Understanding the Finances of Your Business September 13, 2012.
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Transcript of Understanding the Finances of Your Business September 13, 2012.
![Page 1: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/1.jpg)
Understanding the Finances of Your Business
September 13, 2012
![Page 2: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/2.jpg)
Agenda
• Income Statement• Cash Flow• Managing for Profit• Managing Retainers• Client Interaction
![Page 3: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/3.jpg)
Income Statement
• Revenue Recognition• Fixed and Variable Expenses• Critical Ratios• Expense Reduction• Profitability
![Page 4: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/4.jpg)
Revenue
• Time– Billable Hours– Retainers– Project Fees
• Mark-up– 17.65%
![Page 5: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/5.jpg)
Mark-up
Media
• Billing to client100
• Paid to Media 85
• Commission 15
• Comm % - 15/100 – 15%
Production
• Paid to Vendor 85
• Mark-up 15
• Billing to client100
• Mark-up % - 15/85 – 17.65%
![Page 6: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/6.jpg)
Billing Revenue
Time
20,000.00
20,000.00
Out-of Pocket
5,882.50
882.50
Total
25,882.50
20,882.50
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Cost of Goods Sold
![Page 8: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/8.jpg)
Compensation
• Account Handlers Salaries• Administrative Salaries• Bonuses• Benefits• Freelance Labor
![Page 9: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/9.jpg)
Facilities
• Rent• Telephone• Computer Services
• Computer Equipment?• Furniture?
![Page 10: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/10.jpg)
Marketing
• Website• New Business• Networking• Speaking Engagements• Conferences
![Page 11: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/11.jpg)
Other Expenses
• Databases• Insurance• Supplies• Travel
![Page 12: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/12.jpg)
Expense Reduction
• Rebillable Expenses• Admin Surcharge• Volume Discounts• Rebates
![Page 13: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/13.jpg)
Critical Ratios
![Page 14: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/14.jpg)
Critical Ratios
Revenue 100% 100%
Compensation 57% 52%Facilities 8% 7%Marketing 3% 3%Other 18% 16%
Profit 14% 22%
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Critical Ratios
Revenue 100 100
Compensation 57 52Facilities 8 7Marketing 3 3Other 18 16
Profit 14 22
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Critical Ratios
Revenue 100
Compensation 57Facilities 8Marketing 3Other 18
Profit 14
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Critical Ratios
Revenue 100 110
Compensation 57 57Facilities 8 8Marketing 3 3Other 18 18
Profit 14 24
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Critical Ratios
Revenue 100 110 100%
Compensation 57 57 52%Facilities 8 8 7%Marketing 3 3 3%Other 18 18 16%
Profit 14 24 22%
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Cash Flow
![Page 20: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/20.jpg)
Cash Flow
• Billing & Collections• Profit• Growth• Capital Expenditures
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Cash Flow Reporting
• Beginning Balance
– Less Cash Out
– Plus Cash In
• Closing Balance
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Revenue: $110KProfit: 22%Billing: Retainer
Month 1 2 3 4 5 6 7 8 9
Balance (116,000) (122,000) (98,000) (74,000) (50,000) (26,000) (2,000) 22,000
Cash Out
- Compensation
57,000
57,000 57,000 57,000 57,000 57,000 57,000 57,000 57,000
- All Other Expenses
29,000
29,000 29,000 29,000 29,000 29,000 29,000 29,000 29,000
- Client Expenses
30,000
30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Cash In
- 110,000 140,000 140,000 140,000 140,000 140,000 140,000 140,000
Balance
(116,000)
(122,000) (98,000) (74,000) (50,000) (26,000) (2,000) 22,000 46,000
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Revenue: $110KProfit: 22%Billing: Time
Month 1 2 3 4 5 6 7 8 9
Balance (116,000) (232,000) (208,000) (184,000) (160,000) (136,000) (112,000) (88,000)
Cash Out
- Compensation
57,000
57,000 57,000 57,000 57,000 57,000 57,000 57,000 57,000
- All Other Expenses
29,000
29,000 29,000 29,000 29,000 29,000 29,000 29,000 29,000
- Client Expenses
30,000
30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Cash In -
-
- 140,000 140,000 140,000 140,000 140,000 140,000 140,000
Balance
(116,000)
(232,000) (208,000) (184,000) (160,000) (136,000) (112,000) (88,000) (64,000)
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Revenue: $100KProfit: 14%Billing: Time
Month 1 2 3 4 5 6 7 8 9
Balance (116,000) (232,000) (218,000) (204,000) (190,000) (176,000) (162,000) (148,000)
Cash Out
- Compensation
57,000
57,000 57,000 57,000 57,000 57,000 57,000 57,000 57,000
- All Other Expenses
29,000
29,000 29,000 29,000 29,000 29,000 29,000 29,000 29,000
- Client Expenses
30,000
30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Cash In -
-
- 130,000 130,000 130,000 130,000 130,000 130,000 130,000
Balance
(116,000)
(232,000) (218,000) (204,000) (190,000) (176,000) (162,000) (148,000) (134,000)
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Cash Flow
• What’s the Effect of…– Rapid Growth?– Capital Expenditures?– Loans?– More Rapid Billing and Collection?
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Interactive Cash Flow
![Page 27: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/27.jpg)
Managing for Profit
![Page 28: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/28.jpg)
Profit Influencers
1. Raise Prices - Higher Value2. Lower Variable Costs - Efficiency3. Fix Underperformers4. Increase Volume - Utilization5. Lower Overhead Costs
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Raise Prices
• Earn higher fees – Specialization– Innovation– Add more value
• Get “better” work• Train/develop staff• Invest in new (higher-value) services
![Page 30: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/30.jpg)
Lower Variable Costs
• Develop methods/systems to avoid duplication of efforts
• Improve performance/efficiency for each assignment
• Increase leverage in the delivery of services – use appropriate level for each activity
![Page 31: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/31.jpg)
Fix Underperformers
• Deal with underperformers
• Drop unprofitable services
• Drop unfavorable clients
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Increase Volume
• Increase utilization (billable hours per person)
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Lower Overhead Costs
• Reduce space and equipment costs• Reduce support staff costs • Improve speed of billing• Improve speed of collections
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Profitability Levers
• Salaries• Billing Rates• Hours Worked• Billable Percent• Overservicing
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Billing Power AnalysisNumber of employees at each level
XBilling rate for the level
XTotal Hours (1,750)
XBillable Target
=Potential Income
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SAS – Billing Power
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Salary Rate Target Revenue Ratio
Level 1
110,000 220 80% 308,000 2.80
Level 2
85,000 180 85% 267,750 3.15
Level 3
65,000 160 90% 252,000 3.88
Level 4
40,000 120 95% 199,500 4.99
Total
300,000 1,027,250 3.53
Average
75,000 170
![Page 38: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/38.jpg)
Financials Interactive
![Page 39: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/39.jpg)
Causes of Overservicing
• Poor budgeting/over promising
• Mis-used time
• Improper Staff Allocation
• Staffing to monthly retainers
![Page 40: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/40.jpg)
Budgeting
• Define Scope of Work
• Budget by activity
• Include details
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Mis-Used Time
• Work done at wrong level
• Perfectionism
• Low-value activities
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Staffing to Retainers
![Page 43: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/43.jpg)
Staff Allocation
• Anticipate staff levels on each account for the upcoming month
• Balance with individual employee billable targets
• Be realistic – tie to actual activities• Compare actuals to anticipated
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Staff Allocation Interactive
![Page 45: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/45.jpg)
SASSOW/Over-servicing Report
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Staffing to Retainers
• View budget as annual– Monthly billing is a convenience
• Anticipate high activity months• Account for number of billable days/month• Inform client of monthly staffing levels• Do work at appropriate levels
![Page 47: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/47.jpg)
Billable Staffing
Month Billing Spikes Days Levels
Jan 20,000 14,000 21 14,067
Feb 20,000 14,000 19 12,727
Mar 20,000 14,000 22 14,737
Apr 20,000 14,000 21 14,067
May 20,000 40,000 22 40,000
Jun 20,000 14,000 21 14,067
Jul 20,000 14,000 20 13,397
Aug 20,000 14,000 23 15,407
Sep 20,000 60,000 19 60,000
Oct 20,000 14,000 23 15,407
Nov 20,000 14,000 20 13,397
Dec 20,000 14,000 19 12,727
Total 240,000 240,000 250 240,000
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Retainer Interactive
![Page 49: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/49.jpg)
SAS – Budgets/Client Forecast
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Client Interaction
![Page 51: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/51.jpg)
Client Interaction
• Contract Considerations
• Managing the SOW
• Organic Growth
![Page 52: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/52.jpg)
Contract Considerations
• Compensation Terms– Mark-up– Payment Speed– Cost Adjustment Capability
• Termination Terms– No End Date– Automatic Renewals– Protection on Front-Loaded Programs
• Other Issues?
![Page 53: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/53.jpg)
Managing the SOW
• Budget with Details• Build in a Contingency Budget• Review Month’s Budget Mid-Month• Review Annual Spending Monthly• Communicate Overages to the Client• Manage Staffing Changes• Keep Staff Fully Engaged – Internal, if
Necessary
![Page 54: Understanding the Finances of Your Business September 13, 2012.](https://reader030.fdocuments.us/reader030/viewer/2022032604/56649e595503460f94b52dee/html5/thumbnails/54.jpg)
Growth
• New Business– 30-35% Loss Each Year– $4 Billion Total– $1.2-$1.4 Billion
• Organic Growth– Much Less Expensive– Excellent Investment
• Client Satisfaction/Retention– 6 Month Extension – Double Growth Rate
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Other Issues?
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Understanding the Finances of Your Business
September 13, 2012