Firm Fitness

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Firm FitnessHow Fit is Your Firm?
An Effective Profit Improvement Process
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Lets Check your Pulse

• How would you rate your firm?
• ___Superior Athlete In fact Im an Olympian
• ___Weekend Warrior
• ___Couch Potato
• Which best describes your implementation of best
  practices
• ___I have implemented best practices in all areas
  of my firm and consistently adhere to them.
• ___I am consistently inconsistent in my
  implementation and application of best practices
• ___What are best practices???
• Do you know where you stack up compared to others
  in your industry?
• ___Yes and I own the record
• ___ Yes and I am amazingly mediocre
• ___ Yes and I suck
• ___ No, I have no idea

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Lets Check your Pulse

• How much time do you invest per week ON your
  business?
• ___I wisely invest time each week moving my firm
  forward
• ___I work on it when I find time
• ___I am seeking non-profit status for my firm
• Are you one of the 76 of business owners looking
  for a new accountant?
• ___No, I love my Accountant and he/she provides
  great advice
• ___My Accountant gets the job done, but not
  timely
• ___I am always last on my Accountants list
• Would you buy your business today?
• ___Yes, for top dollar
• ___Maybe
• ___Hell No

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Now that weve had some fun, HOW DO YOU STACK
UP?

• Lets take a look at some industry benchmarks and
  then at a specific case study.

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Case Study

• QBExpress asked a full service Accounting firm
  (CPA, Accounting, Bookkeeping, Tax and Consulting
  Services) to participate.
• The Company Name has been changed, but this is a
  real firm that has been in business for 5 years.
  Gross Sales have been stagnant due to client
  turnover, billing issues, etc. They have
• 3 partners who do most of the work
• 2 part-time employees
• 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

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Here is how they stack up

• Industry Our Firm
• Accounts Receivable Days to Collection 40.34
  Days 68.02 Days
• 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. Some
  months they worry about paying both partners and
  staff. The other item to note, is that Accounts
  Receivable accounts for almost 50 of their total
  assets.
• How would you fix this firm?

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Best Practices
This firm, like all of you, knows about best
practices. In fact most of you are sick of
hearing about them and guess what? WE ARE
TOO Business Consultants have been talking about
why you should implement Best Practices for at
least 2 decades and most of us still have not
implemented them throughout our business. You
attend a webinar or a conference, get excited, go
back to office, get off track and lose
momentum. One in 200 Accountants we poll state
they have implemented best practices throughout
their business and this holds true for your
clients as well.
Why is this relevant?
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Top Reasons Accountants have not implemented best
practices I am too busy I dont know where to
start It is too overwhelming I dont see the
value I dont have buy in from my staff
What would you add to this list?
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Here is what we all know we SHOULD BE DOING. Our
clients know this too
The most common Best Practices
Update or create a strategic business plan.
Develop a clear and documented process and
procedure for everything we do.
Implement Best in Class cloud technology
solutions to streamline operations, improve
scalability and increase your bottom line.
Recruit the best people, set team expectations,
implement motivational team building strategies.
Use accurate and up to date financial data to
base decisions, create budgets, forecasts, etc.
Implement best practice customer service
strategies.
Innovate products and services with a clearly
defined strategy.
Develop both a short and long term marketing
strategy.
The list goes on ..
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Because it is OVERWHELMING Figuring out a
starting point, sorting technologies, putting
your financial data to use in KPIs, etc. to
improve company performance.   It does not feel
DOABLE for most of you. YOU ARE BUSY   We get
that and can relate.   The GOOD NEWS IS We
have your DOABLE solution
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What If? What do you think would happen if we
focused on just ONE area of the business each
month for 12 months and took 3 to 5 simple action
steps per month... Lets use Accounts
Receivable as an example, a major problem area
for many Accounting Firms and Small Businesses
in General. Now, lets say you established these
three goals this month
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By focusing on three action steps, we hit these
BEST PRACTICE biggies. We now have

• Clearly defined and documented Accounts
  Receivable process and procedures
• Clearly defined staff member roles and
  expectations for this area of your business.
• (You can even incentivize employees by providing
  a bonus to reduce
• days to collection, keeping them motivated to
  achieve goals.)
• Accurate Data driven information to measure and
  manage this aspect of your business
• Improved customer relations as you gain control
  of collections
• Improved cash flow to allocate resources to
  technology, marketing, product innovation, etc.
• Best in Class technology solutions to streamline
  operations in this area of your business

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Not Quite? Feel like you need more guidance to
accomplish these three steps? WE AGREE All
business owners need a detailed and specific
roadmap, a systemized process to tackle each
aspect of the business, one DOABLE step at a
time. That is why we are here today
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Did you Know? By reducing AVERAGE TIME TO
PAYMENT BY ONE DAY, a typical company (with an
average 15 -18 receivable) doing 250K in
annual sales, would add 700.00 PER ONE DAY
DECREASE in Average Time to Payment to cash
their flow 500k in annual sales, would add
1400.00 PER ONE DAY DECREASE in Average Time to
Payment to cash their flow 1M in annual sales,
would add 2800 PER ONE DAY DECREASE in Average
Time to Payment to cash their flow So for
example, if you reduced your Average Time to
Payment from 34 days to 31 in one months time,
even a small company has added 2100 to cash
flow. (Stats furnished by ProfitCents)
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What this means for our firm

• At 400,000 in annual revenue, for each day they
  decrease the Average Days to Collection, they put
  approximately 1,120 of cash flow into their
  firm.
• They are 28 days higher than the average. If they
  were to become average they would create
  31,360 in cash flow.
• As their trusted advisor, what EXACT steps would
  you
• recommend they take?

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• More Interesting Stuff
• Lets say you carry an average 15 Accounts
  Receivable balance. This translates to
• 250,000 in annual revenue 37,500 in average
  receivables
• 500,000 in annual revenue 75,000 in average
  receivables
• 1,000,000 in annual revenue 150,000 in average
  receivables
• This means you have an Accounts Receivable
  Turnover Ratio of .66 meaning you turn over your
  receivables every 54 to 55 days.

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PIP (Profit Improvement Process) WOW FACT Cost
of Carrying Receivables According to the
Harvard Business Review, here is an average of
what receivables are costing a company 30
days 1.82 60 days 9.20 90 days
17.74 120 days 26.71 PIP Quick Tip
Probability of Collection The Commercial
Collection Agency Association handles about 80
of U.S. collection claims. Based on a survey of
members, the probability of full collection on a
delinquent account drops drastically with the
length of delinquency. According to their survey,
the probability of collection drops to 89.9
after 1 month of delinquency 81.3 after 2
months of delinquency 69 after 3 months of
delinquency 52.1 after 6 months of
delinquency 22.8 after 12 months of
delinquency
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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 27,286 6,221.27
• Totals 72,131 44,110.24
  28,020.76 10,716.35 38,737.11

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Summary of our Case Study

• To carry those receivables, the cost to the firm
  is 10,716.35 according to industry standards
• What is even worse, the probability of collection
  means that they are likely to only collect
  44,110.24 on 72,131
• This translates into 38,737.11 in lost profit.
  You/your clients work too hard to throw that kind
  of money away.
• If we took this one step further, close to 10 of
  their billing is lost.
• Think this firm is unique?
• Hardly, we see this often in the accounting
  industry.

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Question?

Can you see how the firm in our case study could
transform their bottom line by taking a few
simple action steps related to A/R? What steps
would you advise them to take? How would you get
them to follow through? Do you have a plan or
system to help this company get fit?
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Lets look at a systemized process to help our
Case Study solve this problem
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Accounts Receivable
What if this firm took these 3 actions steps this
month?
What results do you think they would see?
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The Potential Impact

• If our firm were to reduce Average Time to
  Collection by only 5 days this month, from 68 to
  63 days, it would put approximately 5,600 back
  in 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.
• If an account never went over 90 days, it could
  save them 17,229.61 according to Probability of
  Collection studies.
• Think small action steps dont make a difference?
  
• If they could get better at this ONE thing, they
  would put 32,465.84 of
• profit back on the books and into their pockets.

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We think you understand our point

• You DO NOT NEED to tackle every aspect of the
  business at once. In fact if you start down that
  path, you will likely not achieve your goal. The
  POWER of small steps consistently implemented
  over time will produce amazing results.
• Could your firm benefit from implementing a few
  clearly defined DOABLE action steps this month?
  Could you help your clients do the same?
• What kind of value do you think this would bring
  to your clients?
• Are there more simple action steps like this
  example that can have a dramatic impact on the
  bottom line? YES.
• We have laid them out in a realistic 12 month
  action plan.

THE RIPPLE EFFECT One Small Change Can Have an
Enormous Impact
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The Motivation Behind This Project

• Change the statistic that 76 of business owners
  are looking for a new Accountant at any one time
• Develop a systemized method of providing year
  round high value to clients
• Create a high dollar year-round revenue stream
  for Accountants
• Design a DOABLE system to help business owners
  improve company performance
• SIMPLIFY AND SYSTEMIZE Monthly Consulting
  Services
• SOLVE THE HUGE COMMUNICATION GAP BETWEEN
  ACCOUNTANTS AND BUSINESS OWNERS

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Client What do you consider to be the biggest
problem areas in your business? We will work with
you on one aspect of the business per month and
provide guidance on how to implement a few
doable action steps. In 12 months, you will
have established best practices throughout your
business and a much improved bottom line.
It is critical to allow the client to establish
the order.
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Accounts Receivable
There are a multitude of things you can measure,
lots of action steps you can take, but you need a
starting point and process that will produce
dramatic results to keep you/your client
motivated.
Account Age Amount Outstanding Probability of Collection
Current
Past 30 days
Past 60 days
Past 90 days
Past 120 days
Past 365 days
TOTAL
CAUTION Do Not Over-Complicate the Process
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Accounts Receivable
Run these KPIs (Key Performance
Indicators) Percentage of Invoices Paid on Time
__________ Percentage of Dollar Amount Paid on
Time __________ Days in A/R (Average time to
payment) __________ Days (The Average Time to
Payment is the average number of days a customer
invoice is outstanding before it is
collected.) Percentage of Bad Debt
__________ (This calculation takes the amount
of debt you have had to write-off divided by the
total sales revenue. We like to track this
percentage as we can quickly adjust to increases
or decreases in uncollected invoices.)
We provide the simple formulas to run these KPIs
in the workbook you will receive today
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Best Practices
OH I GET IT You are talking about the old 80/20
rule. So if I help my client focus on only a few
important things per month (the 20), it could
have an 80 impact on their business. Cool, THIS
MAKES SENSE AND IS DOABLE
Wow, my client will love this
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The Take-Away

• In conclusion, every survey indicates 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
  because of the lack of 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 things each month for
  amazing results.
• This is DOABLE

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Want to learn from other Accountants how to
implement this high impact system right
now? Want to see it in action? Heres our
solution
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Thanks for Attending

• We hope you will attend our other sessions to
  gain in-depth understanding of how taking just a
  few action steps per month can make a huge
  difference in your firm.
• Stop by and see Darrell at our booth to see all
  12 modules.
• Download our SlideShow, Handouts, Checklists and
  More at
• http//www.qbexpress.com/cloudfest
• The QBExpress Team