Professional services firms rarely lose money in dramatic ways. They lose it in fifteen-minute chunks that nobody bills, and in scope that everybody noticed but nobody wrote down.
This particular firm — 60 people, engineering consultancy, about $9 million in annual revenue — was profitable on paper but permanently short of cash. We spent a week inside their project records. The pattern was almost boring in how consistent it was.
Before: what the numbers actually looked like
- Timesheets submitted on Friday for the week, from memory, with an average of 6.5 hours recorded against a 9-hour day
- Fixed-fee projects with no tracking of hours consumed, so nobody knew a project was overspent until it closed
- Client change requests handled by email, absorbed silently, and never converted into a variation
- Retainer clients billed the same amount for three years while the work behind them roughly doubled
When we added it up, roughly 9% of billable capacity was evaporating each month. On their revenue, that is about $22,000 a month that was worked but never invoiced.
After: four changes, no new headcount
The ERPNext Consulting engagement focused on making the honest path the easy path. Nothing here required a policy memo longer than one page.
- Timesheets entered daily at the end of the working day, on a phone, taking under two minutes
- Every project shows a simple bar: hours used versus hours sold, visible to the project lead from day one
- Change requests are logged as a date, a description, and an estimated hours figure before any work starts
- Retainer agreements reviewed every quarter against actual hours consumed in the previous one
The resistance came from one place: senior consultants who felt daily time entry was surveillance. We answered it with data. Once the firm showed a project that had quietly consumed 340 hours against a 220-hour fee, the argument ended on its own.
Three months in
Recorded billable hours rose 11%. Two retainer clients agreed to increased fees. Six change requests that would previously have been absorbed turned into paid variations worth $41,000. Net effect: cash flow turned positive for the first time in two years.
The uncomfortable truth is that most service firms don’t have a pricing problem, they have a recording problem. Start with one project this week. Write down every change request, no matter how small, and count the hours at the end. The number will tell you whether you need a new strategy or just a better habit.