professional services company

In Chapters 3 and 4 of your reading, you read about costing systems and ratio and trend analysis.  Applying the concepts in that you read about, pick a Company that you are familiar with and discuss the following:

–       The industry the Company operates in, the approximate size of the organization (revenue, number of employees, etc.) and the number of accounting staff

–       The type of information that would be relevant to management and how that data would best be collected, summarized and reported to management

–       Discuss what you think would be the five most important metrics for the management team to monitor.

For the third requirement, I am looking for operational metrics, and not financial statement metrics, that management would use.

For example, when I was CFO at a professional services company, our largest expense was payroll, which you must pay on time, you don’t get the luxury of 30 days terms. For me, making payroll was my biggest challenge since we billed most customers on a two week cycle, but typically about 5-7 business days after the close of the billing cycle. This means that I needed to pay the employees about 30 days prior to receiving payments from customers.So for me, my key metrics needed to be mainly in the billing, receivables and cash collections areas. I knew the average collections I needed to have on a monthly basis to maintain “break-even” cash flow. So I measured a rolling four week total billings and collections against my target of $650k, which was my break even point. I also knew that in order to have at least $650k of collections a month, I typically needed a receivable balance above $1.8 million, to account for delays in some customer payments and longer terms with some of our larger clients. So when I would see any of these metrics below the targets, I knew that the organization must react and I could focus efforts in the right area. For example, when billings or receivables were low, we would push project managers more on their billings. If collections were low, I knew that I needed our billing associate to focus on collection efforts.I also needed to ensure that the Company was making money, so I measure our gross margin for our departments against industry benchmarks. I also did the same with our overall net income %. This allowed me to monitor performance and to react timely to any decreases in revenue or increases in costs.So for me, these were the five things that I include in weekly and monthly reports to the management team.