Tracking Professional Services Revenue
The critical step to managing and measuring client income
Client billing is a necessary evil for most professional service providers. While everyone loves earning revenue, the tedious process of tracking billable hours, entering time, and client invoicing can be a painful one.
The effort spent entering these details can produce valuable insight into the amount and type of revenue one earns. However, to generate practical, useful data, business owners need to consider the critical final step to this process: how they deposit the money into the bank.
Client invoices tell you what amount of revenue you have earned. For most small businesses, revenue is not recognized or accounted for until it is funds are receiving and put into the bank. This is also known as “cash basis accounting” and for the purposes of keeping this a microlesson (and not putting you to sleep) we will skip to the part about why this is important.
Most business owners think in terms of how much they have earned, and do not give enough attention to the moment revenue is actually received and accounted for in their financial records. While your practice management software may say you have $xxx amount of revenue, your financial statements will not tell the full story if you neglect to timely deposit the funds and finalize the transaction.
In order to understand the finer details of your incoming cash such as who is paying you, when they are paying you, and for what services, revenue must be timely deposited into your bank account, ideally by the invoiced amount. If the amount deposited does not match the invoice it paid for (for example, you have a stack of checks and make a buik deposit) all the effort to enter time, categorize revenue, generate invoices and link your practice management and accounting systems is lost. Furthermore, you lose track of exactly when clients pay you, making it that much harder to manage cash flow.
Opportunities for Improvement:
First determine what questions about your business your revenue data may help answer. Do you want to find your most profitable clients? Are you interested in which services generate the most revenue? Make sure you are categorizing your revenue and generating invoices according to the parameters that can answer these questions.
Next, review your process of recording invoice data into your accounting system (if you generate invoices in practice management or other software). Does your accounting system capture the detail you need to capture revenue-related data?
Finally, review your process for depositing revenue into your bank accounts. This is critical for businesses that use “cash basis accounting” and do not officially record revenue until it is in the bank. Talk with your accountant and banker to determine what opportunities, if any, there are to offer your clients faster, more efficient ways to pay fees and transfer funds into your bank account.
Firm Numbers is dedicated to helping pull entrepreneurs out of decision-making based on emotion and get the necessary data to objectively run their business. Book a free consultation online to find out how our bookkeeping and accounting packages can help you be the boss, not the bookkeeper.
