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Finance & Accounting for Advertising
| Date post: | 29-Jun-2015 |
| Category: |
Economy & Finance |
| Upload: | jason-lucio |
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Finance & Accounting for Advertising
© Adficiency Group, Inc.
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Introductions
• Jason Lucio▫Y&R Austin, a subsidiary of Young &
Rubicam/WPP▫GSD&M, a subsidiary of Omnicom▫nFusion▫AdPeople North America, a subsidiary of
Wunderman/WPP▫Austin Advertising Federation
© Adficiency Group, Inc.
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Agenda
•Financial Management•Timesheets•Revenue models•Revenue considerations•Other financial considerations•Risk management
© Adficiency Group, Inc.
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Financial Management
•Accounting – information system that reports the economic activities and condition of a business (the language of business)
•Constraint – “backward looking” BUT! We can learn a lot from history
© Adficiency Group, Inc.
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Financial Management• Systems – what must we have?• Timesheets
▫What do we sell?▫ Ideas▫WRONG!▫We sell our time
• Job costing▫Direct labor▫Direct costs▫Nonbillable costs▫Correct overhead – what to use? (direct labor hours or
direct labor dollars)
© Adficiency Group, Inc.
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Timesheets• Why?• Timesheets help us capture our revenue• They also help us capture our costs• Provides a real time picture of employee
productivity• Employees should know how much they’ve
been budgeted for• Why is this important?• Profit and loss• CLIENT profit and loss (helps us manage
retainer clients)
© Adficiency Group, Inc.
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Timesheets
•The bane of our existence•How the company gets paid•How do we get employees to comply?
▫Training▫Accountability (employees,AE’s, managers,
directors)▫Hall of Shame▫Withholding expense checks▫Computer lockout
© Adficiency Group, Inc.
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Timesheets
•Analysis▫What is target billable percentage?
(consider out of office time)▫It could be different for everyone▫Billable vs. nonbillable time (both are client
time/direct labor and considered productive time)
▫What is appropriate for nonbillable/biz dev time?
▫Non-client time (admin/out of office)▫Manage billable time first
© Adficiency Group, Inc.
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Revenue models
•Time & materials▫Does this still work?
•Retainer•Flat/blended rate•Fixed fee•Bill rates
▫How do you determine these?▫Cost rates▫Cost + overhead + profit margin▫Loaded cost rates
© Adficiency Group, Inc.
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Revenue models – time & materials•Bill for every hour•Time tracking•Billing timely• Incentive for stretching out hours•Markup on materials?
© Adficiency Group, Inc.
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Revenue models - retainer
•Analyzing cost rates•Analyzing overages/underages•Honest conversations with the client
© Adficiency Group, Inc.
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Revenue models – flat rate
•When to offer•What is the appropriate rate?•Average bill rate/average hours
(2080/year)•When does it work?
▫Junior clients▫Junior employees with minimal senior staff
involvement
© Adficiency Group, Inc.
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Revenue models – fixed fee
•Consistent projects•Consistent hours•Consistent team•“Commoditized” services
▫Off the shelf▫Routine projects▫Little wiggle room
•You win some, you lose some
© Adficiency Group, Inc.
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Revenue models – bill rates
•Market rates (Target costing = Market rate – profit)
•Cost + profit – what is reasonable?•Person driven vs. title driven•Do I charge commission?
© Adficiency Group, Inc.
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Post mortem analysis – what went wrong?• QvA during the project (consistently)• Scope creep• Value added• Team mix misalignment• Agency f*** up• Estimate error
▫Historical projects▫ Job types▫Project traffic templates▫ Should these be fixed fee?
• Agency learning• Biz dev
© Adficiency Group, Inc.
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Revenue consideration
•Pay for performance (bonus)•Rush fees•Kill fees•Early signing discount•Early payment discount•Client referral bonuses
© Adficiency Group, Inc.
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Other financial considerations
•When do you biz dev?▫When you are the busiest▫Average 6 month lead time to generate
revenue on a new client•Budget
▫Create, measure, revise, repeat•Expenses
▫Fixed vs. variable (know your overhead)▫You can’t cut your way to success
© Adficiency Group, Inc.
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Other financial considerations• Collections
▫ Analyze monthly▫ AE’s should collect▫ Have an accounting contact▫ Get info up front
Correct address Client payment terms
▫ Prebill for large projects▫ Send A/R statements
• Payables▫ Consider using Amex▫ Don’t pay until you get paid▫ Don’t pass along purchase discounts unless contractually
required
© Adficiency Group, Inc.
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Other financial considerations• Sarbanes-Oxley
▫ Consider complying even if you aren’t required▫ Separation of duties▫ Prevents error & fraud▫ Areas to consider:
Accounts Payable Accounts Receivable Cash Closing the books (general ledger reports/analysis) Media Nonfinancial (human resources) Payroll Revenue WIP
© Adficiency Group, Inc.
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Other financial considerations• Sales tax
▫Applies to tangible personal property▫Can include creative work▫Some things are taxable, some are not▫Retainers may be fully or partially taxable (need detailed
SOW)▫ If not written into estimate/SOW, clients might try to
refuse to pay▫The seller is responsible, regardless of whether or not
they collect from the buyer▫Agent vs. reseller
• Use tax▫Applies to purchases not for resale
© Adficiency Group, Inc.
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Risk Management• Understanding current processes• Review current client/vendor agreements
▫ Identify areas of improvement▫Boilerplate language – are you using all these?
MSAs SOWs Estimates PO’s Media liability agreements
• Client surveys▫What is the definition of success?
© Adficiency Group, Inc.
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Administrative
•Process documentation•Knowledge sharing•Training•All of these lead to greater efficiency and
can affect your bottom line
© Adficiency Group, Inc.
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Who’s responsible?
•Accounting/Finance•Management•Employees•Clients•EVERYONE
