Your Firm's WIP Detail Tells an Interesting Tale
Did you get a chance to relax this summer and catch up on a little reading? The bulk of my reading the past few months included the work in process (WIP) detail for a variety of CPA firms. You can tell a lot about a firm's profitability from their WIP.
If your WIP detail was a story, what would it be? A crime novel? A horror story? Or maybe a military docu-drama where the good guys win but the losses sustained in battle scar everyone that survived? It tells a story you know well; one you've read a hundred times. It clearly illustrates how the way you work impacts your profitability – from picking up work and putting it down to back and forth work loops to bottlenecks and even re-work. The good news is that you can make your WIP a turn-around, feel-good story if you:
Commit to Change. Change is never easy, but with focus it is possible for you to reengineer your processes so they actually produce value while eliminating waste and inefficiency. The benefits are many. You will increase the loyalty of your staff and improve their quality of work. And you will identify the enemies to profitability so you can combat them effectively. Committing to this sort of change takes more than just conviction – you have to take a stand.
Rethink Charge Hours. Your WIP equals cash, but it can quickly turn into time and effort for which you can't or won't get paid. What can you do about it? Start by decreasing the emphasis on charge hours. If you focus on charge hours, your staff will give you charge hours. Then what happens to your WIP? It expands. What happens to your realization? It declines.
Accelerate Collections. When you complete work more efficiently and in less time, you accelerate billing and collections – and hence your cash flow. All that while also satisfying or even exceeding your client's expectations. Your partners can use that extra time with clients uncovering planning opportunities, consulting projects and other additional work for your firm.
Bust Bottlenecks. Bottlenecks are a reflection of uneven workloads. They happen when you don't have enough capacity at all the steps of the process. Often, inside public accounting firms, they also occur from a lack of trust. It is possible to elevate the capabilities of your staff to produce a work product that both your reviewers and partners can trust. This decreases the amount of review notes, time spent reviewing the work and the time required to fix/re-review.
Embracing Lean Six Sigma will allow your firm to provide value to your clients while giving you the capacity to pursue profitable work that you can deliver timely. Consider your firm's story a work in progress with the final chapters far from being written. And take control of the outcome. You can be the hero of your story by improving your efficiency and effectiveness and ultimately turning your WIP and profitability around.