The role of the Finance Director has evolved significantly over the years; due in part to technology but mainly due to changes in expectations.
No longer is it enough to report on what has happened. More and more the focus is on Finance’s role in strategy – what is going to happen.
Only by having the basics sorted can a good FD shift the conversation from “what has” to “what could” happen.
The first and most important requirement is a robust forecast. Based only on booked work for the next month or quarter this will give you a clear starting position. Because it includes only booked work it will also be the worst case scenario.
If we add in the running totals for staff costs and overheads we will then have a very simple forecast P&L. Depending on the nature and volatility of your Agency’s work you will either have a vaguely comforting feel or a downright scary vision of the future.
So far, so easy. To make this into a simple planning tool we need to add some “what if” tools to help manage that future.
Again they break down into the main components of the forecast;
Revenue. What is in the pipeline that is likely to be signed off quickly enough to affect the numbers? Be realistic. Assuming you are going to win that big contract that you are pitching for as 1 of 8 is a surefire way to walk into trouble. However if a client has verbally agreed to start the project next month there’s a good chance it will happen. Depending on the client obviously.
Staff. What changes are already planned and known about? Leavers, joiners and reviews should all be planned in.
Freelancers. Ifyou have freelancers supplying core activities on a regular basis then you need to include them at a realistic level. If needed though you can take a zero based approach if the forecast activity is expected to decrease so that workload is shifted from freelancers to staff members.
Overheads. Are there any discretionary costs planned in the next quarter? Consultants, training and entertaining should all come under scrutiny if the forecast looks bleak 2 months out.
With a simple analysis of each of the above that feeds into your main forecast you have a very simple but effective tool that helps you know what levers you have and how hard you need to pull on them.