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Becoming Succession Ready: Write-offs

As you prepare for your practice succession, an important area for consideration is your practice write-offs (assuming you are operating a time-based billing system). While there has been and continues to be an ongoing debate in the accounting profession about the merits of time-based billing versus value-based billing, we focus on time-based billing practices in this blog.

There are several issues that accounting firms may face when it comes to write-offs:

  • Impact on profitability: Write-offs can significantly impact a firm's profitability, as they represent a loss of revenue that typically cannot be recovered.

  • Client perception: If a client sees that the firm is consistently writing off fees, they may question the service's value or feel that they are being overcharged.

  • Inaccurate billing: If the firm inadequately tracks time or expenses, or there are errors in the billing process, this can lead to write-offs that could have easily been avoided.

  • Staff morale: If write-offs are simply passed onto the client, this can send the wrong message to your team, but worse, it can impact the morale of your team and the culture in your business.

An important consideration with time-based billing systems is how you manage write-offs and what you learn from write-offs.

How you manage write-offs is interesting. Are you a practice that simply doesn’t tolerate any write-offs, or are you more focused on learning from the cause of write-offs and that write-offs present an excellent opportunity to improve your practice?

Suppose your practice has a mindset of innovation and improvement (arguably, as you move towards your succession, these are desirable traits for your practice to encompass). In that case, you will see the opportunities for learning in WIP write-offs.

WIP write-offs provide your firm with a range of opportunities for improvement which will be important lessons to learn as you move towards succession, including:

  • What processes can we improve?

  • What additional training and development can we provide our team members?

  • Can better software tools and applications help us improve our current workflow?

  • How can we communicate more effectively with our clients in the future?

  • How can we improve our workflow management?

  • Are there any parts of our workflow that we can automate?

  • Can we use different resources (perhaps lower cost) to streamline workflow?

While write-offs can be an important tool for managing client relationships, maintaining productivity, and assisting in practice improvement, they must be addressed to ensure they do not negatively impact the firm's profitability or reputation.

As you move towards your practice succession, you will want to present your firm as profitable as possible and with as minimal write-offs as you can manage.



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