According to a recent publication from an IDC analyst, Professional service organisations seem to hit a wall on profitability that is often short of their potential. This phenomenon is incredibly pervasive across the industry. The cause is nothing surprising. You can ask any finance leader and they will tell you the same thing, ‘it’s the nature of the beast’ for project-based businesses. Over the years, technology has made strides in helping shore up revenue leakage, but there always remains a delta between what companies are achieving, and what their potential is. With the introduction of Artificial Intelligence and Machine Learning, we are finding that the ‘beast’ is tamable and maximizing profitability is within reach.

What is Artificial Intelligence (AI) and Machine Learning (ML)?

Artificial Intelligence is an umbrella term that can be defined as the pursuit of creating computer systems that are able to perform tasks that normally require human intelligence.

Under that broad umbrella term, you have different kinds of AI ‘technologies’, such as Machine Learning, which generally refers to the system improving by learning from the outcomes of previous actions. When you apply this kind of technology to multi-tenant cloud financial management, you end up with incredible efficiencies, predictive analytics, and automated tasks, unlike anything we’ve seen before.

How does AI help me solve inherent challenges with service-based business?

Let’s start with time. For service companies, the phrase ‘time is money’ is about as descriptive as it gets. Professional services are centered on people delivering the product of expertise and labor. Tracking time, therefore, becomes a never-ending strife for accuracy and detail. The cap on profitability is often found in time spent on non-billable activities, typically seen in utilisation rates that can range from 90% to 70%, depending on any number of variables. Again, this is to be expected given ‘the nature of the beast’. This time is also lost due to the unrealistic expectation of employees remembering and accurately capturing all the billable work they do. Ad-hoc tasks, research, and working on multiple projects are just some of the ways billable work can slip through the cracks. It’s these cracks that lead to revenue leakage.

Sage Intelligence Time is a revolutionary new time entry system that leverages AI and ML for unprecedented accuracy. A virtual time assistant is provided for every employee, helping them reconstruct their work week in a way never before thought possible. Not only does this reduce the nonbillable time spent filling out a timesheet, it also lifts the veil on how they’ve spent their work week. Never before has a timesheet been this accurate. Employees can submit their timesheet with confidence that they didn’t miss anything. Even if the effort isn’t billable, by capturing it, you have the visibility you need to understand the true cost of your project efforts. This helps you make better staffing, pricing, and project management decisions. Find out by watching this short video about the features and benefits.

What are the impacts of timesheet accuracy on the business?

Where to begin…

Let’s start with companies that bill primarily fixed fee work. There is a tendency to take a more relaxed approach to time entry when you bill everything on a fixed amount and schedule. This can have brutal downstream impacts on profitability.

“We bill our projects on a fixed-fee basis, so accurate project cost data is critical for us to understand how we’re performing and how to price future work. Getting dependable project labor costs can be difficult when our team is working on 10-15 different projects in any given week, often spending time on unscheduled tasks.” – Sheri Petras, CEO and partner at CFI Group

For active projects, a project manager is often required to make decisions about additional work that is out of scope of the original plan. If they are looking at a project status report (or invoice) for their decision making, they are undoubtedly going to believe they have more room for changes than they really do. Real-time project financial reporting is only as good as the data behind it. If you want your project managers making financially sound decisions, you need to give them accurate data to base their decisions on.

After your project is complete and the financial performance is reviewed it’s easy to make the mistake of under reporting the cost. Whether it is from time that was forgotten, or time responding to a client about a change that was never implemented, the hidden project costs add-up, but don’t always show-up on a project report. Instead, you find it on the profit and loss report. Because your costs are not properly tracked, when you bid future work, you inevitably underbid. Starting your projects off on the wrong foot and continuing to inaccurately track your time spent is a vicious cycle that eats your profit.

For time and expense work, the impact is much more linear. If you don’t put billable time on your timesheet, it doesn’t get billed. It’s a direct hit to revenue. Many service companies would agree that their billable employees on average are likely to miss a half hour to an hour of potentially billable time every week. If they are billing at $200 an hour, that’s $10,000 a year for every employee. Do the math for your business, that is an eye-popping amount of lost revenue.

With Sage Intelligent Time you can eliminate this persistent, punishing challenge of time tracking accuracy and start optimising your team’s performance. One of the common themes’ customers have noted with the time assistant is the amount of time they’ve spent corresponding with customers on changes that go nowhere and are forgotten when filling out their timesheet. Businesses are learning that what they thought were their most profitable customers, are actually draining their most expensive resources’ time with constant request for small things that go unreported.

Perhaps the biggest impact AI powered time entry is having is the visibility into true project costs to more accurately bid future work. This is often cited as the biggest concern for businesses dealing with inaccurate time tracking. Starting off a project with a bid that is too low is often unrecoverable. Without the right level of insight into project costing, it’s impossible to get your head above water.

Fancy a coffee?

It all starts at the timesheet. With Sage Intelligent Time you can trust that the accuracy is there so your strategic planning is based on a foundation of reliable data. We are really at the beginning of the transformation that Artificial Intelligence is going to provide. Join Sage Intacct and register for a Coffee Break Demo, and discover how the future of finance, is here today. We’ll even send you a free coffee voucher!

You may be too busy reacting to the crisis to think about recovery at this moment, but research shows you will want to act before the crisis ends if you want the fastest recovery. This blog details strategies professional services businesses can use during this on-going pandemic.

Let’s start with the impact of the crisis so far. Recent survey data from Global Research shows there is an expectation of -20% hit to the professional services revenue forecast in 2020. Even with such a large impact, many experts remain positive about the recovery of this segment. The optimism is mostly due to expectations of a much faster economic bounce back than experienced with previous recessions.

While the future is still filled with uncertainty, many businesses instinctively will look to retrench until the crisis is considered over. Using history as our guide, cutting costs and standing still is not the optimal way to recover.  As you build your strategy for the coming months it’s important to ensure a well-balanced approach that includes some tactics that may seem counter intuitive during a recession. Harvard Business Review recommends a model that has fewer ‘knee-jerk’ cost cutting tactics, blended with a few strategic investments. The HBR survey data shows businesses who make targeted investments during a crisis have a 37% better chance of pulling ahead of the competition when times get better versus only 21% chance for companies that focused only on cost cutting.

So, what are some of those strategies for professional services organisations? Once you’ve assessed your exposure and risk profile, you should have a solid understanding of your financial health. So now let’s talk about the future. There are 5 strategic actions your service organisation should consider implementing before the crisis ends  to ensure a faster recovery:

1. Embrace the new model for service delivery

In the early phases of the outbreak we all spent some time getting accustomed to working from home. Not just from a technical standpoint, but also in terms of how we interact with people we normally would work with face to face. To help accelerate your business you must embrace that in the post-COVID world, your customers will be much more willing to accept remote delivery of services that were traditionally delivered in person. Many will view this as just a cost saving benefit but that is not the whole story. Travel costs are usually a pass-through expense, so the real value is the added capacity for your consultants who will be spending less time on the road and in the air. Consultants will be able to increase utilisation by remotely engaging with multiple customers in a day versus being unavailable due to travel. The downside is that you can’t replace the intrinsic value of sitting with your customers to understand their needs and help make their vision a reality.

You will need to find the right balance but expect to see a significant shift to remotely delivered consulting engagements. Kickoff meetings and significant milestone reviews are some of the most important interactions with your clients that will be critical for on-site delivery. Your new method of delivery should be some hybrid model that includes high value on-site time while increasing what you typically deliver remotely. There are a number of tactics you can use to mitigate any concerns of disconnection with your clients such as video meetings, shared digital collaboration space, even instant message chat. The goal is to help keep your clients feeling connected, even if you can’t be there as often.

For many companies that work in the Information Technology space, these changes have resulted in increased work. At the beginning of the COVID outbreak, businesses were scrambling to enable remote workers. Now the work has shifted to longer-term strategies including data security due to increased phishing attempts, improving technology stacks, and deploying cloud-based tools that are better suited for today’s environment. IT companies should consider bundled service packages designed for new customers looking to implement technology changes due to the new environment. With high volumes of demand that could span long periods of time, adjust your billing model from time based to a recurring SaaS (Service as a Service) billing model.  SaaS contracts provide a more predictable revenue stream that can accelerate your ability to recover.

2. Become an expert in the COVID recovery for your customers

Just a few weeks ago, all of your customers were trying to figure how to react to the jarring changes from the crisis. Soon they will be thinking about how to recover faster. You are a trusted advisor and expert in your field. Help them, educate them – even if it does not lead to immediate business, it enhances your relationship and will lead to future business. Consider adding COVID specific consulting packages that focus on helping your clients confidently navigate through their recovery efforts.

TandemHR, a PEO company based in Chicago, has implemented a number of strategies to demonstrate expertise in navigating the COVID impacts for their customers. “We are doing everything we can to make sure that people have adequate resources. We have been doing webinars for clients and prospects, blogging, creating useful resources. We have had quite a bit of involvement in helping clients navigate PPP loan process, although admittedly like everyone we don’t have all the answers. The goal is to provide value, educate, in this difficult time for everyone and once this is all over hopefully, our clients have been able to continue to be stable or prosper, they will continue to recognize the value we provided and prospects will learn to trust our name.” – Tanya Yakhnis, CFO.

That’s just one example of how a service provider can position themselves as a trusted resource for delivering COVID recovery services. There are a number of other examples for a wide range of service providers:

1. Management consulting firms are offering packages for leveraging the Paycheck Protection Program, and other government stimulus resources.
2. Staffing and recruiting companies are exploring ‘safe worker’ employment that incorporates testing for temp staff.
3. Marketing and advertising agencies are offering bundled packages for building COVID-focused webpages and COVID advertising strategies.
4. BioTech companies are developing antibodies and treatments as well as incorporating low touch changes into their products and research methods.

Whatever your particular service business may be, it’s important that your customers see you as a trusted resource during this time. By incorporating COVID-related expertise, you can provide your customers with peace-of-mind knowing that you can help them as they work through today’s uncertainty.

3. Expand your COVID resource center to promote recovery strategies

In the early days of the outbreak, many consulting firms created a resource center on their website filled with content focused on reacting and adjusting.  Now, you can expand that resource center to discuss best practices, client stories, and thought leadership all focused on strategies for recovery. Regardless of the industry you serve, your customers are aggressively searching for more information on how to recover in the midst of an ever-changing environment. If your resource center is still focused on reacting, you run the risk of being seen as a laggard and not a leader. You need to ensure that you are staying on top of important developments, while also providing tangible recovery tactics for your core market.

Many companies added a ‘Message to our customers’ statement on the homepage of their website. This was a vital first line of communication tactic, but you must keep the message fresh. If your clients are still reading a comment from your CEO from a month ago, it will impact your credibility.  If you’re going to keep a ‘Message to our customers’ on your website, update it at least every week and ensure that it points to your more robust resource center, if you have one. These continuous updates can not only help establish your expertise, but also demonstrate your ability to be nimble and adapt to complex changing environments.

4. Double down on strict project financial management best practices

Hopefully by now you’ve incorporated similar best practices to improve your project financial management. As the recovery process speeds up, your ability to enforce these new standards will be tested immediately. During the early stages of a recovery period It’s easy to fall into the trap of delivering as much value as you can and keeping clients happy at all costs, but this can cost you too much if not done carefully. You need to balance strict financial management with customer satisfaction during a time when your customers may be asking for more forgiveness on billable work than usual. That doesn’t mean turn a blind eye to your customer’s needs, just be sure you don’t put your own company at risk. By incorporating these best practices, you can ensure that the projects you do take on, are being tracked and managed with the right financial mindset.

Mature project financial management practices are proven to deliver up to 20% increases in project margins. They will help increase your utilisation rates and drive down overhead expenses. Getting your team to enter time daily and your project managers to methodically review project budget to actual reports are essential best practices to keeping your business lean and well positioned to accelerate when the time is right.

Reactionary pricing changes were a common tactic to try and win more business as pipelines began drying up. This strategy may have helped in the short term, but it is extremely hard to walk back as the market begins to improve. You can use up-front discounts to help your customers but beware of extended payment requests. Carefully monitor your accounts receivable, work in progress balances and aging reports. If you find your financial exposure on your projects is starting to increase, you could be heading towards troubled water. You can read more about project billing and costing from Sage Intacct here.

5. Expand your reach and upgrade talent with selective hiring and acquisitions

Recent survey data highlights that many professional service organisations are reporting flat or even slightly increased revenue. The industry is also noted as being among the highest in terms of confidence in their cash position. However, smaller consultancies may not have the financial stamina to withstand the disruption.

Prior to the COVID outbreak, the biggest challenge facing the professional service industry was a severe shortage of talent.  While the industry is not seeing or expecting significant layoffs as of now, there are opportunities to acquire new talent through acquisition at a reduced cost.  With troubled earnings and the ‘pay-as-you-go’ nature of small consulting shops, there is going to be an increase in M&A activity in the coming days. Some may view this strategy as opportunistic but acquiring struggling companies can provide stability for their employees who may have been facing an uncertain future.

Conclusion

Making selective investments in the midst of this crisis might be counter-intuitive, and not all of the suggested actions will make sense for your company. However, you should make some proactive investments before the crisis ends if you want a faster recovery. According to a recent study by Bain & Company, well-prepared companies emerged as “winners” during and after past recessions by combining a strong defensive (cost-cutting) and offensive (focused investments). The winners grew at a 17% compound annual growth rate (CAGR) during the downturn, compared with 0% among the “losers”. What’s more, the winners locked in gains to grow at an average 13% CAGR in the years after the downturn, while the losers stalled at 1%. How big of a deal is that? At 13% CAGR for the winner after the recession (vs 1% for losers), means that the winners will double in revenue in about 5-6 years, while the losers barely grow. In other words, the winners leave the losers “in the dust”.

Professional services organisations have faced tough economic times before. These times challenge you to grow and expand the knowledge base that your customers depend on. We have already seen tremendous examples of thought leadership and creativity throughout services industry. As you position your organisation for the rapid changes ahead, Sage Intacct stands ready to support you with tools and resources to help you analyse financial performance. Use this time to demonstrate your expertise and gain the trust of your customers and establish your brand as a valued advisor.

Are you interested in Sage Intacct and want to learn more? Why not take a coffee break demo today or contact us by email at info@x3consulting.com to speak to one of our consultants.

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