provide sufficient historical information to generate reports for prior periods. Required period closings limit what can be viewed from prior periods and errors or mistakes oftentimes often cannot be reversed.

Quickbooks® is a great accounting product that can track time, but lacks the ability to generate detailed work in progress reports that itemize and summarize the value of your unbilled inventory.  You never know the total value of your work in progress in relation to revenue or billed receivables – a significant asset to overlook!  Historical realization reports are also unavailable.

Please review the snippet of a comprehensive work in progress report in the following graphic:

Time and Billing Software - unbilled work in progress report

Unbilled work in progress – click to expand

 

Time and Billing Software – afraid to change and comfortable with current practices

CPA’s and accountants have a reputation for being slow adopters when it comes to change and technology. To paraphrase a 2011 article on change by Julie Rains, Senior Writer – Freelance, Killer Aces Media – there are five reasons not to embrace change:

  1. Productivity will plummet and stress will skyrocket. The simplicity of day-to-day tasks is comforting. We take comfort in following a self-developed decision tree with a limited number of variables.
  2. Embracing change means admitting past mistakes – admitting that past procedures caused errors or less than optimum results opens the way for improvement and better practices.
  3. Failures are not occasions for learning – navigating change is like falling into an abyss rather than interpreting clues on a hidden-treasure map. In other words, learn from our mistakes. Don’t expect different results from repeating the same procedures.
  4. Difficult problems arise from change – the side effects of change may involve handling situations that we do not fully understand.
  5. Unwillingness to risk status among colleagues and employees….how long can we stay relevant by preserving the status quo?

Julie Rains suggests that in order to successfully embrace change we must establish a new performance metric when change occurs. “Emphasize the need for continual renewal, not as an indictment of the past, but as a strategy for ongoing success”.  When making a change we must “identify known negatives that will likely surface as byproducts of change. Next, we must anticipate the best practices for dealing with these situations”.

The 1973 Texas Instruments Calculator

As a former practicing accountant of 25 years, I frequently experienced great resistance to change among my colleagues. During my apprenticeship at J.K. Lasser & Company in Miami, the audit staff would request lengthy amortization schedules from the IT department mainframe in order to analyze notes payable during the course of an audit.  I recall being ridiculed for using a Texas Instruments calculator to verify note balances with a few button presses.

In college, I learned formulas for determining present values and level payment amounts which I carried in my wallet. I was able to use them with this “fantastic” new device.  The calculator determined the present value of future payment streams at any given interest rate – no amortization schedule required!  The results displayed on the screen in bright red. Later, a small tape printout allowed the attachment of the results to our work papers. Today, we use Microsoft Excel to do these calculations and print out the spreadsheet.

In Conclusion – “if it ain’t broke, don’t fix it”?

At ImagineTime, we speak to many firms that currently use spreadsheets, older “DOS” programs or QuickBooks® and are looking for a better solution…as long as it doesn’t involve too much change.  These calls usually occur when the program has crashed and owners are desperate. It’s best to change before things reach this point. Your firm should reach a consensus about your future goals and move forward discarding the relics of the past. You can teach an old dog new tricks!!

How necessary are workflow planning and management tools?

Staff utilization is the productive and efficient use of your firm’s primary resource: available staff hours. Maintaining productivity is one the primary goals of most accounting firms. This usually requires some form of workflow planning and management. In my experience, needs may vary greatly depending on the type and size of the firm.

Workflow planning and management as discussed and defined in current accounting publications is broad and somewhat ambiguous. For example, the process could consist of expense receipts processed and reimbursed to staff. Or it could refer to the stages required in running an audit. For our purposes here, workflow refers to the sequence of steps necessary to accomplish any given process or task. Workflow products usually contain a software component dedicated to due date monitoring and/or deadline management.

Due date monitoring and the small firm

Starting out, an accounting practice requires clientele. Clients must be courted and convinced that your services will help them. At this stage of growth, work is promptly performed on a schedule convenient for the client. Workflow planning increases in importance when a number of staff are involved in more complex tasks. For example, more complex tax returns or audits have sub-tasks that are interdependent with have different due dates. Different individuals may be assigned to different steps which when grouped together complete the main task. For example, John gathers the information, Joan prepares and Jay reviews. In many cases, the completion of the main task simulates a relay race.

Small one and two person firms grossing under $500,000 a year usually have a good intuitive idea of their capacity and how busy they will be during various peak and downtime periods. The tax season may require working on weekends, but generally the biggest question is when to hire new staff. Workflow and staff utilization planning at this level usually involves due date monitoring software.

Penalties and lost clients

At a minimum, due date software should track the person responsible for the task including the start and due date. Typically, reports filtered by the staff show which items are incomplete, including due dates. Many firms use a Microsoft Excel spreadsheet to accomplish this task. However, a standardized relational database is less prone to error, more comprehensible and accessible by other members of the firm. A common complaint heard from accountants looking for due date software concerns penalties from missed deadlines. Typically, this is the consequence of tasks not properly carried forward to the next year’s spreadsheet.

Workflow planning and management – staff utilization

Once a firm moves beyond simple deadline management or grows beyond minimal staffing, detail tracking of workflow becomes necessary to effectively measure staff utilization. For example, if your firm has more than 500 clients and performs audits or reviews, year-end as well as tax and monthly services, the questions around staff utilization become more difficult to assess.

Questions asked frequently include:

  • Are work requirements well matched to existing staff?
  • Are skill sets missing?
  • Will the staff with the right skill levels be available for the work when scheduled?
  • Are particular staff under or over utilized?
  • Do we need to hire staff to accommodate clients needs?

The effective use of staff at this level generally requires scheduling the work ahead and matching available staff hours with the work requirements and staff skill levels. This involves planning the sequence and timing of steps necessary to accomplish a task or group of tasks or engagements over specific periods: usually months, quarters or years.

Effective workflow management may involve separating a main task into one or more specific sub-tasks. Sub-task characteristics include a staff assignment, time requirement, start and due date. Dependent or hierarchical sub-tasks ensure that step two proceeds only after completion of step one. On the other hand, concurrent sub-tasks do not depend on the completion of a previous step and are useful for audits.

Staff utilization graph

Good reporting will inform you of who is busy doing particular tasks. More importantly, staff utilization software should quickly reveal potential logjams related to future responsibilities when compared to staff availability.

Workflow planning and management - staff budgeted hours for the tax season

Budgeted hours for staff over time – click to enlarge

The preceding graph shows budgeted hours for the tax season for two staff: Fritz Landon and Jay Pernell. Jay is underutilized during part of the tax season, and Fritz is over-scheduled for the week of April 15th.

Advanced detail task reporting with budget data

The following report example shows the detail sub-tasks associated with each main task along with a budget to actual hours comparison for corporate tax returns.

Workflow planning and management - detail tracking report

Workflow planning and management – deadline notifications

As previously noted, matching available staff hours to client responsibilities is an important part of workflow planning. Workflow management also ensures that staff complete assigned tasks on a timely basis.  In many cases, one staff’s work depends upon the completion of preceding sub-tasks performed by different staff. Effective firm management requires some ingrained mechanism to notify staff of upcoming tasks and deadlines. Usually, the workflow management software should automatically open a notifications screen that displays staff responsibilities. When staff are working outside the office, an option to email information upcoming tasks is a useful alternative. The following example from ImagineTime software displays a typical staff notifications screen:

Workflow planning and management - deadline notifications screen

Deadline Notifications – click to enlarge

The End Result

Implement workflow planning and management with integrated time and billing software and discover how closely time records track with projected budgets.  With that information, you have the means for determining whether your planning approach is efficient and effective. Minimize penalties and improve client retention by regularly notifying staff about upcoming responsibilities and deadlines.

Mobile Time Keeping for Accounting Firms

On May 13, 2017, in Practice Management, by Fred Lindsley

Mobile time keeping

Mobile time keeping and expense entry is extremely useful for staff that perform most of their duties at client locations. In addition, the ability to view key client information and access phone, email and address data can also prove very helpful when out of the office. A screen shot of the time entry display follows:

Mobile time keeping

iPhone time entry screen

The ImagineTime Anywhere mobile application allows anyone using ImagineTime time and billing software to record time and expenses as well as have access to client contact information while out of the office. Upload clients, staff, and billing rates from ImagineTime directly to ImagineTime Anywhere with the push of a button. As a result, you can easily view client information and make a telephone call just by tapping the client’s number on the screen or send an email by selecting the email address. Invoicing features are included in version 2.0.

You can record time slips for chargeable and non-chargeable time as well as record expenses. The time slips include client name, work code, staff rate and notes. Approved slips and expenses can download into the ImagineTime desktop application by clicking the ‘Sync’ button.

The ImagineTime Anywhere mobile application is compatible with iPhone, iPad and Android devices.  Downloaded it from Google Play or iPhone Stores. Subscription cost is $75.00 per user per year.

 

Most professionals incur and bill costs to clients including travel, hotel, auto and other direct expenses associated with the performance of specific services. No universally accepted presentation format exists for billing costs and expenses – a conclusion reached after speaking with hundreds of professionals over a period of twenty years. The preferences of the individual practitioner and his or her relationship to the client determine the time and billing software – expense presentation. The presentation can vary from one client to the next within the same firm. Effective time and billing software expense management provides users with presentation flexibility when billing expenses to clients.

Time and Billing Software – Expense Presentation – Typical Examples

The most common format presents expenses in date order at the bottom of the invoice, or shown in summary total. Sometimes the summary presentation displays a listing of expenses by expense type rather than each individual expense, or one grand total.  The expenses usually follow a narrative description listing the principal services provided, or a detailed listing of the time incurred. However, some invoices include expenses without time charges. Please review the following expense invoice example created using ImagineTime software:

Time and Billing Expense Presentation - expenses summarized by type

Time and billing invoice – expenses summarized by type

Another less common presentation intermingles expenses and slips in date order for invoices showing limited line item detail. This method is often used by forensic accountants and attorneys. Some accounting firms also use this method for their general billing presentation. I have found that accountants accustomed to using Sage “Time Slips” often prefer this detail presentation.

For example, when billing detailed time slips which display dates, times and amounts, expense items can be intermingled with the time slips without much differentiation. The factors distinguishing between slips and expenses would only appear if you choose to display time slip rates and hours, and possibly, the nature of the item description. However, when you suppress display of hours and rates, it becomes difficult to distinguish between a time slip or an expense. Some practitioners prefer this approach:

Time and Billing Expense Presentation - detail expense presentation

Time and Billing invoice – detail expense presentation

Billing of Hybrid Expenses

What if you want to bill the client for an expense that represents the recovery of a fixed cost? Tax software is a good example – the cost per return declines as the number of prepared returns increases. In that case, it is not practical or desirable to enter an expense item for each client. For example, consider a firm that provides “audit insurance” or charges an asset management fee. Billing software should track a line item for a specified amount whether entered as an actual expense or not.

Ensure that your software lets choose the expense presentation rather than imposing the choice on you!

Due Date Monitoring – the basics

Many years ago I worked for a small local firm that prepared several hundred 1040’s during the tax season. During the 1980’s we did not have the benefit of due date monitoring software. Spreadsheet software was just coming into its own with Lotus 123© having most of the market share. Our firm managed deadlines on a thirteen column manual spreadsheet. We started from scratch each tax season.

Extensions along with any outstanding taxes were sent certified mail, return receipt requested to ensure that no issues arose with regard to timely submission. Our firm updated the task status on the manual spreadsheet once the extension was mailed.

When details are overlooked…

It was always a concern that important clients from previous years would not be carried over to the manual spreadsheet for the next year. In one particular year, one of the partner’s important clients missed the extension deadline because of an oversight of the kind just described. As you no doubt are aware, penalties for late filing are stiff and in cases like these become the responsibility of the preparer.  Occasionally, the CPA can plead for mercy and the IRS abates the penalty. Nevertheless, client awareness of the situation may generate a loss of confidence.

Several days after the deadline on my way to lunch, I observed the responsible person take the late extension and walk it to the mailbox outside our office building. The individual dropped the extension in the mud, stepped on the letter, picked it up and twisted it several times until the address was barely visible. Next, the partner picked the letter off the ground and dropped it in the mailbox.  Several weeks later, the extension came back approved!

Implementation of Task Tracking Software

Before considering unscrupulous and extreme steps such as these, consider implementation of a reliable due date monitoring system. This system should have the ability to rollover deadlines from one year to the next for active clients. Also, a basic report should ensure that active clients have an in-process or completed task in the system.

To minimize implementation time, similar client types should be setup as a group through a simple cloning procedure. Every task in the task tracking software should have a start and due date, as well as extension and completion dates. At a minimum, tasks assignments include both a preparer and reviewer. Due dates should auto-calculate based on the characteristics established for the master task. In unusual circumstances, you should be able to override calculated due dates.  An example of this would be the situation where several years 1040’s are prepared well after the original due date, but in accordance with an agreed deadline with the IRS.

Other Features to Consider

Tasks should store notes about the status and progress of the work.  A good practice would include review of pertinent notes when preparing to change client fees. Notes should also be reviewed when extenuating or difficult circumstances require advance planning before preparation of the next year’s work.

The frequency of tasks should be flexible. Many tasks fall due on weekly, monthly, semi-monthly, quarterly or specific dates, such as response to an IRS notice. Robust permission features prevent active tasks from deletion, or reassignment to inactive staff. The ability to break down tasks into several simple stages is very helpful. The following example from ImagineTime software displays a due date report for 1040’s that are incomplete and waiting for extensions.

Due Date Monitoring – Extension Report

Due Date Monitoring Report - Click to enlarge

Due Date Report – Click to enlarge

Status Level Report

A variation of the previous report displays due date items with a grey bar depicting progress towards task completion. Users can make quick assessments of the status level of the tasks within the filtered group. The date completed for a particular status is also displayed.

Due Date Monitoring - Status Level Report

The following example displays the split-form deadline management screen filtered for 1040 tasks. A button option allows users to optionally record notes for each task.

Deadline Management Screen

Due Date Monitoring - Click to enlarge

Due Date Monitor – Click to enlarge

Effective due date systems should generate reports of tasks assigned to staff or client groups for user defined date ranges.

A note about workflow planning and management

Firms with more complex requirements that involve staff utilization should consider workflow planning and management software that integrates with your due date system. Effective workflow management may involve separating a main task into one or more specific sub-tasks. Sub-task characteristics include a staff assignment, time requirement, start and due date. Dependent or hierarchical sub-tasks ensure that step two proceeds only after completion of step one. On the other hand, concurrent sub-tasks do not depend on the completion of a previous step and are useful for audits.

Software Solutions to Common Practice Management Pitfalls

After managing two CPA firms for a period of 25 years, in 1999 I changed careers and became a developer of practice management software for the CPA industry. After consulting with thousands of CPA and accounting industry clients, I would like to document some of the most common challenges that arise in practice management.

Some of the common pitfalls in practice management relate to one of the following two areas:

  1. Lack of compatibility, cooperation and unified goals.
  2. Failure to effectively implement effective practice management software.

Typical Roadblocks against Compatibility, Cooperation and Unified Goals

From my experience, a tone of cooperation and mutual respect is always more effective than control and dominance. Would you be surprised to learn that many accounting firms have a top-down controlling culture rife with intimidation, suspicion and mistrust?  Firm management styles driven by ego and intimidation create suspicion and mistrust among employees. This reduces the quality of client service and creates an atmosphere of conflict and disruption. Employees simply don’t work well in this kind of environment and high turnover is a common problem.

An Example from Real Life

One of my first experiences involved a national firm that established its’ offices by acquiring the firms of local practitioners.  One former owner – let’s call him Dave – did not integrate well with the new political environment. As a young staff accountant, I noticed that the “corporate” partners coming “up the ladder” looked down on Dave – he wasn’t from the same school.  This attitude trickled down to the staff who were encouraged not to follow his practices. It was like working for two firms. This created inefficiency since much of the work given to the staff during tax season was from clients that Dave generated years before. Should I do it Dave’s way, or the “right” way?

I personally found Dave to be very engaging and realized why he was so successful in developing business. He was very knowledgeable about taxes and easy to understand and work with. Regardless, he was eschewed by the other ‘corporate’ partners. I don’t think Dave cared since he probably sold his former practice at a nice profit. More significant was the fact that the lack of unity among the partners in this office reduced client retention and, consequently, undercut the efficiency of the staff and reduced firm profits.

Differences in Personalities, Lifestyles and Skills

Another example involves conflicting lifestyles of the owner-partners.  A small firm that courts its new clients by taking prospects to long lunches over drinks may not merge well with an individual practitioner that grew up in a family of alcoholics even though their clients may be in the same industry. Sound too personal? Happens all the time.

In the accounting partnership, individual traits and preferences have a huge impact on the success of the firm.  The sole practitioner managing a large firm with talented support staff might be more successful by virtue of the unified set of goals stemming from the personality of one individual.

The Importance of the Individual in Accounting

The lowest common denominator in the accounting profession is the individual. Each professional develops a set of skills, passes exams, and earns degrees and titles. While there are overlapping skills, there are also many distinctions among individuals. Some individuals may specialize in divorce and expert witness testimony, others tax or audit. In many cases, the clients you attract are based on your individual personality and goals.

Ironically, much of the staff accountant’s work is done in isolation. After all, you don’t require someone to hold the keyboard when analyzing fixed assets. However, you may need to ask a question and have someone review your work. You must also be aware of firm policies and procedures. However, in order to succeed we must achieve a consensus among the staff and partners concerning common goals and practices.

The Need for Uniform Practices and Consensus

Uniform practices, quality control, transparency and realistic goals are required to ensure effective firm administration. This contrasts starkly with firms that encourage excessive overtime and not reporting all hours to avoid budget overruns. Such policies lead to high staff turnover and always cost the firm more in the long run.

Ideally, individual skills and talents should complement each other. For example, small firms performing bookkeeping and management advisory services might develop a tax specialty, rather than attempting SEC financial audits.

Gently Down the Stream?

In actual practice the variations in partner style and personality among small firms amazed me when I first began developing software for the accounting industry. Well organized firms that establish unified goals are successful. Firms with management challenges often “row the boat” in different directions (some staff without paddles) and operate in chaos. Firms unable to establish consensus about firm focus, practice development and billing are predestined to failure. This type of firm often has several individuals call with the same technical support question.  Many partners cannot agree on simple billing strategies and are unwilling to hold themselves accountable to any kind of realization or collections standard.

Challenges Associated with Firm Mergers

Local firms that merge and grow to a size of 30 to 40 individuals often lack consensus about rules of operation. After the initial honeymoon and new letterhead, below the surface an embattled group of individuals marches to the drumbeat of different goals and agendas.  As a result, firms carry larger accounts receivable balances, suppress “hidden” write-offs, and engender jealousy between the partners and discord among the staff.

In this environment, information about firm results is “managed” often by delay in an attempt to obfuscate, manipulate and control others. As noted earlier, an accepted practice by one partner might be subject to reprimand by another. In this environment, partners often make derogatory comments about the other partners directly to the staff. This is a ship that’s about to sink.

Of paramount importance to successful practice management should be the generation of common goals and policies that staff and partners willingly embrace in a common culture. Firms must either change and develop positive consensus or fail.

Failure to Effectively Implement Practice Management Software

Effective practice management software can help to isolate and in many cases avoid some of the common pitfalls previously discussed.

In practice, a wide variety of software use exists among professional firms. Some firms as large as eight staff still maintain manual systems for just about everything except their tax software and general ledger system.  Many owners fear change and a loss of control and refuse to implement new software. Use of spreadsheets for complex recurring tasks reflects this fear.

Work in Progress Write-offs are Delayed

Poorly managed firms habitually accumulate questionable billable time against progress bills and “face the music” at a later date. The practice of postponing the financial effects of time overruns in the hope of offset by unrelated profitable work in the future is a practice that most accountants would recommend clients avoid. Consequently, this results in a significant loss of efficiency: multiple pages of the same time slips re-analyzed during invoice preparation. Partner’s that claim this is a way to remind them to recover the amount against future invoices are in reality failing to promptly address the problem. This make matters worse by cluttering the database with useless information. Furthermore, It violates the principle of matching revenue and expenses in the correct period.

Budget Overruns

The most effective time to address overruns with clients is at the time when it’s fresh in everyone’s mind. Hence, a better practice would be to write-off the time and record the poor realization.  Effective time and billing software ensures the discovery of dysfunctional client and staff relationships. Clients with poor realization stand out like a sore thumb: manage the relationship, increase fees, or terminate the client.

Partner Accountability and Client Expectations

Successful implementation of time and billing software ensures partner accountability with regard to productivity, realization and collections. Workflow management systems ensure that partners schedule staff on a timely basis in cooperation with other partners and avoid conflict. Consequently, uniform practices ensure that your firm meets important deadlines and achieves client expectations.

Furthermore, it’s especially relevant when partners disagree to have the timely capacity to accurately measure profit contributions and document task completion. Accurate information reduces controversy and allows you to hold individuals accountable to profit goals and deadlines. When accountability is established, effective decisions can be made about compensation and separation, when appropriate.

Effective Practice Management Reporting

Another example from my own experience involved a partner that suffered from addiction that worsened over time. The individual’s productivity dropped and the number of mistakes increased. Missed deadlines and penalties were the direct consequence of the partner’s refusal to implement the firms due date software. Closer examination of work in progress revealed significant amounts of dated chargeable time not eligible for billing. This delaying tactic masked the actual contribution of the individual, but the facts speak for themselves. After recording work in progress write-downs, we discovered the partner’s actual contribution to the firm’s bottom line. The result was a no-conflict, fair decision for all concerned. Ultimately, the partnership ended. A good time and billing system helped us reach this conclusion.

Most of all, these situations contain a human element that can be very painful. To ensure your firm’s success, implement practice management software that measures staff productivity and client contribution to the bottom line.

A Sample Accountability Report

In that regard, the following report example from ImagineTime software shows productivity for a particular partner. It includes work in progress, aged receivables, time slip production, realization, billing write-offs and the average collect days. This information is essential information to determine partner efficiency and effectiveness. A related practice reporting blog provides greater detail including numerous report examples.

Practice Management Partner Productivity Report - click to enlarge

Partner Productivity Report – click to enlarge

 

In conclusion, practice management software improves profits and brings conflicts into resolution by eliminating confusion by providing factual, irrefutable data.

The Traditional Approach to Time and Billing Software

Effective use of time and billing software should always involve the billing partner for best results. Many accounting firms follow traditional billing patterns. For example, (1.) the distribution of detailed work in progress reports to the individual partners or owner as the first step in the billing process. (2.) the partners or owner analyze the work in progress reports and sometimes request copies of prior invoices, or analysis reports to determine client profitability or delinquency.

(3.) The partners or owner make notes and billing instructions on the work in progress reports and return them to the administrative staff for invoice preparation. (4.) Drafts of invoices are printed and (5.) submitted to the partners or owner for review and changes. (6.) Corrections and edits to the invoices are made by the staff. (7.) Partners or owners perform a final review of the edits and changes. (8.) The invoices are mailed or emailed to the clients.

The whole process takes at least eight steps and can be very time-consuming involving a significant amount of redundant effort.

“New Age” Time and Billing software

Today many practitioners demand that time and billing software allow them to directly access their work in progress and prepare invoices from their workstation. The most obvious savings are the elimination of the middleman or administrative staff which reduces the overall time spent preparing client invoices.

Furthermore, the partner or owner is working directly with the data. Eliminate unnecessary edits or drafts: just review the text and amounts and mail the invoice. Oftentimes, the owner when working directly with the data in this manner will think of additional opportunities for value billing, or better ways to express the service.  It’s more difficult for the administrative assistant to ‘get it right’ when expressing the nature of the service from written notes on a copy of the work in progress report. An owner can oftentimes better discern the most appropriate vernacular for a client invoice because of the direct personal relationship.

In situations where partners prepare their own invoices, the firm might have some procedure they follow for accountability. For example, invoiced realization reports that show amounts billed compared to slips at standard rates. Also, aging of total unbilled work in progress by partner reveals situations that require further attention by firm management.  Partners not involved with invoice preparation should review both invoices and pending invoice reports before final posting.

Of course in certain cases, such as fixed-fee recurring, monthly bills, it may not be necessary to involve the partner. Administrative staff should handle any repetitive process not requiring significant alterations.

The Compromise

At a minimum, your billing system’s work in progress report should display the comprehensive information necessary for invoice preparation. It’s a waste to time for staff to search files for last months supporting documents and invoice copies. In addition to the showing time entries, the work in progress report should provide prior invoice information. It should also show current year write-ups, write-downs as well as account receivable aging information. ImagineTime software generated the following work in progress report:

Time and Billing software - should partner prepare invoices

Detail of unbilled time and expenses showing invoice and realization history, including aging of Wip.

 

Value Billing for CPA and Accounting Firms

On July 16, 2016, in Practice Management, by Fred Lindsley

Value Billing or Time and Billing for the Local CPA?

More than a few authors and reviewers in recent years seem to be minimizing the importance of tracking time for billing. Calling it “myopic and prosaic” they promote value billing as a replacement. However, my experience as a former partner in two successful CPA firms has taught me that both value and time based billing are indispensable.

Value billing is not a new idea, but the terminology oversimplifies the fee setting and invoicing process if viewed as a complete replacement for time tracking. After all, what determines and sets the limits on value?

Importance of Tracking Time

Keeping track of your time helps to verify that you are billing correctly. It reveals the correlation between the cost of the service provided and the fees charged. Ignore recorded time, but only if you value bill and pay your staff based on a percentage of fees collected. However, most firms can’t operate using that paradigm. Salaries represent a fixed obligation paid regardless of realization and collections. Therefore, it becomes critical that the billing process consider the cost of staff time. For those not familiar with the process of value billing, click here to view the preparation of a sample invoice.

Relevant determinants of value for value billing in conjunction with time tracking consist of the following:

  1. Competition

    Other local firms in your area may charge fees that are lower or higher than what you charge. Clients guided solely by price may leave your firm for another when fees are the only consideration. Effective time and billing software provides information and assurance on the appropriateness of billed services and when firm management needs improvement.

  2. Competence

    There is no replacement for professional competence in the determination of fees and competence is one of the key factors that ensures quality service. Unfortunately, competence may not be recognized by unsophisticated clients. Competence is also required as a business professional to ensure proper management of your cost structure and revenue realization.

  3. Confidence and self esteem are important.

    There are times when clients should go away. Unless you are certain of yourself and confident in your services you will be afraid to bill for the true value of your services and most likely place an inordinate amount of significance on what the competition is doing. Symptoms of this problem are revealed by the amount of work in progress that remains unbilled on a firm’s pre-billing report. Many CPAs and accountants are either unwilling or would prefer to avoid conflict. Many hope to resolve any conflict over the value of services at some more convenient and future date. Be assured that a more convenient future date usually never arrives. Good self-esteem ensures that fees are billed in a timely fashion while the memory of the service is still fresh in the client’s mind and facts are clear to assist in the resolution of any conflicts.

  4. Your personal and business relationship with the client

    Good performance generates trust and confidence over time. The well-informed practitioner is in a position to provide clients with a higher level of service.  Good practice management software can put you in the position where your clients will want to pay you more. Have you ever received a bonus check from one of your clients?

  5. Ability to listen

    Listening to your client helps you to properly identify and understand their needs. Allow for ”white space” in conversations with clients instead of showing off knowledge. As a result, clients have the necessary time to respond and feel satisfied they have been heard. Many times clients need a good financial psychologist more than just a numbers cruncher.

  6. Labor and billing costs per hour

    Some firms work staff to death to compensate for low invoice realization rates (the ratio of the amounts invoiced to recorded chargeable time). This is self-defeating since it leads to low morale and cannot create prosperity and abundance in the long run. Knowledge of hourly labor costs and billing rates assists practitioners in formulating the delivered cost of services to the client. This knowledge should impact billing decisions just as a profit and loss statement affects earnings per share and the value of a stock.

The following graph depicts the ratio of chargeable time, based on hourly rates, to amounts realized on invoiced services. It compares realization and chargeable time by partner for each staff person over a one year period. Staff performance is further broken down by billing partner. The first staff “Fritz Landon” at left shows invoiced realization for partner “FOL” higher than gross chargeable time. The opposite is true for staff “Jay Pernell” and partner “POW”.

Consequently, a properly maintained time and billing software assists the practitioner in analyzing the recovered cost of services.

Value billing or time and billing for local CPA net realization grouped by partner

Shows employee recorded time & net realization grouped by partner – click to enlarge

The slight variations suggest a peaceful coexistence between billing and the recorded time at standard rates. Are the variations attributable to staff performance or the result of well-organized clients?

Effective Practice Management Reporting Minimizes Write-Offs and Write-Downs

“Firms don’t recognize the single biggest controllable cost to the CPA firms is work-in-process write-offs” Rosenburg, M. L. (1994), The 10 Biggest Mistakes CPA Firms Make. The Journal of Accountancy, 177(1), 105-108. Stark statement?  Yes.  A prosaic one too?  Possibly, but a metric that matters intensely nonetheless.  Excessive write-offs and write-downs can lead to the outright failure of a firm even in a robust economy. A more common occurrence is reduced profitability that escapes detection and/or correction during good times but becomes a potentially fatal vulnerability to the firm during economic downturns. Effective practice management reporting helps to avoid this situation.

There are three main lines of analysis that help to ensure the firm has adequate understanding and control of write-offs and write-downs along with client and staff performance:

  • Realization and contribution reporting – the comparison of recorded time to amounts invoiced. Contribution reporting measures the staff’s total contribution to firm revenue, i.e. a staff with average realization may compensate by contributing more revenue through recording more chargeable time.
  • Collections – invoice write-offs and bad debts.
  • Non-chargeable – excessive time spent on administrative functions that could be handled more efficiently.

Realization reporting should be looked at from four angles

  • Realization and contribution reporting by employee and partner
  • Client Realization reporting
  • Realization ratio by type of business
  • Trend reporting – is performance improving or declining over time?

Graphical Depiction of Realization by Partner and Staff

The ImagineTime graphical analysis that follows illustrates the kind of practice management reporting needed to allow effective review of realization ratios for employees individually and as a group.  It depicts the total chargeable time and net realization percentage by employee grouped by partner for one year. In this example three partners are shown.  This type of presentation lets you get a quick idea of much each employee produces for each partner. The first two columns for each partner grouping shows the total time and realization for the employee “FOL”. It quickly becomes apparent which partner “FOL” works for the most and his contribution in total time and realization.

Practice management reporting - Staff recorded time & net realization grouped by partner

Staff recorded time & net realization grouped by partner – click to enlarge

Staff Time Activity by Code

The report example below is prepared to show performance totals by work code for a quarter and year but you can review this information for time periods you specify. The report shows the ratio of chargeable to non-chargeable time and for chargeable time the amounts realized and effective rate per hour.

In this example, the employee had approximately 2,000 chargeable hours of time and additional 400 hours of non-chargeable time – a hard worker. Although this employee has quite a bit of non-chargeable time is hasn’t hurt efficiency – the amount realized of $173,192 as a ratio of the total time at standard rates is almost 95%.

Another useful report would show the hours and ratio of chargeable to non-chargeable time over a user specified range of months and years.

Practice management reporting - Staff Time Activity by Work Code

Staff Time Activity by Work Code – click to enlarge

Practice Management Reporting – Staff Time Activity by Client

Another variation of the previous report shows the same information by client – rather than work code allowing you to quickly determine from among the two presentations the staff’s more profitable work areas and the clients that perform the best under his management.

Practice management reporting - Staff Activity by Client

Staff Activity by Client – Click to enlarge

Staff Chargeable Hours by Month and Year

This report can be used as a good indicator of consistent, deteriorating or improving trends with respect to reported chargeable time. When evaluating the hourly information as a performance indicator you should to be aware of the staff realization trends during the same periods.

Practice management reporting - Staff Chargeable Time by Year

Staff Chargeable Time by Year – Click to enlarge

Invoiced Realization by Client grouped by Staff and Partner

This report shows the time at standard and the amount of billing adjustments recorded for a particular staff within the amounts invoiced for a selected date range.  You should also be able to filter this type of report for a particular partner. The total hours, rate per hour and realization percentage are also shown.

Another variation of this report (not shown) would depict the realization statistics for paid invoices in a selected period which allows firm management to base compensation and bonus programs on paid rather than invoiced performance.

Practice Management Reporting - Invoiced Realization

Invoiced Realization – Click to enlarge

Practice Management Reporting – Client Snapshot by Partner

During the early 1980’s I managed a local CPA firm in Fort Lauderdale with three partners.  It was very important to know how much each partner contributed to the firm billings. Other information such as realization on invoicing was unavailable. A sample report from the “good old days” follows:

Practice Management Reporting - Comparative Partner Billings

Comparative Partner Billings – Click to enlarge

Time and billing software has made it possible to show comparative performance of numerous partner performance metrics. Hence, the next report example shows the performance statistics for a particular type of client or line of business.  The report is filtered by partner and sorted by descending realization percentage. Shown here is information about the realization rate, collection experience and the amount of receivable and work in progress carry for this partner and client type. It also shows the average days to collect an outstanding invoice. Consequently, the realization ratio becomes much less important when the client takes over six months to pay an invoice!

Practice management reporting - Client Snapshot by Initials

Client Snapshot by Initials – Click to enlarge

Client Invoiced Amounts for Selected Periods

Many CPA’s and accountants want to know specifics about client performance. For example, what clients contribute the most revenue, which areas of work are most profitable and what staff worked on specific clients. The first example that follows lists invoiced clients for a selected period showing useful information such as amounts invoiced, billing adjustments, labor costs, total hours, net realization and other information. You should also, at your option, be able to view this information by work code.

Practice management reporting - Client Invoiced Amounts

Client Invoiced Amounts – Click to enlarge

Client Time Slip Activity and Realization by Work Code

Which areas of client work are most profitable along with the responsible staff?  The following report shows client metrics by work code along with the staff responsible for performing the work. Essential information required for effective decision-making!

Practice Management Reporting - Client Time Slip Activity and Realization by Work Code

Client Time Slip Activity and Realization by Work Code – Click to enlarge

Practice Management Reporting – Client Performance Trends

This report helps to determine the profitability trend for a particular client. The following report example shows recorded chargeable time compared to amounts billed, write-offs and receipts for a 24 month range.

Practice management reporting - Client Performance Trends

Client Performance Trend over 24 months – Click to enlarge

Firm management should check graphs and reports similar to these on a monthly basis at a minimum in order to spot problems quickly.  It’s also helpful to look at these figures on a quarterly and yearly basis.  This helps to identify inconsistencies and seasonal trends.

Client Relationship Management

On July 13, 2015, in CRM, Practice Development, by Fred Lindsley

Client Relationship Management – what it means to your firm

Should you consider switching from using a list of the firm’s clients on an Excel spreadsheet to a client relationship management (CRM) system? Has Post-it-Notes and an Excel spreadsheet really worked? Perhaps you are a small to medium-sized CPA firm and don’t feel the need to adopt a system that logically organizes a way to view all your company’s clients and prospects and all the employee’s interactions with them.    Let’s look at how CRM can improve efficiency in your office, help retain and grow your client base. CRM software can pinpoint where to expand services for your current client base, improve customer service, and form relationships with clients.

An effective client relationship management system improves efficiency allowing the user to access all information for clients, prospective clients, and vendors from a single place.  In addition to seeing contact information, staff can easily record and see all contact notes. Ideally, a CRM system should integrate with your other software applications. Information stored in document management, practice management, and Outlook should be accessible to your CRM software.  Work is so much easier if you can view tax files, correspondence, emails, invoices, historical information, etc. for a contact/lead with a single click.  Labels, envelopes, custom letters, and email blasts can be created from one location. Avoid opening multiple Excel spreadsheets and reduce redundant data entry!

Centralize Key Client Information

In addition to efficiency, having the data sources in one central place makes it easier to gain insightful information from customer/prospect data.  For example, should the audit department promote additional services for a tax client who took 11 months to pay? Identifying a client’s referral source can lead to cross-selling opportunities.  If you have attorney clients that are estate and probate specialists, have you communicated to them how you can ensure that trusts are funded?  Your collections’ staff will be fully informed when talking to the customer, with all transaction and contact history available.  Such information allows you to efficiently send customized collection letters as shown in the example.

Manage client collections more effectively with CRM tools.

Manage client collections more effectively with CRM tools.

Enforce accounts receivable credit and work in process limits preventing staff from wasting company resources by working on accounts that have exceeded established limits.  These are just a few examples of the benefits of having all your information in a centralized location.

CRM helps deliver better customer support.  Recording client preferences, personal data, past interactions and invoicing history in one location ensures staff that they have access to the same information, allowing anyone to help a client at any time.  You also alert staff of difficult or special situations. This will have a positive impact on client retention and referrals.  Remember it costs a CPA firm more to get a new client than to keep an old one!

Keep in Touch with Clients on a Regular Basis

CPA firms have a tendency to overlook the importance of client relationships.  If a month passes without reaching out to current clients you are not doing a good job of client retention.  CRM makes it easy and fast to email blast general information to all your clients.  However, the information stored in a CRM system will allow you to send targeted marketing communications that specifically address client needs.  In addition to sending a newsletter with general information, send a more focused newsletter with in-depth information to a specific group; i.e. notify all medical practices/doctors of IRS changes in determining when to capitalize or expense supplies, instruments, equipment and repairs.

Client Relationship Management - Click to enlarge.

Client Relationship Management – Click to enlarge.

Consider an e-mail blast about upcoming tax and investment planning seminars to clients showing increased business profitability.  Targeted client communications demonstrates your investment in your clients success and improves client retention.  Regular communication ensures that new clients are more than just a replacement for lost clients.

Target market your services to specific groups, i.e. chamber of commerce contacts, etc. ensures that your firm continues to grow. You can quickly develop a specialty by marketing to a specific business or profession, i.e. doctors, etc.

It makes sense in an increasingly competitive environment to implement a CRM that is easy to learn and to use.  Test a demo of ImagineTime software to get a feel for how CRM works and whether it fits your needs.  Also, be sure your application is mobile-device friendly to gain access to key client information while out of the office.