Situation

A high-powered public affairs firm in the Southeast was “knocking it out of the park” when it came to winning new business pitches and providing clients with premier consulting and creative services. Revenues continued to climb, year after year, and the managers and employees were well compensated. But profitability was hit and miss, even though the firm had a CFO and used industry standard financial management software for their financial reports.

The TobinLeff Solution

The client, who retained us for exit and strategic planning, asked us if we could also take a look at their financial reports and offer any insights. We plugged their key numbers into our proprietary ProfMetrics™ program, including salaries and overhead expenses, billing and utilization rates, etc., and ran an analysis. Their internal P&L statements and the software they used to manage their business on a daily basis had shown a $500,000 profit for the first half of the year. However, TobinLeff’s analysis revealed that they actually earned only $100,000—and all of that was from media commissions, not billable staff time. Further analysis and discussions with their software provider revealed that the firm was operating with flawed financial assumptions and data relating to the allocation of non-billable management compensation and overhead costs that were entered into the financial management software which was unable to compensate for actual loads per employee. As a result, all of the agency’s billing rates, estimates of required utilization rates for productive employees, and client estimates for retainers and project proposals, were off by a significant margin. Using the ProfMetrics™ findings, the client is now able to establish accurate billing and utilization rates, and track profitability on a client-by-client basis, with the goal of ensuring that a 20%+ pretax net income margin is built into all retainers and project proposals.

Click here to learn more about the importance of financial reports for your business’ future sale.

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