The PR profession loves the right side of the brain, which centers on creativity. It’s little wonder. Public relations executives thrive on creativity. They tell stories about brands and organizations. They develop events and conferences to help spread the message. They cultivate relationships with reporters and editors (never easy).
While the above PR disciplines continue to evolve due to the rise of digital communications, they’re not going out of style. At the same time, what’s definitely come into vogue among PR firm owners and C-level executives—particularly among smaller and boutique firms—is adopting a “Build to Sell” mindset.
“Build to Sell” means managing the PR firm day-to-day “as if” the owner of the firm is going to sell, even though she is planning to stick around for the long haul.
Here’s the crux of the issue: The mindset requires “left brain” thinking—or being committed to learning about financial benchmarks—in addition to the creative juices that flow from the right brain. And, let’s face it, PR pros are not exactly known for their financial acumen.
“The most important way to create value is to run your business as if you were to sell it tomorrow.” – Rick Gould
Adopting a “Build to Sell” mindset conditions owners and C-suite execs to manage their financials with more alacrity and have a sharper sense for how to spike both the top and bottom lines.
If you want to monetize your PR agency you can’t run it as a “lifestyle” firm. That surely will drive down its overall value—even if the firm is quote unquote profitable and reduce the number of suitors should you decide to sell.
With that in mind, here’s some crucial steps needed to put the “Build to Sell” mindset to practice.
Cash Management. A firm may show high profitability—and allot budgets accordingly—but be insolvent. Sounds wild, but it’s fairly chronic among certain PR firms. That’s because the profits may all be in the receivables. If the receivables are not collected the firm will not survive.
- Be smart: Cash management is so vital to the firm because most every financial decision—rent, salaries, investments—stems from knowing what’s coming in and what’s going out.
Hire a Part-Time CFO. This is major investment, but well worth it. A part-time CFO will get your chart of accounts in conformity with industry standards. This is imperative because the chart of accounts is the underpinning for your general ledger and ultimately your financial statements. (Having a proper financial statement in the proper format is critical when preparing to sell your firm.)
- Be smart: A part-time CFO can also create what’s called a “rolling budget,” accounting for new hires, new business, lost business, and infrastructure investment needed (both software and hardware).
Billings, Utilization, Proposals. Whether it’s the responsibility of the CFO or CEO of the firm, monitoring billing rates and utilization/productivity is paramount. You need to determine the baseline hours and the available client hours, for each staffer. Typically, this will be around 1700 hours, but varies in each firm depending on each staffer’s allowance for vacation time, personal time, paid holidays, maternity/paternity leave, etc. The firm needs to price out proposals based on the work projected and the billing rates of the staff assigned to the account team.
- Be smart: PR firm owners should strive for a 20 percent profit margin after paying all bonuses and paying themselves a market-rate salary.
Live by the Numbers. Set up a system to review the firm’s financials and stick to it. The review, perhaps monthly or biweekly, should include P&Ls, Balance Sheet, Statement of Cash Flow, time utilization reports, group P&Ls and other relevant information.
- Be smart: Another effective way to manage the numbers is to develop a custom spreadsheet with key ratios and a running 12-month overview of the agency’s reviews. This gives owners and C-level executives more breathing room to look over the horizon. Live by the retainer, die by the retainer.
What Gets Measured Gets Done. By monitoring your monthly performance and results, you increase the likelihood of improvements in whatever financial indicators you want to instill throughout the firm. Checking your firm’s monthly profit and performance on a regular basis also gives you the opportunity to identify a threatening trend—raising salaries without increasing billing rates, for example—and nip it in the bud.
- Be smart: There is a direct correlation between managers who do not regularly and coldly analyze operating performance and fail to create an annual budget and those agencies that go out of business.
Rick Gould, CPA, J.D., Managing Partner of Gould+Partners, is the author of “The Ultimate PR Agency Financial Management Handbook: How to Manage By The Numbers for Breakthrough Profitability of 20% or Greater,” and “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger Or Acquisition.”