Managing cash flow is a priority for many firms and something they want to improve. Cash flows in during tax season, then up and down for the rest of the year. While stabilizing cash flow is a top priority for many firms, the idea of adding more work to achieve it can feel counterproductive. After all, increasing revenue shouldn’t come at the expense of:
- More time in the office
- Unhappy employees
- Burnout
Avoiding cash flow problems from the start is a good way to enter the year ahead, and you can begin by integrating the cash flow management strategies below into your firm.
1. Review Your Pricing and Adjust Your Rates
At a minimum, firms should conduct annual reviews of their pricing. When speaking to owners, it’s not uncommon to see years go by without price increases.
And just look at the landscape we’re in at the moment. Firms are feeling financial pressure from:
- Inflation peaked at over 9% in 2022 and remains above the 2% mark right now, although it has been cooling. Everything from your rent to your electric and even software subscription prices is likely higher, and the only way to account for the difference is to adjust your rates.
- Skill costs money. Accounting firms are feeling the pinch from a labor shortage and must do everything they can to attract top-tier talent. And how do you land these key employees? Well, a lot has to be done, but you absolutely have to consider that you will need to pay more. Costs for benefits are also rising.
As an accountant, you’re in high demand and provide an extremely valuable service. Clients should be willing to pay a modest increase in fees year over year.
2. Get Paid For Your Services
Your rates are higher, and more revenue is coming in, but there’s a good chance you’re offering too many freebies. I see this often with firms that provide advisory services for free. A client comes in, asks a one-off tax question, and then another, and the firm replies for free.
These firms offer excellent service, and it doesn’t take a lot of time to answer questions - or so it seems. But multiply the 10 or 20 minutes here or there by all your clients, and you’re losing a lot of revenue.
Identify the services you’re offering for “free” and charge for them. For example, set pricing tiers for the access clients get to you regarding their questions?
Scope creep is another huge problem in the accounting industry. While it may feel frustrating, it’s important to remember that clients typically aren’t being intentionally difficult; they often don’t fully understand what is included in the original agreement and what isn’t. For example, they may think tax planning is automatically included when you file their tax return.
To address this and increase cash flow while earning the revenue your firm deserves, consider:
- Clearly defining the scope of each service within their engagement letter.
- Adding a section that clarifies what is not included in the services in the engagement letter.
- Adding a process that makes it easy and transparent to charge extra for work outside the original agreement’s scope.
Additionally, it’s important to note here that it can be common for newer firms to often overextend themselves because they want to attract and retain clients at all costs. If business is slow or you have the extra time, it may seem that doing these little extras is worth it in the long term.
However, the issue is that once you go outside of the scope of the work you offer, clients begin expecting more from you.
Once your rates are higher and you’re getting paid for all of the work you offer, it’s time to review your technology.
3. Upgrade Your AP and AR Technology
What do your current AP and AR processes look like? Are you leveraging technology to streamline and automate these processes?
Consider upgrading your accounts payable software to remove bottlenecks and make your processes even more efficient. The right tech will make managing cash flow easier. For example, there are solutions available that can help you:
- Automatically invoice clients so that invoices are sent in a timely manner. Clients can’t pay if their bill hasn’t been sent yet.
- Remind clients to pay their invoices to get paid faster.
- Utilize auto and instant payments to streamline your cash flow management. Solutions like Forwardly allow funds to move in and out of your account in under 60 seconds, providing greater predictability and ease in planning your cash flow without having to send reminders.
Your clients are busy—everyone is—and it’s easy to overlook a pending invoice that was sent last week. Sending clients reminders keeps your invoice in mind and gets you paid faster.
I recommend that you look for solutions that make it easy for clients to pay you and for your firm to pay vendors. The less friction, the better.
4. Move to Subscription-Based Pricing
Sometimes, managing cash flow is as easy as changing your pricing strategy. Rather than billing clients after the work is complete, consider offering subscription-based packages.
With monthly subscriptions, clients pay a consistent monthly fee. Every subscriber adds reliable revenue every month, which will help even out your cash flow and reduce those feast-or-famine cycles.
Sit down with your team (if you have one) and create subscriptions that offer you steady income while being worthwhile for your clients.
5. Analyze Client Profitability
Improving and smoothing out your cash flow doesn’t necessarily mean taking on tons of new clients. Because let’s face it – there are so many clients out there, but not all of them are the right ones for your firm.
The ultimate goal is to increase and better manage your cash flow without increasing your workload.
Analyzing client profitability can go a long way in helping you achieve that goal. Start by identifying the clients who take up too much of your time relative to their fees. Once you have a list of clients, decide whether you want to raise rates or let them go.
Letting clients go may seem like a scary prospect, but doing so will free up time for more of the right clients – ones who will value your time and pay in a timely manner.
Wrapping Up
Managing cash flow for accounting firms often mirrors the ebb and flow of their busiest seasons: a rush of inflows during peak periods followed by a noticeable slowdown in the off-season. However, shifts in the accounting landscape and technology have made it easier to reduce those feast-or-famine cycles. By utilizing the strategies in this article, you can ensure steady revenue all year.
About the Author:
Katie Thomas, CPA is a 40 under 40 CPA Practice Advisor recipient, Top 50 Women in Accounting recipient, and the owner of Leaders Online, where they help accounting and B2A (business to accounting) professionals increase their impact, influence, and income through thought leadership and digital marketing.
To get in touch with Katie, schedule a time at: https://leaders-online.com/.