Rick GouldRick Gould
For many PR agency owners, some expenditures can’t be helped. Boosting budgets to fund new video programming, for instance, is something that PR firms ignore at their own peril, as video content inexorably moves toward the core of marketing communications. Ditto for online analytics with increasing sophistication, to help PR firms make better sense of all the consumer data they now collect on behalf of their clients. However, when it comes to hiring a chief financial officer — an integral position for brands and organizations throughout the economy — PR agencies often hold back.

A lot depends, of course, on the size of the firm and its capital structure. Any reluctance to bring a CFO aboard purely may be a function of dollars and cents. Among boutique shops and smaller agencies, for example, CFOs can be perceived as prohibitively expensive.

For many midsize firms the CEO and/or managing partner wears the company’s financial hat, as well, finding new efficiencies.

However, as managing PR firms becomes more and more complex — and agencies integrate an ever-increasing number of digital practices and software platforms — agency owners may want to consider hiring a CFO. In a hypercompetitive marketplace, hiring a CFO sends a strong message to the marketplace that you run your firm as a “business,” as opposed to a lifestyle firm.

If hiring a full-time CFO is not in the cards, hiring a part-time a CFO is a relatively safe bet for agency owners. While it may be a tough nut to swallow, investing in a part-time CFO will yield PR agency owners concrete results. Having a CFO in the fold will enable agency owners to build a stronger financial infrastructure and bolster staff utilization and profitability.

The benefits from hiring a part-time CFO include:

Master the daily process

In such a rapidly changing marketplace, a financially successful PR agency must get all of the daily processes under tight control and position the firm for managed growth. The CFO makes sure all of these processes are airtight and there are no “leaks” that can make the agency financially vulnerable.

Maintain books and records

A part-time CFO will get your chart of accounts in conformity with industry standards. This is crucial, since the chart of accounts is the underpinning for your general ledger and, ultimately, your financial statements. (Having a proper financial statement format is also critical when preparing to sell your firm.) Knowing what to include in net revenue, rebilled out-of-pockets and rebillable costs, direct costs, operating expenses and other income/costs is imperative for successful interpretation of the results, compared with industry benchmarks. A CFO brings all that know-how to the table.

Billing, utilization, proposals

The part-time CFO will monitor billing rates and utilization/productivity and recommend solutions should either be trending in the wrong direction. She will also track write-offs of time to put utilization percents in perspective and give them real meaning. This provides the CEO to make more informed decisions about what’s immediately ahead, in terms of billing, etc., and what’s on the horizon. It puts the vision of the firm into sharper focus. The CFO will also get a handle on baseline hours, or the available client hours, for each staff person (typically 1,700 hours, but a lot depends on each staffer’s allowance for vacation time, personal time, maternity leave, paid holidays, etc.). In addition, the part-time CFO will price out proposals based on the work projected and the billing rates of the staff assigned to the account team. She must be sure the team is staffed for maximum efficiency and productivity and, at the same time, achieves the profitability goals of the firm.

Effective Budgeting

Budgeting can sometimes be nettlesome for PR agency owners, a left-brain exercise for people who tend to be more right brain. A part-time CFO can create budgets that will be the basis for the fee quotes. She will also prepare a “rolling budget” that is updated monthly, accounting for new hires, new business, lost business and infrastructure investment needed (particularly on the digital front).

Cash Management

Effective cash management is a necessity to sustain and grow any PR agency. A firm may show high profitability but be insolvent. Sounds incredible, but I have seen it many times. The profits may all be in the receivables. If the receivables are not collected the firm will not survive. The part-time CFO will assure that receivables are collected timely and if not, recommend appropriate action: stop work, collection agency, sue. All told, the part-time CFO will make cash management, budgeting and predicting the future an ongoing responsibility for your firm.

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Rick Gould, CPA, J.D., is managing partner of Gould+Partners. He can be reached at [email protected] or 212/896-1909. Portions of this article were excerpted from the latest edition of “The Ultimate PR Agency Financial Management Handbook.”