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INSIGHTS

How to Protect Your Income Before Your Backlog Runs Out
by Greg Alexander
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Project based professional services firms have no recurring revenue. They survive based on a stream of new projects and off a backlog of projects. For some firms, the Coronavirus has eliminated or diminished the flow of new projects. And, backlog projects may fund salaries for now, but when it runs out, incomes will disappear.

The average backlog for a boutique professional services firm is three months. The outbreak was declared a pandemic on March 13th. This means most firms will struggle to pay salaries around June 13th.  If you fail to stretch your cash flow, salaries will disappear this summer.

The scientists estimate the virus will be with us until the summer. Most economists estimate normal business activity won't rebound until Q4.  So, you need an extra six months of cash in the bank. Cash cannot run out in June. The balance must make it until December. 

How can you stretch cash another six months?  The members of Collective 54 suggest a deep dive on project profitability.

 

What is project profitability?

Project profitability is an analytical exercise designed to make each project more profitable. It highlights and eliminates waste. The result is an increase in free cash flow. When saved, this cash flow converts into higher cash balances. Many firms make the mistake of measuring profitability in the aggregate. By measuring at the project level, hidden opportunities for more profit get revealed.

Implementing project profitability correctly requires more explanation, however, here are the basics to get you started:

  1. Identify the projects in the backlog to analyze.
  2. Convert each SOW into a Work Breakdown Structure.
  3. Eliminate nonessential tasks.
  4. Re-staff the project, based on reduced workload.
  5. Shift the project tasks to less expensive junior staff.
  6. Shift tasks to less expensive outsourced/offshore resources.
  7. Implement a change order process to charge clients for out of scope work.

 

Wondering if you should bother with project profitability 

Click Here for the Profitability Checklist

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Greg Alexander

Greg Alexander

Greg Alexander is the Founder of Collective 54, innovating solutions to the problems that owners encounter when trying to grow, scale and exit their professional services firms. Prior to launching Collective 54, Greg started, scaled, and sold Sales Benchmark Index, a management consulting firm specializing in sales and marketing effectiveness. The sale of SBI was the largest of its kind and made Greg one of the wealthiest men in the professional services industry. The proceeds from the sale were invested into Alexander Enterprises, where he currently serves as Chief Investment Officer, investing exclusively in boutique professional services firms run by leaders he admires and trusts. Greg is a leading authority on growing and scaling professional services businesses while preparing these firms for successful transitions, having spent his career working directly with a wide array of professional services firms and sectors. Greg is the author of three best-selling and critically acclaimed books, Topgrading for Sales with co-author Bradford D. Smart, and Making the Number with co-authors Aaron Bartels and Mike Drapeau and The CEO’s Guide to Getting More Out of the Sales Force. Greg’s purpose is to live a fulfilling life by taking risks and competing for extraordinary accomplishments, like helping members of Collective 54 achieve and maintain financial success. Greg has also served on several non-profit boards, including American Heart Association. He holds an undergraduate degree from the University Massachusetts and an MBA from Georgia Tech.