On the surface a PR agency, like any professional services firm, seems like a simple business to manage financially. It's mostly a time and materials business driven by rates, revenue, utilization, realization, and expenses. But there are nuances that make it challenging.
In the short-term, project-based PR agency environment it is difficult for many firm leaders to see beyond the window of a few months, which makes revenue forecasting a distinct challenge. The fluid and uncertain nature of the market makes it difficult to determine where to place investments in practices, geographies, and people. Decisions must be made quickly to capitalize on opportunities, which is not easy in a professional service firm (PSF) governance environment where partners and equity owners must all weigh in on key financial decisions.
Finally, most professionals don't like what they perceive to be tedious, bureaucratic processes, such as timekeeping, billings, and collections. One CFO admitted that getting partners to send out their bills or even worse, call clients to collect if they don't pay, is one of his biggest problems.
So what do the best firms do? In the course of the research for ‘The Art of Managing Professional Services' a comprehensive, research-based new book on firm management, including PR firms, a number of common best practices of disciplined financial management emerged:
Strong planning and budgeting
The top firms have a clearly articulated financial strategy, establishing revenue and earnings goals, which reinforce their strategic business plan. Financial planning and budgeting is done in conjunction with annual operating plans and is a collaborative process between the management team and business unit leaders.
Leaders of the best firms have very thorough, timely reports of the relevant metrics needed to run their businesses effectively. Many have 24/7 access to executive dashboards providing an up-to-the-minute picture of the firm's financial health.
Careful management of cash flow
The most successful firms have effective and timely billing functions and closely manage cash flow from collections and working capital. As one CEO said, “If a firm has cash, it is a well run place. If they don't, it isn't.”
Forward looking vs. purely historical
Savvy firm leaders use a combination of both lagging and leading indicators to manage the business. Traditional metrics such as revenue, profitability, utilization, and realization are paired with trend-spotting data such as talent retention, declining billings, client satisfaction, and sales pipeline to spot early warning signs.
Transparency to partners
Firm-wide financial goals and results are shared with partners in most of the PSFs we studied. Firm leaders believe that a transparent, open reporting environment is important to build the ownership mentality and encourages participation and accountability from the partnership team.
The best PSFs hold business unit leaders accountable for the financial performance of their practice areas. Financial goals have clearly established metrics and performance against plan is closely monitored and tied to compensation.
Investment in people and tools
Even the smallest firms have made investments in experienced financial professionals to work collaboratively with partners to manage planning, budgeting, tracking, and measurement.
Maureen Broderick is founder and CEO of Broderick & Company a consulting firm specializing in strategy, research, and training for professional services.