1. Understanding the Finances of Your Business September 13, 2012

2. Agenda Income Statement Cash Flow Managing for Profit Managing Retainers Client Interaction

3. Income Statement Revenue Recognition Fixed and Variable Expenses Critical Ratios Expense Reduction Profitability

4. Revenue Time – Billable Hours – Retainers – Project Fees Mark-up – 17.65%

5. 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%

6. BillingRevenue Time 20,000.00 Out-of Pocket 5,882.50 882.50 Total 25,882.50 20,882.50

7. Cost of Goods Sold

8. Compensation Account Handlers Salaries Administrative Salaries Bonuses Benefits Freelance Labor

9. Facilities Rent Telephone Computer Services Computer Equipment? Furniture?

10. Marketing Website New Business Networking Speaking Engagements Conferences

11. Other Expenses Databases Insurance Supplies Travel

12. Expense Reduction Rebillable Expenses Admin Surcharge Volume Discounts Rebates

13. Critical Ratios

14. Revenue100% Compensation57%52% Facilities8%7% Marketing3% Other18%16% Profit14%22%

15. Critical Ratios Revenue100 Compensation5752 Facilities87 Marketing33 Other1816 Profit1422

16. Critical Ratios Revenue100 Compensation57 Facilities8 Marketing3 Other18 Profit14

17. Critical Ratios Revenue100110 Compensation57 Facilities88 Marketing33 Other18 Profit1424

18. Critical Ratios Revenue100110100% Compensation57 52% Facilities887% Marketing333% Other18 16% Profit142422%

19. Cash Flow

20. Billing & Collections Profit Growth Capital Expenditures

21. Cash Flow Reporting Beginning Balance – Less Cash Out – Plus Cash In Closing Balance

22. Revenue: $110K Profit: 22% Billing: Retainer Month123456789 Balance(116,000) (122,000) (98,000) (74,000) (50,000) (26,000) (2,000)22,000 Cash Out - Compensation 57,000 - All Other Expenses 29,000 - Client Expenses 30,000 Cash In - 110,000 140,000 Balance (116,000) (122,000) (98,000) (74,000) (50,000)(26,000)(2,000)22,00046,000

23. Revenue: $110K Profit: 22% Billing: Time Month123456789 Balance(116,000) (232,000) (208,000) (184,000) (160,000) (136,000) (112,000) (88,000) Cash Out - Compensation 57,000 - All Other Expenses 29,000 - Client Expenses 30,000 Cash In - - - 140,000 Balance (116,000) (232,000) (208,000) (184,000) (160,000) (136,000) (112,000) (88,000) (64,000)

24. Revenue: $100K Profit: 14% Billing: Time Month123456789 Balance(116,000) (232,000) (218,000) (204,000) (190,000) (176,000) (162,000) (148,000) Cash Out - Compensation 57,000 - All Other Expenses 29,000 - Client Expenses 30,000 Cash In - - - 130,000 Balance (116,000) (232,000) (218,000) (204,000) (190,000) (176,000) (162,000) (148,000) (134,000)

25. Cash Flow What’s the Effect of… – Rapid Growth? – Capital Expenditures? – Loans? – More Rapid Billing and Collection?

26. Interactive Cash Flow

27. Managing for Profit

28. Profit Influencers 1.Raise Prices - Higher Value 2.Lower Variable Costs - Efficiency 3.Fix Underperformers 4.Increase Volume - Utilization 5.Lower Overhead Costs

29. Raise Prices Earn higher fees – Specialization – Innovation – Add more value Get “better” work Train/develop staff Invest in new (higher-value) services

30. 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

31. Fix Underperformers Deal with underperformers Drop unprofitable services Drop unfavorable clients

32. Increase Volume Increase utilization (billable hours per person)

33. Lower Overhead Costs Reduce space and equipment costs Reduce support staff costs Improve speed of billing Improve speed of collections

34. Profitability Levers Salaries Billing Rates Hours Worked Billable Percent Overservicing

35. Billing Power Analysis Number of employees at each level X Billing rate for the level X Total Hours (1,750) X Billable Target = Potential Income

36. SAS – Billing Power

37. Salary RateTarget Revenue Ratio Level 1 110,000 22080% 308,000 2.80 Level 2 85,000 18085% 267,750 3.15 Level 3 65,000 16090% 252,000 3.88 Level 4 40,000 12095% 199,500 4.99 Total 300,000 1,027,250 3.53 Average 75,000170

38. Financials Interactive

39. Causes of Overservicing Poor budgeting/over promising Mis-used time Improper Staff Allocation Staffing to monthly retainers

40. Budgeting Define Scope of Work Budget by activity Include details

41. Mis-Used Time Work done at wrong level Perfectionism Low-value activities

42. Staffing to Retainers

43. 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

44. Staff Allocation Interactive

45. SAS SOW/Over-servicing Report

46. 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

47. BillableStaffing Month Billing SpikesDaysLevels Jan 20,000 14,00021 14,067 Feb 20,000 14,00019 12,727 Mar 20,000 14,00022 14,737 Apr 20,000 14,00021 14,067 May 20,000 40,00022 40,000 Jun 20,000 14,00021 14,067 Jul 20,000 14,00020 13,397 Aug 20,000 14,00023 15,407 Sep 20,000 60,00019 60,000 Oct 20,000 14,00023 15,407 Nov 20,000 14,00020 13,397 Dec 20,000 14,00019 12,727 Total 240,000 250 240,000

48. Retainer Interactive

49. SAS – Budgets/Client Forecast

50. Client Interaction

51. Contract Considerations Managing the SOW Organic Growth

52. 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?

53. 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

54. 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

55. Other Issues?

56. Understanding the Finances of Your Business September 13, 2012