Businesses in Scotland are being urged to meticulously track the heartbeat of work in progress throughout its lifecycle.
Monitoring, managing and making changes to reduce mission creep, improve efficiencies and maximise cashflow are critical steps which can improve a business’s health and growth prospects, according to a senior finance professional.
Nicola Campbell, Glasgow-based Partner and local Head of Accounts and Business Advisory Services at international accounts and business advisory group Azets, has offered five key tips for SMEs when it comes to work in progress (WIP) that is ongoing or recently completed.
Nicola Campbell, Glasgow-based Partner and local Head of Accounts and Business Advisory Services at Azets.
- Report and invoice exception/out-of-scope work: Mission creep can be all too common in the middle of a project when a client raises additional requests. Put processes in place to identify this and be able to quote for that extra work. A few minutes here and there, or extra materials, can add up considerably over the year.
- Minimise the number of open jobs: As soon as a piece of work or project is finished, strike while the iron is hot and get the bill out the same day. You are incurring costs, such as wages, all the while a client or customer is holding on to payment. If a client or customer delays in signing off work or responding to queries, sending an interim invoice can encourage a response.
- Utilise WIP management software: Adopt a forensic approach to actively monitor how much time is being spent on particular clients. Software will give you the means to maintain hourly rates, reduce over-servicing and provide the data to support proposed fee increases or billing for additional work.
- Monitor and measure WIP by job and by team member: Track how long WIP exists before it’s invoiced. The aim is to narrow the working cash flow cycle – to reduce the amount of time it takes to perform the work, issue the invoice once work is completed and receive payment. This can identify areas for improvement or employees needing support. Setting billings targets and rewards can help.
- Analyse write-offs and re-work reasons: Root cause analysis is vital to understand why margins are lower on a job or piece of work than expected. It may be that costs or raw materials have been higher than budgeted, that there has been scope creep, an error in initial pricing or over/under allocation of staff. If you are not looking at why margins are smaller than expected, how can you possibly expect any different outcome in the future?
Nicola, a Chartered Accountant with more than 19 years’ experience advising SMEs and other businesses, said: “Effective cashflow management isn’t rocket science.
“Much of it is common sense but it does mean finding the time to put processes in place, measure the metrics and hold regular reviews.
“It may be that staff training is required, new software and digital tools put in place or support gained from business advisors to identify smarter financial strategies and growth opportunities.
“Incremental gains can make a powerful difference to cash levels and the success of a business.”
Azets is a UK top 10 accountancy and business advisory firm, with offices in Aberdeen, Ayr, Edinburgh, Glasgow, Inverness and Perth. For more information, visit www.azets.co.uk