Retired Senior Partner of Grant Thornton US
Consultant to Grant Thornton China
1
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
◦ 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
9

A TOOL
◦ to
◦ to
◦ to
◦ to
◦ to
create a financial strategy
manage the financial strategy
establish partner objectives
identify variances
correct variances - timely
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
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 – adequately profitable?
◦ Do their plans justify their compensation
expectations?
12
 Time
 We
is money
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
Often regarded as the “Rule of Thirds”
◦ But …
16
 Keeping
track”
financial performance “on
◦ 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)
(similar to many
◦ Gross Revenues
◦ Net Revenues
◦ Realization Rate
◦ Gross Margin
◦ Operating Profit
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
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
21
Example Firm
For the period ending December 31, 2011
Operating Metrics
运营指标
Actual
Budget
2011
2011
实际 2011 年
Gross revenues from client services
客户服务总收入
Adjustments to gross revenues
毛收入调整
Write-offs
Net client service revenues
新客户服务收入
Salaries and compensation
薪酬与福利
Employees
预算2011年
452,000,000
100.0%
(136,000,000)
30.1%
¥
核销
%
316,000,000
2010
%
实际 2010 年
100.0%
452,600,000
100.0%
(128,100,000)
31.5%
(143,900,000)
31.8%
365,261,000
68.7% / 100.0%
308,700,000
业务人员薪酬
¥ xxxxx
¥ xxxxx
¥ xxxxx
行政人员薪酬
¥ xxxxx
¥ xxxxx
¥ xxxxx
Social taxes
社保
¥ xxxxx
¥ xxxxx
¥ xxxxx
160,500,000
Gross margin for services
毛利润
Operating expenses
营业成本
155,500,000
50.8%
187,014,000
178,247,000
49.2%
51.2%
48.8%
164,537,000
144,163,000
Personnel
人员
¥ yyyyy
¥ yyyyy
¥ yyyyy
Facilities
设施
¥ yyyyy
¥ yyyyy
¥ yyyyy
Technology
技术
¥ yyyyy
¥ yyyyy
¥ yyyyy
Marketing and sales
市场和销售
¥ yyyyy
¥ yyyyy
¥ yyyyy
Travel and entertainment
差旅与业务招待费
¥ yyyyy
¥ yyyyy
¥ yyyyy
Office supplies and services
办公费用
¥ yyyyy
¥ yyyyy
¥ yyyyy
Outside services
外部服务
¥ yyyyy
¥ yyyyy
¥ yyyyy
Risk management
风险管理
¥ yyyyy
¥ yyyyy
¥ yyyyy
其他费用 （收入）
¥ yyyyy
¥ yyyyy
¥ yyyyy
Other expense (income)
44,633,000
Operating income (loss)
68.2% / 100.0%
员工
Salaries of administrative personnel
Salaries of client facing personnel
%
531,675,000
¥
69.9%/ 100%
Actual
营业收入 (亏损)
¥
97,452,100
14.1%
35.1%
51,867,000
¥
126,380,000
14.2%
34.6%
44,453,000
99,710,000
53.3%
46.7%
14.4%
32.3%
22
Retired Senior Partner of Grant Thornton US
Consultant to Grant Thornton China
23