The document discusses building value in professional service firms. It addresses several key points:
1. Ownership requires a high level of commitment to excellence and hard work. Owners work harder than non-owners and must prioritize long-term value creation.
2. Leverage, through training and recruiting professionals, is important for profitability. It allows firms to bill junior staff at rates higher than their salaries, increasing profits.
3. Marketing is essential to hedge against losing existing business, secure better rates, and increase self-determination with clients. Without new business, firms risk losing existing accounts.
1. BUILDING VALUE IN PROFESSIONAL SERVICE FIRMS Moderated by: Brian Kennel Performance Management Consulting, LLC
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15. Building Value in Professional Service Firms Notes: Any number of team combinations could be applied. Results will vary with differing rate and hour assumptions. Time value refers to billable hours multiplied by billing rate. Collected amount assumes a 95% realization factor to account for the reality that all time worked is not normally collected Salary is a variable depending upon firm type and industry segment Bonus is a simple formula of 25 % of collected amount minus 2.5 times salary. Fringe benefits are assumed to be 20% of salary and bonus Allocated overhead is based on an assumed 40% profit margin (to include owners collections) Net income is collected amount minus loaded payroll and overhead Profit per owner hour worked is calculated by dividing gross collections by owner hours (billable and non billable) worked. It is assumed that a solo practice owner would work more billable hours to meet demand. Leveraging Example: 4 man team - 1 partner and 3 professionals Solo Models Team Partner Non Partner Non Partner Non Partner Team Total Partner Hours billed 1,600 1,900 1,900 1,600 7,000 1,800 Billing rate $225 $185 $165 $95 $168 $225 Time value $360,000 $351,500 $313,500 $152,000 $1,177,000 $360,000 Collected amount $342,000 $333,925 $297,825 $144,400 $1,118,150 $342,000 Salary $90,000 $80,000 $50,000 $220,000 Bonus $32,678 $29,348 $5,820 $67,845 Benefits $24,536 $21,870 $11,164 $57,569 Loaded payroll $147,213 $131,217 $66,984 $345,414 Allocated overhead $82,667 $62,000 $62,000 $41,333 $324,264 $82,667 Net income $259,333 $124,712 $104,608 $36,083 $448,473 $259,333 Profit generated per owner hour worked (assume 600 non billable/400 non billable in the solo model) $204 $144