Practice Performance Reporting with Xero Practice Manager: Finding the true reasons for write-offs

This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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There are many different reasons for write-offs to occur on a job. Let’s look at nine reasons why we might incur a write-off and what we can do about these. These nine reasons are:

1. Engagement value is too low
2. Complexity of work
3. Variations not identified and billed
4. Incomplete client information
5. Client information quality
6. Client communication
7. Unprofitable job tasks
8. Rework
9. Staff training and experience.

Let’s explore each of these now.

1. Engagement value
   
   One of the most common causes of write-offs on a job is due to underpricing engagements. A job’s budget and invoiced value is determined by the quoted value of the engagement. When the billable value of time required to deliver these services exceeds the invoiced value, we incur a write-off. The first place we should look when a write-off is incurred on a job is in the proposal itself. Does the value of the proposal reflect the volume, nature and complexity of the work? If so we can dive deeper into task and staff-based causes of write‑offs but if not, we have a communication problem. We need to better communicate the value we deliver for this client such that we can adjust next year’s fees upward to prevent future write-offs occurring.
   
   
2. Complexity of work
   
   When we’re pricing our services we naturally use a complex cocktail of experience, volume of transactions, customer turnover, market pricing and perceived value to determine the price we put on our engagements. We don’t always get this right the first time. ‘The winner's curse’ describes the situation where we win an engagement because we failed to price into our services some information that our competitors did not. This could be the number of entities, the complexity of the ownership, or any other unforeseen variables that could have contributed to this engagement taking longer than you’d anticipate. A write‑off in this instance is a great opportunity to communicate the value of your services by adjusting next year’s fees to reflect the nature of the work required. Otherwise you can let the next ‘winner’ take this curse.
   
   
3. Variations
   
   Variations occur. Situations and circumstances change that can dramatically affect the actual time taken to complete an engagement vs the anticipated time at the start of the year. This could be your client acquiring a new business, taking on new staff, starting new operations or new ventures in new areas etc. Write-offs will occur where we don’t use these unforeseen events as an opportunity for a conversation with our client around the pricing of our engagement. The second-worst time to have these conversations is when you’ve delivered the work. The worst time is not to have them at all and to repeat the write-offs incurred on this job on next year’s engagement.
   
   
4. Incomplete client information
   
   Another common cause of write-offs is your team taking longer than anticipated to complete a job or task because of incomplete client information. Getting part way through a high-focus task and having to stop because we don’t have the information to continue is frustrating for your team and costs your practice money. The time taken to talk to the customer, find the missing information, restart and complete the task can lead to write-offs on jobs. These can be prevented by ensuring your team have all the information required to start and finish a job or task before they start. To do this you must ensure your customers are aware of the information they need to provide.
   
   
5. Client information quality
   
   Write-offs can often occur where the quality of the information we receive from our client is poor. This may cause delays, rework or take our team longer to process the job than anticipated. Examples may be the incorrect coding of bank transactions, the calculation of sales tax, reconciling willy-nilly, and any number of weird and wonderful things unqualified accounts people may do that make your team's life difficult.
   
   Great news! This is a win-win for you as it's an opportunity for a conversation with your client around the quality of their internal accounts and how that will affect next year's annual engagement. You might be able to provide training, mentoring or resources to solve that problem for them. The responsibility for the quality of the information you accept and receive from your client is yours. Take extreme ownership of that by ensuring your clients know the standard you will accept, and use the resources available to them to allow you to deliver your services consistently under budget.
   
   
6. Client communication
   
   Along with the quality of the information our clients provide is the frequency of the information. Business is a harmony, every practice has its own rhythm and if you listen closely you’ll hear yours. Your clients need to be in tune with your team. This means they need to be communicating the right information at the right time for your team to work their magic. Some clients are hard work. They can be random, erratic, infrequent or too-frequent communicators.
   
   We want our clients engaged and communicating with us, but we want to determine the method, frequency and types of communication so that our business is not disrupted. Frequent disruptions like emails, phone calls and questions lead to jobs taking longer than they should. Group this work up into designated times so that your team are not answering client emails or taking phone calls from high-need customers in the middle of other clients’ jobs. Communicate at the start of engagements or at your next meeting with your client how they can best have their questions answered.
   
   
7. Unprofitable job tasks
   
   There may be some services you offer your clients that you routinely incur write-offs on. These services may be routine, or not valued highly enough by your clients to command a high enough fee to cover the value of the billable time put into them. An example might be the filing of minutes or annual returns to necessary authorities. This might be an administrative task with little perceived value to your clients, however it is necessary to continue their business’s operation or to deliver related services.
   
   Another example would be where the task itself is inherently volatile or risky. Technology can be a bit like this sometimes. An example might be Xero setup. Nine times out of 10 the task is performed without a hitch, but that 1/10 instance where it is not can incur significant write-offs. These often can’t be foreseen and often can’t be prevented. We price these services higher to cover the risk of write-offs incurred on 1/10 jobs.
   
   
8. Rework
   
   One of the more human causes of write-offs within your practice is rework that occurs when we make mistakes on jobs or the quality of work required is not achieved. Mistakes do happen and when they do, it’s best if someone who can fix them quickly gets involved in order to reduce the write-offs incurred. The best person to do this is the job manager, who should be already proficient in the tasks they are assigning to others.
   
   Partners are ultimately responsible for the performance of their team, which makes rework a great opportunity for them to learn where their team's training deficiencies are. We also don’t assess partners on the same spectrum as our billable team members. This means sharing the burden of a write-off with a partner is much less painful than expecting a senior billable team member to jump in and save the day.
   
   When mistakes and rework happen regularly, we need to look at the causes of these and provide the training, resources and support necessary to prevent them.
   
   
9. Staff training and experience
   
   Write-offs can be an indicator of training or experience deficiencies within your practice. Learning is logarithmic. The second time we do a new task takes slightly less time than the first time, and slightly less again with the third and so on until we reach a ‘plateau of proficiency’. You’ll know when your staff have reached a plateau of proficiency when the incremental gains from repeating a task are close to zero. They have become about as efficient as they can be at that particular task. Until that time we may incur write-offs within our practice on tasks that the learner is not yet proficient in.
   
   Write-offs also may occur when we have two people working on the same task in order to transfer a skill or process from a more experienced to a less experienced person. We can speed this learning process up and reduce our write-offs by establishing training programs to get people up to speed as quickly as possible. Write-offs here are a great opportunity to identify who needs training and in what areas.

Understanding your practice write-offs as a percentage of total billable value allows you to interpret how effective your practice is at turning billable effort into invoiced value. By drilling into your write‑offs you can determine some of the reasons for these write-offs and prevent them from happening in the future to improve your practice’s effectiveness. The easiest way to reduce your write-offs and improve the effectiveness of your team is to use Link Reporting to drill into the true reasons for write-offs occurring.

Is there one magic number that allows you to monitor the performance of a practice over time? Yes. This is your practice’s average hourly rate which we will look at together in the next article. You can help your team succeed by providing them the information they need at www.linkreporting.com

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