Turning Data into Decisions: A Three-Step Approach to Financial Metrics for Consulting Firms

Today’s consulting and service-based companies need to compare financial and operational data for continuous improvement, growth, and competitiveness.

However, identifying and interpreting data while leveraging it to develop meaningful KPIs can be tricky–especially since priorities and focus are constantly shifting.

With the right skills and agile digital infrastructure, you can forecast, adjust, and strategise more easily, ultimately increasing success and client satisfaction.

Here are three steps to help your firm improve its financial metrics:

Step 1: Check your financial operations

Before you jump into the metrics, you need to lay the groundwork. For example:

• Assess your current accounting processes
• Re-evaluate how you structure your business regarding departments, cost centres, regions, etc.
• Is there anything you can consolidate?

Establishing exactly how you want to structure operations will save you many hassles in the future.

One of the worst things you can do is start stacking this house of cards and keep adding on until you’ve created 100 different income accounts because you want to group things separately. This makes it impossible to scale and get down to the metrics that matter.

SMEs, in particular, struggle with this. Data might seem sufficient at first but not detailed enough after a period of rapid growth, ultimately making it harder to figure out later.

Investing in your financial processes means investing in business improvement. That’s why it’s critical to implement a financial system that isn’t just a recreation of an old process.

Step 2: Get measurable data that your team can monitor

How are you currently measuring profits? Are your projects repetitive and cookie-cutter? Or are they specialised and unique to each client?

If they’re repetitive with consistent costs, you probably already have all the income and expense information. However, because clients differ, even the repetitive projects can fluctuate, which means your costs and profits differ.

Key metrics to track include:

Time spent versus generated income

It’s critical to track your time and understand how much each client engagement costs you.

Once you know how much time you spend on each client, you’ll likely realise that the high-paying, big clients cost you just as much as any other.

Many companies rely on top customers and prioritise because of the big cheque. In reality, these clients often hang on your team’s neck 24/7, costing you more than you think.

So, ensure you group your costs and focus on all the details needed to analyse and discuss these metrics with your clients. When they see the audit trail and realise that they are taking more time than they’re paying, they’ll likely accept a fee increase from you.

Don’t over-utilise

The higher your utilisation rate, the more unsustainable the business gets. Why? Because people aren’t made to work at extreme paces. The goal is to balance the scale and track billable and non-billable activities to gain insight into your employees’ daily tasks.

Although it sounds tedious to track every second of your days, it’s important to have that data to answer a few key questions, like:

• What does it take to run the business?
• What does it take to get more clients?
• What does it take to expand our business?
• What’s important to our people?
• How do they spend their days?

Try also tracking team project metrics to determine whether employee time is truly billable.

Check your billing cycles

How long do clients take to pay your invoices?

Financial exposure is a great way to track how much work you get paid for versus the overall project value. Create a report with your accounts receivable and work-in-progress balances and compare that with the overall contract.

Your goal should be to not go over a certain percentage outside of financial exposure on any given project.

Don’t forget about write-offs

Many finance teams don’t understand the significance of write-offs because they don’t bill for it, so it becomes invisible and unnoticed when it actually counts as non-billable utilisation time.

As a result, they see revenue loss and a decrease in their utilisation rate and cash flow and ultimately bid project success based on flawed data.

While you don’t necessarily want write-offs, they are useful tools if you spend more than you’re trying to recover.

Step 3: Encourage financial responsibility

Easier said than done but try to start from the top and work your way down to each department. And don’t allow top performers or senior leaders to slip past sharing their times.

Here are some tips you can try:

Develop mentorship programmes

Senior leaders aren’t always up for engaging with the rest of the company, so recruit them to help onboard junior consultants and project managers. This way, the seniors will get a feather in the cap, and the juniors will get an opportunity to learn from the best. It’ll also motivate employees to adhere to the best practices you’re trying to promote.

Implement daily timesheets

Daily timesheets provide insight into the daily happenings of your staff, allowing you to be a more proactive leader. Again, don’t let the executives slip by the wayside. Then, reconcile that data nightly to give your staff a complete overview of their progress on their dashboards.

Remember to upskill

Education is vital for any business. Finance, accounting, HR, and other departments can lean in and upskill each other to develop business acumen and understand more about how various departments link with others.

Don’t be scared to nudge for payment

Invoicing is easier once you have your team’s timesheets and project progress reports because everyone is already in the loop, reducing the need for adjustments.

The result? The invoice reaches your client sooner.

The more you do before month-end, the quicker you can convert what you’re selling into cash. In other words, as soon as an invoice exceeds the 30-day mark, you can reach out and determine why you haven’t received payment yet.

How technology can help

Whether it’s cash flow, utilisation, write-offs, or project profit you’re trying to improve, chances are the right technology can do it all for you. Learn how Sage Intacct can help you optimise your operations with real-time data, visibility, automation, time entry, and error checks.