Finance Best Practice: Three Ways Professional Services Firms Can Manage Project Financials in the Current Economic Climate

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As professional services firms find their way through the current economic climate, finance teams are being put under significant pressure. Revenue streams are being disrupted, issues in the supply chain may be affecting contracted jobs, and margins are growing smaller by the day. As your organization adjusts to remote/hybrid working and accommodating new ways for clients to engage, day-to-day operations need to be re-evaluated.

So, how do you adapt? How do you manage your project financials and ensure you’re managing the new challenges whilst continuing to deliver profitable projects?

With the right processes in place, you can take the pressure off your team and ensure smooth financial operations. Below are three ways you can help your finance team navigate the careful balancing act of profitable service delivery.

1. Don’t Only Look Back at Past Performance – Generate Critical Future Insights

Your organization’s standard revenue and resource forecasting routine may be a solid process, but we’re not going through standard times right now. It might be time to rethink your approach.

In a rapidly shifting business landscape, past project and financial data won’t help you prepare for the future. Generating future insights will be critical to success, so adopting a weekly or bi-weekly revenue and resource forecasting routine could be your best move. Get it right, and you’ll get constant forward-facing insights. So, where do you start?

First, you’ll need full transparency of your pipeline. Start by finding out what projects you are bidding on, looking at your CRM system is a good place to start, and what orders are incoming. You’ll need to predict the probability of each project going ahead, when it will kick off, and estimate delivery timelines to ensure that you’re being as accurate as possible.

Once you’ve got a clear view of your project pipeline, you can combine this information with your project backlog to more accurately forecast revenue. You should then revisit this on a week-by-week or month-by-month basis. And if you can look ahead multiple months, you should. The further ahead you can look, the longer you have to identify and respond to new challenges.

Once you have an accurate revenue forecast, you’ll also want to match it against your capacity to ensure effective resource planning. During this period of disruption, where revenue fluctuations are bigger than you might be used to and you may be dealing with high levels of employee attrition, many professional services firms are using more freelancers or subcontractors. Maintaining a flexible capacity in this way can help you stay on track with projects – without draining resources.

2. Manage Your Working Capital and Improve Contractual Standards

It may be that your revenue streams are largely unaffected by recent economic uncertainty. However, managing your working capital could still play an important role in maintaining business operations and enabling future growth.

By getting your timesheets in every week, invoicing frequently, and effectively managing your work in progress (WIP), you’ll reduce the risk of losing client revenue. Creating shorter term contracts can also help, especially considering the challenging financial period. With clients paying more often, you won’t risk running up a large bill that could potentially go unpaid.

Managing your backlog of accounts receivable (AR) and accounts payable (AP) can also safeguard working capital. Start by establishing a clear view of what your AR and AP looks like, and what invoices are outstanding, then approach them one by one. The sooner you can focus on getting agreements in place for minimum payments, the better. We’re in a challenging situation, and in a few weeks’ time you may find your clients’ situations have changed.

Take the time to revisit old contractual standards, too. Organizations across the world are having to find innovative, creative ways of working – and that includes professional services firms. By rethinking your contract methods with clients and suppliers alike, you may find new ways to remain competitive and protect working capital.

3. Embrace Flexible Working – It’s Here to Stay

Flexible working can bring big business benefits. New, digitally dependent ways of working have accelerated essential digital transformation for many firms, while working from home offers new cost-efficiencies for others. But to ensure your workforce is productive, you may need to establish concrete remote working rules, transition to paperless operations and update your business model.

Working remotely requires a lot of self-discipline and motivation, and with many people having to balance work with childcare responsibilities or other home distractions, you may need to set new rules for work. That could be by allowing more flexible working hours, providing more leeway with deadlines, or offering new incentives.

Communication is key to smooth project delivery, so make sure you are updating your delivery model, and that you and your team have the technology in place to host remote sessions.

Finally, digitalizing your organization’s finance and project solutions – whether that’s pipeline management, resource planning, invoices, or workflow processes – can streamline remote working. And the benefits of transitioning to a paperless approach are two-fold; you support the remote workforce more effectively, and you also lay the foundation for more flexible working in the future.

What Next? Putting This into Practice

By optimizing key processes, effectively managing your working capital and providing your remote workers with the correct support, you can alleviate the pressures facing finance teams and streamline operations amid disruption. Technology plays a big part in this and Deltek offers a robust portfolio of solutions designed to help professional services firms deliver profitable projects.