Financial Management Essentials for Improved Performance
This content covers vital aspects of financial management for enhancing performance, including budgeting, revenue tracking, cost analysis, and identifying necessary changes. It emphasizes the need for basic information and strategic insights to optimize financial outcomes.
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Presentation Transcript
Retired Senior Partner of Grant Thornton US Consultant to Grant Thornton China 1
Improving Financial Performance Improving Financial Performance 2
Principal business purposes are to: Increase each others success Maximize earnings One for all; all for one 3
Importance of managing financial performance Counting cash at the end of the year is not management 4
Do you know what each engagement really costs your firm? Do you know whether each engagement is profitable or how profitable? Do your partners know what financial performance objectives are expected of them? 5
Some basics are required Some basics are required A budget from each partner A consolidated budget for each department/ office and the firm Reporting of actual hours devoted to each client by all personnel Rate per hour for all personnel 6
Financial Management requires basic information: An engagement revenue budget from each partner, listing Total revenues expected Collections of revenue by month 7
Financial Management requires basic information Number of hours required for each engagement By level of personnel By month To complete the engagement 8
Can you recognize where changes are necessary? Net revenues Salaries and number of personnel Operating expenses Number of charged hours to clients Average rate per hour to be charged to clients Average realization rate of fees Can you recognize where changes are necessary? 9
A TOOL to create a financial strategy to manage the financial strategy to establish partner objectives to identify variances to correct variances - timely A TOOL 10
Starts with the Partners Plans Expected revenues for each client Expected hours by staff level to complete engagement Expected cost of engagement, including potential profit Partners Plans 11
Do the Partners plans agree with the Firm plan? Do net revenues meet your expectations? Do you have an adequate number of personnel each month? Do net revenues produce adequate profit? Are some engagements loss engagements? Are all Partners profitable Do their plans justify their compensation expectations? Do net revenues meet your expectations? Do you have an adequate number of personnel each month? Do net revenues produce adequate profit? Are some engagements loss engagements? Are all Partners profitable adequately profitable? Do their plans justify their compensation expectations? adequately profitable? 12
Time is money Time is money We sell time Service is a result of our time We sell time Service is a result of our time 13
We always correctly estimate how many hours it will take to complete an engagement! All client engagements proceed exactly as planned! Client financial records are always orderly and complete! We can always easily obtain the documentation requested! 14
Therefore, the need for everyone to keep track of the time devoted to each engagement Daily or weekly time reporting requirement Time is money - Service is the result of our time 15
Converts time to money Charge rate per hour - composed of 1. Cost of average salaries by level, plus 2. Cost of operating expenses, plus 3. Potential profit percent composed of Often regarded as the Rule of Thirds But 16
Keeping financial performance on track Periodic financial statements Analysis of key data Comparison of data to the budget Determine reasons for variations Timely corrective actions 17
Operating Metrics Financial statement performance Performance Metrics Detail financial measurements 18
Operating metrics companies you audit) Operating metrics (similar to many Gross Revenues Net Revenues Realization Rate Gross Margin Operating Profit Realization Rate 19
Performance Metrics Net rate per hour Number of charge hours Net revenues per partner Gross margin per professional Utilization rate Number of charge hours per professional Performance Metrics 20
What they tell you Where are you compared to budget and compared to last year? Where is corrective action necessary? Which engagements are profitable more profitable? Which partners are profitable more profitable? Do we have enough or too many staff? What goals do I need to set for my partners? And much, much more What they tell you 21
Example Firm For the period ending December 31, 2011 For the period ending December 31, 2011 Operating Metrics Operating Metrics Actual Actual Budget Budget Actual Actual 2011 2011 2011 2011 2010 2010 2011 % 2011 % 2010 % Gross revenues from client services 452,000,000 100.0% 531,675,000 100.0% 452,600,000 100.0% Adjustments to gross revenues Write-offs (136,000,000) 30.1% (128,100,000) 31.5% (143,900,000) 31.8% 316,000,000 316,000,000 365,261,000 365,261,000 308,700,000 308,700,000 Net client service revenues 69.9%/ 100% 68.7% / 100.0% 68.2% / 100.0% Salaries and compensation Employees xxxxx xxxxx xxxxx Salaries of client facing personnel xxxxx xxxxx xxxxx Salaries of administrative personnel xxxxx xxxxx xxxxx Social taxes 160,500,000 50.8% 187,014,000 51.2% 164,537,000 53.3% 155,500,000 155,500,000 178,247,000 178,247,000 144,163,000 144,163,000 Gross margin for services 49.2% 48.8% 46.7% Operating expenses yyyyy yyyyy yyyyy Personnel yyyyy yyyyy yyyyy Facilities yyyyy yyyyy yyyyy Technology yyyyy yyyyy yyyyy Marketing and sales yyyyy yyyyy yyyyy Travel and entertainment yyyyy yyyyy yyyyy Office supplies and services yyyyy yyyyy yyyyy Outside services yyyyy yyyyy yyyyy Risk management yyyyy yyyyy yyyyy Other expense (income) 44,633,000 14.1% 51,867,000 14.2% 44,453,000 14.4% ( ) 97,452,100 97,452,100 126,380,000 126,380,000 99,710,000 99,710,000 Operating income (loss) 35.1% 34.6% 32.3% 22
THANK THANK YOU YOU Retired Senior Partner of Grant Thornton US Consultant to Grant Thornton China 23
