We now understand that there are three ways to bill fixed price agreements:
We also understand that having multiple methods in our practice makes it difficult to manage the administrative activities for our clients. We want to pick a method and stick with it. From the three methods, Contract-period is the one we want to avoid. This is because it creates a large administrative burden as will will need to manage job rollovers each month. That leaves us with In-advance and In-period to select from.
In-advance is much better for cashflow as we will be billing for our services in advance. Our practice will operate with a significant negative WIP balance, indicating that we have billed our clients for work we are yet to do. This means we do not need to borrow from the bank to fund expansion.
The downside of the In-advance method is it is more difficult to onboard new clients. This is because we are asking them to pay for their work a whole year in advance. If you are confident in sales, and prefer not to work from an overdraft, this is the better method for your practice.
In-period makes sales a breeze. On-boarding clients couldn’t be any easier because you let your clients pay their accounting fee over the 12 months you are doing the work. This means you are able to easily onboard all new clients that come your way, but hiring new staff may become difficult because your growth may exceed your cashflow. You therefore need to finance growth with an overdraft from the bank.
Both In-advance and In-period are great methods, and it comes down to what is going to suit your practice the best. The challenge now is how do we move all our clients to the method we select? We may have a combination of all three methods, plus some that are on time charge.
The best approach is to treat this as a project. Two months before the start of the next financial year get a list of all your clients in a spreadsheet, and note which billing model they are on. Some you may wish to leave as time-charge, but all that are on fixed price agreements we want to align to your chosen method. You also want to note how much you plan to charge them annual, and what this fee is monthly. For example, if you want to charge $6,000 for the engagement, this is $500 per month.
You then want to book complimentary meetings with each of your clients. You can dress this meeting up as a ‘complimentary coaching session’ or an ‘annual accounts review meeting’. Whatever works for you and will get them in the door for a meeting. Your objective for this meeting is re-engage them on the new billing method. This is also a great opportunity to upsell them onto a coaching plan. So rather than $200 per month for annual accounts, you charge $500 per month which includes ‘Quarterly Coaching’. You’ve revenue could double with the same client base if you do this well.
Once you’ve had your meeting, have the proposal template set up in Practice Ignition and send it to your client. Once the proposal is accepted the job will be created in Xero Practice Manager and all the billing will be sent to Xero.
Do this for all your clients and watch your practice skyrocket. All your need to do now is ensure you onboard new clients onto the chosen billing method, and block out some time at the end of each financial year to do your job rollovers.