Identifying the barriers to profitability for professional services firms

Apr 18, 2021
  • finance
  • professional services
  • SAP

The professional services industry has experienced exponential change in recent years. Evolving workforce dynamics, disruptive market entrants and the advent of long-term remote working escalated by the pressures of the global pandemic are all realities which professional services firms now must face.  

With competition increasing, professional services firms face constant pressure to achieve effective and tightly controlled financial management – an imperfect process or even a simple mistake can have a significant impact on profit.

In this competitive and fluctuating environment, it’s important that professional services firms focus on the bottom line and keep on top of costs and revenue – from managing cash to handling financial close process efficiently.

Putting profitability first seems like an obvious goal, but actually many businesses do not plan effectively for profitability. Unfortunately, many businesses do not have the right technologies or processes in place to ensure a controlled finance function, even though profitability is their primary objective. Because these organisations typically employ independent highly mobile experts to generate their revenues for them, and their main ‘end product’ is the sale of a niche expertise, this results in challenges when it comes to processes such as contract and project management, management of recurring business and billing, and project budget and cost follow-up.

Hung up on manual processes

Many consultancies may not have a fully integrated or sophisticated system, and are typically conducting their financial management manually, for example using Excel spreadsheets, which can be highly error prone and inaccurate. Furthermore, this data is not consolidated or updated in real-time.

So why has there been a slow adoption of advanced tools and integrated systems in recent years within this industry? Historically, competition was less intense, therefore there was less pressure for firms to have such a tight rein over their finances. But nowadays, due to the highly disruptive and ever-changing market, there is a need for professional services firms to carefully monitor and measure their financial performance, as the slightest inefficiency or anomaly can have a significant impact on profitability.

Driving success with an intelligent ERP system

To achieve an improvement in their financial position, consultancies need to concentrate on areas such as automation, analytics, and real-time revenue recognition.

It is key to choose user-friendly tools for employees and consultants in order to record their time. Many businesses are losing out on revenue due to consultants not recording billable time correctly. Furthermore, tools with a self-service capability can help to drive efficiency, which ultimately results in higher profits.

In this context, using an integrated ERP system, such as SAP S/4HANA Cloud, can provide business data and insights of the costs and actual revenues, coordinated with the profitability of customers' accounts, a project undertaken and lines of business. It’s also helpful for businesses to identify pre-sales costs and costs of sales generally.

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A fully integrated system can inform a business everything it needs to know about the firm’s current profitability, as well as enabling it to examine specific problems, and benefit from better forecasting and predictive insights.

Access to this kind of data can really make a difference in terms of setting the business up for growth or stagnation. This level of visibility and insight can enable businesses to focus on growth in the areas where they can be the most profitable, specialise in the areas that their customers are most satisfied with, and identify areas that they might have previously thought were profitable but in reality, are not.