Following our previous article Profitability – Protecting your Profits and Cash Flow through Covid-19 , the most influential factor of increasing the sales figure is the chargeable hours recorded.
The areas highlighted below will increase the chargeable hours by about 25% on average.
One of the important issues to remember is to address the notion that just by increasing the chargeable hours, this will not necessarily increase the fees by the same proportion. Whilst this is clearly an acceptable position, even if half of the 25% increase in chargeable time results in additional fees, then this is a worthy exercise.
In order to increase chargeable hours the following systems are suggested:
- Setting the Standard
The standard of 7 ½ hour days results in 1,950 hours per year. If you allow 4 weeks for holidays, 2 weeks for bank holidays and 2 weeks for training, this brings the number of chargeable hours down to 1,650. If you allow a further month for non-chargeable time during the course of a year that will bring the chargeable time down to 1,500 chargeable hours.
The 1,500 chargeable hours is a realistic target for most fee earners other than senior management, which clearly need to be included in the chargeable hours model.
- Educating the Team
We need to ensure that everyone differentiates between chargeable time and billable time. Clearly if one person charges the whole time that is genuinely allocated to a client, not all of that will necessarily be invoiced (some invoices will exceed the chargeable time). The point being that fee earners need to completely understand that it is not helpful to judge whether or not to charge time to a client on the basis that it may or not be invoiced. That judgement is the judgement of recoverability and is a separate part of the process.
Essentially we need to appreciate that by telling the truth, the whole truth and nothing but the truth we are able to calculate whether clients are indeed profitable compared to other clients.
Additionally, the adoption of the 30% budget rule is very effective in identifying whether jobs are going to come in over or under budget. It turns out that about 30% through the job, people begin to realise whether we are going to exceed our budget and it is therefore at that point that we acknowledge the fact that we are going over budget and, we approach our clients to seek approval for a fee increase before it is too late. The last thing we would like to see is to get to the end of the job only to find that we are significantly over budget with our chargeable time.
Finally, the lower the number of non-chargeable codes the less the opportunity is for people to charge non-chargeable time.
Incentivising your team to increase chargeable hours is highly rewarding and very effective.
There is a specific incentive programme which 2020 have been educating its members on for many years based on the number of chargeable hours charged more than the previous year. Effectively, as a fee earner, if they are able to increase their chargeable time then, for each hour they do so, they will have a bonus of 35% of their charge-out rate at the percentage recovered of the department/firm.
- The Daily Flash Report
This report is a mechanism for showing people their chargeable time yesterday and how that compares with their budgets and compares with year to date accumulative figures. This also shows how well people are performing in terms of reaching their targets and reaching their incentive bonuses described above.
The daily flash report is available for members on the 2020 website.
This article is all part of 2020’s commitment to educating, training and supporting accountant’s and in this case enhancing profitability by increasing chargeable hours.
Profitability and Calculating Charge-Out Rates
Following our previous article How to Increase chargeable hours by 25% (link to article), we wanted to share how the most profitable accounting firms in the UK calculate their charge out rates.
The golden rule is to multiply a fee earners salary by the multiplier rate which can vary between .0024 and .003. The most profitable firms tend to utilise the higher multiplier rate for obvious reasons!
Additionally, partner’s charge-out rates are best calculated by multiplying the highest non partner charge-out rates by .175. This encourages partners to focus on added value services rather than being bogged down with compliance.
This is the second of the support articles on increasing profitability which is part of 2020’s commitment to train accountants as well as educate and support them.