achieve current and, to a certain extent, longer term financial projections. Many executives prefer to receive a bound package each month in which the following statements are included:

Executive Summary. Often referred to as a dashboard, this one- to two-page narrative summarizes key results and variances, pointing out the important issues an executive should know in case he or she were not able to study any other report in this briefing package.

Profit and Loss Statement. P&L should reflect performance for the month and year to date and be compared against budget, the last forecast (and any other quarterly forecast that the firm chooses to measure itself against), and the prior year. A variance analysis should accompany this statement that explains briefly the reason for any material variance (e.g., ±10 percent).

Balance Sheet. This summary-level balance sheet shows key line items within current assets and current liabilities as well as long-term assets and liabilities. The executive summary should discuss briefly the changes in A/R and WIP as well as current liabilities.

Cash Flow Statement. The cash flow statement reconciles the change in cash balance and details the major sources and uses of cash. Executives should pay particular attention to the first major subtotal that quantifies cash flows from operations because, over time, this is a key indicator of the firms viability.

Monthly Forecast. This forecast juxtaposes actual results for each month in the current year with projections for each of the remaining months of the year that, on a consolidated basis, will result in a forecast of the current fiscal year. This is arguably the most important report in the executive briefing package as it provides the best estimate as to the firms performance for the year and it is from that forecast that key strategic decisions must be made.

Accounts Receivable Aging. This summary-level report of the aging of A/R by client shows total balances by each 30-day aging period. Firm management should be particularly concerned with any balance outstanding more than 30 days and should take personal action on balances more than 60 days past due.

Metrics. The firms performance relative to others in its industry should be monitored and studied by senior management. To do that, certain ratios or metrics can be used as key barometers of the firms financial health. Chapter 2 details metrics appropriate for professional services.

Project/Client Cost Accounting* To hold individual project or client managers accountable for the resources they use, cost accounting reports should be reviewed and used to form the foundation for subsequent executive level project or client reviews.

Timesheet Summaries. Executive management should review statistics on the performance of its most valuable and limited resource, its staff, and the number of hours available to charge to clients. Two reports are key to effective utilization of the firms staff:

1. Staff utilization: These reports summarize the number and percentage of hours charged directly to clients and to nonchargeable administrative efforts. Staff utilization targets should be established during the annual planning process and measured each month (e.g., staff should have at least 90 percent of their time charged to clients; managers, 75 percent; senior managers, 65 percent; and partners, 50 percent).

2. Missing timesheets: Cost accounting in a professional services firm is meaningless unless all timesheets have been completed and incorporated into the cost accounting reports. If not well monitored by senior management, staff can fall behind in completing their timesheets as they focus their efforts on urgent client demands. If staff know that management receives a written report on who is late in completing their timesheets and follows up with firm support for their completion, the delinquency rate will be much lower than if such statistics were not publicized.

Summary of Vrite-Offs/Unbillable Expenses. This report provides executive management with a summary report of all amounts that the firm had to write off in the process of servicing each client, with a brief description of major items, to provide executive visibility with respect to mistakes and waste.

Summary of Capital Projects. This report summarizes the status of capital spending by listing each of the firms approved capital projects, the amount approved, the amount spent or committed thus far, an estimate of additional funds required to complete the project, the new projected total (actual plus the estimate to complete), and the resulting variance from the original plan.

Daily Cash Receipts Report. Although not necessarily part of the monthly reporting package, it may be helpful to circulate a summary of cash receipts by client in order to keep executive management informed of each clients payment status, particularly if the executive will be meeting with the client. This procedure helps to avoid situations where a senior member of the firm might be in a meeting with a client and inquires about the status of its

unpaid bills. If the bills have already been paid, the executive can avoid the embarrassment of having to apologize for referring to outdated information.

Graphing Results. Many executives in large and small firms alike prefer to review graphical renditions of their financial data to facilitate their review and understand results quickly in context of historical and relative trends. Key items that work well in graphical form include:

Revenue and expense graphs: These combined line and bar charts show the firms actual results as a bar and prior year, budget, and forecast data as lines for all key accounts including revenue, salaries, and other material overhead accounts.

Accounts receivable aging graphs: To track the effectiveness of the A/R collection process, it is useful to graph the aggregate balance of amounts in each of the past due categories (e.g., all amounts over 60 days past due graphed over a two-year period).

Staff utilization: Total hours charged, average rates, and utilization percentages over time can also be graphed.

Finance

There is a fine line between finance and accounting with many interdependences and tasks being performed by the same personnel, particularly in smaller firms. A well-managed firm is one that has sufficient capital resources to weather storms, negotiate mutually beneficial deals with its clients, plan ahead, both in the short and long term, and invest in its future. In this section, we distinguish those aspects of financial management that pertain to financing, planning, forecasting, and managing a professional services firm.

Capital Structure

Privately owned professional services firms typically rely on a relatively simple capital structure consisting of owners equity in the form of owners capital and retained earnings, leasing of facilities and major capital equipment, and limited bank financing, typically used to help fund working capital requirements. To manage its limited capital resources well, the firm must work carefully with its vendors and clients to negotiate payment terms that minimize the firms reliance on outside financing. Briefly, smart ways to reduce working capital requirements and improve the firms cash flows include:

Invoice clients weekly or biweekly. Although this may conflict with the clients normal accounts payable process, if you can negotiate this type