Cash-Flow Management: The Critical Success Factor For Small And Midsize Professional Services Firms

Michael Liss

Part 3 of the “Digitally Transforming Industries” series

Facing an intensely competitive landscape of evolving client expectations, small and midsize companies in the professional services industry are constantly working to differentiate themselves from the competition while setting the stage for sustainable growth. These firms are continuously expanding their network of talent who can deliver the outcomes and levels of service clients expect. They’re deepening client relationships and creating new service offerings that are compelling and necessary in today’s digital economy.

Although some firms have managed to accomplish these goals, many find that these efforts don’t matter if they cannot manage their cash flow. A recently released IDC industry brief, sponsored by SAP, titled, “Professional Services: Small and Midsize Firms Are Turning to Technology to Advance their Business Goals,” revealed that 58% of professional services firms with less than 1,000 employees rate improving cash flow as a top priority. Interestingly, this focus outpaces the desire for revenue growth (49.3%), cost reduction and management (45.6%), and increased efficiency and productivity (39.2%).

Although it’s great news that most professional services firms are paying attention to their cash-flow performance, few executives understand how the advantages of such a capability can extend beyond financial health.

top-business-priorities-for-professional-services-firms

Cash-flow management brings strong discipline across many aspects of the business

Fundamentally, cash-flow management is more than accelerating the payment of accounts receivable or handling outgoing accounts payable. It requires a holistic approach to managing the talent supply chain while ensuring seamless and accurate billing of time and expense.

Once the entire client billing process is integrated into digitized processes, the firm can realize advantages across the business while resolving common cash-flow issues such as:

  • Establishing a strong network of subcontractors who are available when they’re needed: There’s no debate that the labor market is continuing to trend towards a gig economy, where people prefer to work on short-term engagements that are exciting and meaningful while challenging their unique skill sets. Small and midsize firms that tap into this pool of contingent talent can avoid the cash-intensive process of recruiting, hiring, and onboarding new hires while supporting planned growth.
  • Digitizing the collection of time and expense collection to accelerate payment: Clients are more prone to pay quickly when billing information is presented in a timely and accurate manner. Digitization can simplify the time-and-expense process across all assigned resources to increase compliance with time and expense requirements, avoid invoicing errors, and accelerate billing. 
  • Analyze client and service profitability and proclivity to pay timely: By continuously reviewing information on time and expenses as well as billing and accounts receivable, managers can evaluate how clients, offerings, and project teams are impacting profitability. Understanding these relationships allows decision makers to determine which clients or services should be reevaluated and potentially discontinued. Without this discipline, problem accounts can result in a significant drain on cash resources.

Disciplined cash-flow management can manifest into a variety of competitive advantages. On the surface, it provides a leaner cost structure and drives the adoption of smarter investment practices. However, once technology is used to streamline time-and-expense capture, manage contingent workers, automate client billing, and analyze client and service profitability, firms can self-fund their growth without the need to reduce equity or increase finance obligations though investor or financial markets. And in the end, cash-flow management becomes a fundamental building block that sets the stage for significant future growth. 

To learn how your business can better prepare for the digital economy, check out IDC’s Industry Brief, “Professional Services: Small and Midsize Firms Are Turning to Technology to Advance their Business Goals.” Be sure to check every Tuesday for new installments to our blog series “Digitally Transforming Industries” to explore the various leadership roles in today’s growing small and midsize companies.


Michael Liss

About Michael Liss

Michael Liss is Vice President of Services Industries at SAP. He is responsible for managing a team of Industry Value Advisors across all Services Industry Sectors, including Professional Services, Media, Telco, Engineering & Construction, Hospitality, and Transportation and Logistics.