This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
Get a copy for your desk at www.linkedpractice.com
When running jobs in XPM, we have two types of costs. We have time costs, which are created by time sheets against tasks on a job, and we have disbursements. Disbursements are any cost associated with completing the job that is not a time sheet. Disbursements are also known as costs in XPM. These costs could be from subcontractors that do not do time sheets, outsourcing fees, and any general disbursements such as Xero subscription fees. In this section we’ll be covering how to manage each type, and the considerations you need to make.
The most common way to pay an outsourced service provider is a percentage of the job’s fee. This fee is determined by the service provider we choose, and the volume of work we send them. At the beginning of each year, a fixed fee or percentage value is determined for each job based on the type of work or total value of the engagement.
Let’s look at a percentage of engagement value example:
Say we have 240 customers for which we do Annual Accounts + GST, these jobs might have a total engagement value of $400,000, and we might agree on an outsourcing fee of 30%, being $120,000 per year. We’d split this across 12 months, and we’d receive a $10,000 supplier invoice from our outsourced service provider each month.
Alternatively we may have agreed a fixed fee of $500 for these 240 Annual Accounts + GST jobs with our outsourced service provider. This would be an annual fee of $120,000 split over 12 months, and we’d receive a $10,000 supplier invoice from our outsourced service provider each month.
We are likely to have a mix of job types, some may be just annual accounts, some that are just GST and some that require both. We may agree to a mix of fixed fees and percentage values with our outsourced service provider to arrive at an annual outsourcing fee that we can divide by 12 to pay monthly.
Let’s look at a mixed-fee example:
Say we have 240 Annual Accounts + GST jobs, 500 just GST jobs and 600 individual tax returns. Our 240 Annual Accounts + GST jobs may have an engagement value of $400,000, which we have agreed a 30% outsourcing fee on. For our 500 GST returns we may agree to a $150 fixed fee. For our 600 individual tax returns we may decide a $50 fixed fee. Our total annual outsourcing fee may look like this:
|Engagement Type||Quantity||Value||Rate||Outsourced Fee|
|Annual Accounts + GST||x 240||$400,000||@ 30%||$120,000|
|GST only||x 500||$150 each||$75,000|
|Individual tax returns||x 600||$50 each||$30,000|
|Annual outsourcing fee||$225,000|
|Monthly outsourcing fee||$18,750|
The actual volume of jobs completed throughout the year will vary as we bring on more customers. At the end of the year a wash-up is performed by the outsourced service provider calculating the actual jobs completed of each engagement type at the various agreed rates. This may result in a debit balance to pay or a credit balance we can carry forward into our next financial year.
The actual volume of jobs completed each month will also vary depending on the complexity of the work, the seasonality of the due dates, and the ability of our internal team to communicate with our outsourced team. Our monthly fixed price, however, will remain the same. So how can we apply an estimated cost to each of our jobs to account for the expected outsourcing fee on that job?
Enjoy this article? Buy the book.
Need help setting up, fixing up, or getting up to speed on Xero Practice Manager?
We can help at www.linkedpractice.com