As we move deeper into the final quarter of the year, now’s the time to look ahead to 2017’s backlog, pipeline, and cash flow.
As we move deeper into the last quarter of fiscal 2016, senior leaders of many firms we work with are grappling with the following:
- Accelerated work effort going into October, November, and December to meet client-spending needs.
- Accelerating collections to insure cash flow needs are being met for year-end activity (bonus, capital expenditure acquisition, etc.).
- Managing their 12-52-week cash flow projections.
- Balancing resource planning to meet the financial and schedule constraints of the work effort.
- Preparing their accounting professional support for tax planning for 2016.
Some of our clients enter into the last quarter of 2016 preparing to address business planning efforts for 2017 that relate to their strategic planning efforts that have taken place before 2016 started.
They, along with their in-house financial management teams and business development teams, are preparing the following for 2017:
- Office/service line budgets for 2017.
- Marketing plans that tie into the strategic plans that drive marketing, business development, and sales elements that will convert into spending needs in 2017.
- Resource planning to address how well positioned the staff needs are based on the backlog and pipeline of work.
So, what are your plans as you enter the last quarter of 2016?
As our focus at Zweig Group is to continue to assist our clients to be successful, here are some areas that your firm should be addressing:
Strategic Planning/Business Planning. If your strategic plans were in place in 2016, how has the firm achieved those targets based on quarterly assessments of the goals that were codified when the planning effort was undertaken in late 2015? Is the firm on track to meet the financial goals that were established? What course corrections were made to achieve the quarterly goals?
Or, has the firm not kept up with the plans, and the attainment of the goals was shelved because “We were just too busy to focus on that effort.”
More importantly, what will you and your firm do going into this period to ensure that the effort on the items that are detailed for 2017 will be tracked and monitored?
Is there someone assigned from either practice leadership or the financial management team to be the gate keeper of this effort? Their job is to challenge those that are responsible for goal attainment to prove that they are meeting the monthly or quarterly review points that will deliver success. If there are areas that are underperforming, they have the responsibility to also challenge those individuals to quickly address areas that are off track and bring to senior leaders’ attention the need to address those areas.
Predictability. This is a big one, and it is one that we harp on our clients as they manage their business during the year. The following are the critical elements to being predictive rather than reactive.
- Backlog of existing work. What is your current backlog of contracts that are authorized by your clients? Authorization can either be a signed contract, notice to proceed, email, or a note on the back of a napkin, whatever you have in place that allows you to commit resources for your firm that the client has agreed to.
Can you, along with your financial team, produce a clear and accurate backlog report for the life of your projects that schedule the flow of work over the months remaining on the projects and is monetized at a push of a button out of your financial reporting systems?
If yes, congratulations, you can look down the road with some clarity on how the firm’s workload is going to support the staff.
If no, you are running blind in your ability to manage staff and resource planning on your projects, and that is not a good place to be. The problem with not being able to review this with a button push is that the effort on the part of senior leadership and project managers to produce this manually will deliver information that will be outdated by the time the data is reviewed.
- Pipeline of opportunities. Just like the backlog, the pipeline of all proposals can be monetized and reviewed to address work load and future staffing needs in advance of the work entering the firm.
If all proposals were resource planned and assigned either a 25 percent, 50 percent, or 75 percent probability of award, and if all of that information is entered into your accounting system with planned start date, work schedule dates by month and end dates, the pipeline of proposals above 75 percent can allow your firm to really examine where the resource needs will be.
If they are truly the future efforts that the firm is confident of award, regardless of when and the schedule, this gives the firm a window into seeing how resources would be impacted, as well as how the backlog is being replenished.
The following chart shows the power of putting the backlog and the pipeline together, and the information and predictive look at where the firm is headed.
The greater the accuracy on the backlog, the more confident senior leadership can be on where the firm is going. It sounds simple but it is often difficult to have the project managers and financial management work in concert to deliver this really valuable data.
The chart is not just a graphic depiction of the backlog and the pipeline. The graph reflects potential, and gives you the opportunity to review how your firm is going to handle the gap between existing resources, future needs to meet potential future schedules, and the integration of new resources.
- Predictive cash flow review. What are your firm’s current cash flow reviews? Are you still addressing a daily review of “what did we get in today” after the mail is opened?
Best practice firms are looking forward to cash need requirements 12 weeks ahead on both the incoming projection of cash from clients and the cash outflows in the form of payroll, fixed costs, and variable costs.
I often liken the cash flow process to riding down the road on a bicycle, head down, and you don’t see the semi that just stopped in front of you. You are now bug splat on the back of a big rig. That is the daily cash flow review.
Predictive cash flow review is much safer. You are on the bicycle, head up, sun shining, and you have a clear picture of the road ahead.
Ted Maziejka is a Zweig Group financial and management consultant. Contact him at firstname.lastname@example.org.