Tom Garrity

Keys to Agency Management: Finances

In Education on November 9, 2013 at 12:13 pm

imagesNOTE: This blog post was developed from my notes for a recent presentation to the Public Relations Society of America International Conference titled “Keys to Agency Management.”  The presentation included a number of back to back Ignite  style presentations.  This portion focused on financial concerns.

“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.” – Gordon Gekko

Fictional character Gordon Gekko is one of those people that has ice cold water running through his veins.  He is positioned as a “master financier” who knows the right moves because he watches the bottom line.

When you start a business, there are several financial items you need to keep in mind.  I will only be able to touch on a number of these.  One thing I will not be able to provide in the context of this blog post is depth.

During this “financial” discussion, I’ll be addressing “clients”, what do you charge, how do you determine what to pay employees, what do you determine to pay yourself and what are other considerations and questions.

The first thing you should do, is find a good accountant, someone you trust.  You are good at public relations, you are great in a crisis, awesome with clients and can woo the media.  Running a business… not so much.

First, lets start with the basics.  You will have expenses and you will have income.  The goal is to have more income than expenses.  However, there might be some months, years that scenario doesn’t pan out.

In the beginning, there were expenses.  They take the form of computers, printers, software, smartphone, paper, pens, logo, business cards, stationary… In QuickBooks, these are known as office equipment, office supplies.

Eventually you will have income.  Your “income” is provided by organizations and individuals who will pay you to provide public relations counsel, develop of a news release or provide connections to media leaders.

Some refer to that group of organizations and individuals as clients.  Clients are great! They provide you status, provide you tasking and they will fill up your day.  In the beginning there are clients.

As you build your practice, you will look for clients that pay.  The “client that pays” helps you to cover expenses and provides great peace of mind to you, your accountant and employees.

So now you are aware of two of the three types of clients.  There are clients, clients that pay and the third is clients that provide a profit.  This last class of “client” is the preferred client.

Next, I am going to review a basic principal of running a business.  It focuses on time, money and the rule of thirds.  The rule of thirds helps you to manage staff and profitability.

How much do you charge? Here’s how you find out. There are 365 days a year, take out weekends, you have 260 days.  This is equal to 2,080 hours. Take out holidays and vacation you have 1,400 hours available.

But you can’t work 100% of the time.  If your public relations account team bills 85% of time, or 1,200 hours a year, that’s pretty good.  Some say that business owners shouldn’t be billing more than 50% (or 700 hours) of your time.

Taking an example of hiring an account executive staff member for $50,000 a year, working 1200 hours a year, their rate should be $42 an hour.  That is their salary. But how do you pay for their computer, office and supplies?  And where do you build in profit?

That is where the rule of thirds comes in take the rate of $42 per hours and multiply it by three. The billable rate should be 1/3 salary, 1/3 overhead and 1/3 profit or in this example $126 an hour.

Hourly Rate

Overhead

Profit

Billable Rate

A

42

42

42

126

B

42

30

10

82

C

42

22

0

64

You can adjust this based on expenses and the amount of profit you want to take. Overhead can be adjusted if the person works out of home or is a contractor with his or her own equipment.

Other rules of thumb to consider are you develop your business includes having a business checking and savings account.  You need to set a budget, have at least one line of credit as well as securing insurance for you and your business.  You should also set accountability standards and secure advisors.

How do you learn these and other principals?  Here are some “must reads” as you develop your business and service clients.  One is Tom Gable’s PR Service Manual (available through PRSA).  The other is Managing a Public Relations Firm for Growth and Profit by A.C. Croft.  These are two great resources

Of course the best way is through the Counselors Academy annual spring conference this May 4-6, 2013 in Key West, Florida.  Peer discussions, best practices and details behind the numbers.

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