Stop Worrying About Cash Flow And Profit Margins

Posted by Deltek on June 26, 2015

How Professional Services Organisations Can Improve Cash Flow and Profit Margins

Every business faces a common challenge – how to increase profit margins so you have cash available to grow. In some industries, the simple answer might be to raise prices, but in a highly competitive environment, such a move could price you out of the market.

This leaves you one other option – improve your operational efficiencies to boost your cash savings and improve cash flow.  This is the far smarter choice to pursue. If you decide to go this route, here are key steps you can take to improve your operational efficiency.

1. Benchmark your current performance so you can measure progress moving forward.

In order to improve operational efficiency you first need to understand your current performance. This means analysing every aspect of your operations to understand the gaps and inefficiencies. Determine the key performance indicators (KPIs) to track for your particular professional services industry and benchmark your performance against similar type and size organisations.

2. Accurately manage your capacity and resources to get more done.

One of the biggest drains on profitability is underutilised resources. When your employees or other resources are not fully utilised, you are effectively reducing your project margins. To efficiently manage your resources and boost utilisation you need to know: 

  • What resources you have available
  • Current and historical rates for each resources
  • When you are approaching capacity
  • What projects are in the pipeline

Using this information, you can shift resources to realise maximum profit for each resource and each project. You will also be able to better forecast your future resourcing needs.

3.Be selective about the projects you pitch and accept.

Over 61% of businesses win less than half of the projects they pitch. This means more than half of the time spent preparing proposals is wasted. Therefore, it’s important to be selective about the projects you pitch and accept. Analyse your past proposals and projects to understand:

  • What has worked in the past?
  • What has failed in the past?
  • Is there a particular sector or project type that has been particularly profitable?

4.Improve your budget accuracy.

Each project you undertake will have an operational budget, designed to cover staffing and expenses. The better you understand the costs and variations of your projects, the more accurately you can bid on future projects and assess profitable work.

5.Streamline your time entry and invoicing processes.

The billing process is perhaps one of the biggest challenges professional services organisations face on a month-to-month basis. That said, it’s an area where there are potentially huge efficiencies to be gained. Implementing efficient time entry and paperless billing review processes will help you bill faster, collect faster and improve your cash flow.

6. Use technology designed for project-based, professional services organisations.

Using systems that aren’t designed for your processes and the way professional services organisations work is highly inefficient. To manage projects efficiently and improve profitability, project-based businesses need enterprise resource planning (ERP) systems designed for the way they work. Project-based ERP systems allow you to accurately track time, resources and expenses, and attribute them to the appropriate projects and tasks. They give project-based businesses, better visibility and data accuracy to efficiently manage operations.