A PR agency needs a strong financial leader to maximize its potential profitability. Yet the majority of PR agency CEOs are not financially savvy, no matter how creative and brilliant they are at what they do.
It’s OK if you don’t master the financial end of the PR business. However, especially in recessionary times, you must know your limitations and lean heavily on your CFO for careful guidance and tutelage. If you do not have a CFO I urge you to find one. Now more than ever you need to listen to the tune that your numbers are communicating.
What has become popular in many smaller agencies is to hire a part-time CFO. The part-time CFO may work one to three days per week, but will not come cheap.
For example, if a full-time CFO commands an annual salary of $150,000, then a part-time CFO may command $75,000. The upside is you are getting the talent, experience and education of a $150,000 CFO. The value added is well worth the investment.
There are many highly experienced individuals who would welcome a part-time position, including well-qualified, business-savvy mothers with young children. The part-time position could result in a happy, motivated and very productive person, as well as a PR agency that improves profitability.
So, how does a part-time CFO make a difference for PR agencies?
▶ Master the daily process.
A financially successful PR agency must get all of the daily processes under tight control and position the company for managed growth and, at the same time, optimize profitability and value of the agency.
▶ Maintain financial books and records.
A part-time CFO will get your chart of accounts in conformity with industry specs. This is imperative because the chart of accounts is the underpinning of your general ledger and, ultimately, your financial statements.
Having a proper financial statement format becomes critical when preparing to sell your agency. Knowing what to include in net revenue, re-billed out-of-pockets and re-billable costs, plus direct costs, operating expenses and other income/costs is imperative for any successful interpretation of results.
▶ Hiring a CPA firm.
A part-time CFO who is experienced in the PR business may also need to educate the company’s CPA firm as to format of financial statements and the type of financials needed (compilation, review report or certified audit).
▶ Billing and proposals.
The part-time CFO will monitor billing rates and productivity. The CFO will determine the baseline hours, and the available client hours, for each staff person. Typically, this will be around 1,700 hours, but varies in each agency, depending on each staffer’s allowance for vacation time, personal time, paid holidays, maternity leave and training.
▶ Best practices.
I always preach, “Run your firm as if you are going to sell it.” A part-time CFO can do that for you, in terms of setting up the right systems, preparing monthly financials and tracing the benchmarks/industry standard for the best practices.
▶ Budget.
A part-time CFO can create budgets that will be the basis of your fee quotes. She will prepare a “rolling budget” that is updated monthly, accounting for new hires, new business, lost business and infrastructure.
▶ Cash management.
Effective cash management is a necessity to sustain and grow any PR agency. An agency may show high profitability but be insolvent. That sounds incredible, but I have seen it many times. The profits may all be in the receivables. If the receivables are not collected the agency will not survive. The part-time CFO will assure that receivables are collected in a timely way and, if not, recommend appropriate action.
▶ Managing a crisis and/or economic downturn.
The part-time CFO must know how to manage a recession or downturn. She must predict the unexpected, have a conservative approach, maintain at least two months of fixed labor and overhead in a reserve account and not spend advances on fees and/or out-of-pockets on operating costs. Sometimes, the unexpected is caused by a loss of major client(s).
The part-time CFO’s office should be right next door to the CEO’s. The CEO needs to meet with the CFO regularly and confide in her. Most important, the CEO must have full confidence in that person. Close proximity is key to building the relationship. PRN
CONTACT:
Rick Gould, CPA, J.D., is managing partner of StevensGouldPincus. He can be reached at [email protected].
Rick Gould, CPA, J.D., is managing partner of StevensGouldPincus. He can be reached at [email protected].
This article appeared in the September 16 issue of PR News. Subscribe to PR News today to receive weekly comprehensive coverage of the most fundamental PR topics from visual storytelling to crisis management to media training.