1 Session 2 – The management of a communication company Strategic and financial stakes for media...

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Session 2 – The management of a communication company

Strategic and financial stakes for media and communication companies

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1. Monitoring the revenues and the costs :Cost accounting and financial management

2. Controlling the cash flows

4. Monitoring the systems :Governance, internal control and audit

Agenda

3. Financial forecasting :Budgets and reporting


2. Monitoring the cash flows

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1. Monitoring the revenues and the costs : Cost accounting and financial management

• Financial management : monitoring the company achievements , i.e. methods which allow to orientate and give light on the action, and ensure its consistency with the strategic goals of the company.

• Mobilize a wide range of accounting and non-accounting tools : dashboards, budgets, annual business plans, performance indicators (KPI), ratios, …


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Standard P/L ( for a creative agency)

– Revenues 100– Staff costs

(Bonus included) ( 60 )– Rent ( 8 )– Amortizations– Other Opex ( 12 )– EBIT 20



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Cost accounting (still for a creative agency)

Revenues 100Direct staff costs 45

CONTRIBUTION 55Indirect staff costs 15Overheads 20

EBIT 20

• Splits the staff between productive staff (direct) and non productive staff (indirect) (Management, Administrative staff, etc.)

• Depending on the « business model » complexity, the cost accounting will be more or less sophisticated.



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• Importance of the timesheets.• Thought and action on the revenues and costs

Clients

1 2 3 4 Avail. Grand total

Revenues 20 12 40 28 - 100

Direct employees

ABC

(3)(2)(2)

(2)(0)(6)

(8)(5)(1)

(5)(3)(1)

(2)(5)(0)

(20)(15)(10)(45)

Availablilityrate

10 %

33 %

0 %

Contribution 13 4 26 19 <7> 55

% contribution 65 % 33 % 65 % 68 % - 55 %


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Action on the revenues side (still for a creative agency)

• Improve the agency remuneration model from its clients • Fees or commission ? • Fixed fees, or hourly based, or by project ? • Fixed commission or variable ? • Flat fee ? • Success fee / incentive ?

• Improve the calculation and the negotiation of the remunerationExample :

• Team• Salary per function• Overheads• Agency margin


Fees

Remuneration


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Action on direct costs

• Reduce the time/hours non charged to clients,• Optimise the pyramid-like teams,• Analyse in-house production vs. subcontracting,• The production « hubs »,• Make the payroll variable.



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Action on indirect costs and overheads (for instance)

• Centralizing the administrative and accounting back-offices :– A different way of working,– Efficient scales.

• Procurement :– Definition of an overheads policy beforehand ,– Preferred-vendors selection after a legal tender,– Check the compliance with the procedures (internal)

and the negotiated conditions (external).



Enjeux stratégiques et financiers des entreprises de la communication

Année 2009/2010 - Premier semestre

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Agenda

3. Financial forecasting :Budgets and reporting


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Cash = key element of the management of a company

Monitoring the cash means tools

• The cash flow statement (actual and forecast) allows to grasp the major balances and so, the needs in working capital.

• The cash forecasts allow to follow and anticipate the day to day cash positionand optimize it (investing the surplus, covering the overdraft).



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Cash management

• The previous actions allow to ensure and maximize the cash available. • Once acquired, cash is to be managed :

– Select the most appropriate financings or interest-bearing investments,– Optimize the bank conditions: negotiation, checking,– Monitoring the risks : compensation, exchange rates, foreign currencies.

• Complexity of the « cash management » at group level :– Centralizing the management of the surplus and the overdraft : cash pooling,– Setting up appropriate management tools : information management,

bank electronic connections, etc.



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Agenda

3. Financial forecasting : Budgets and reporting


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• The managing tools are used to :– Understand the evolutions,– React.

• The systems can be more or less advanced.Main tools are the followings :

3. Financial forecasting

Annualbudget

a 3 to 5 year Plan

Year to date

(reporting)

Financialstatements


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Performance Management Financial

Communication

BudgetSet up the objectives

Reforecasting Anticipate and manage

the variances

ReportingMeasure the performance


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• The system must allow to :– Give objectives (and the means to meet it),– Know continuously where we stand vs. the objectives in order to react very quickly

• It must be based on key indicators, such as :– Organic growth,– EBIT ratio.



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Budgets

• An original budget « set in stone ».

• A re-forecast system to re-estimate the situation from the actual (ytd) and the rest of the year.

• A month on month comparison (requiring a monthly forecast) between :– Original budget,– Actual,– Forecast,– Previous year.

• A P/L and, sometimes, a cash flow statement.



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The budgets

• Are used for open discussions with the managers of BU (Business Units) or subsidiaries,

• Can be completed by KPI (Key Performance Indicators) and key ratios,

• Must be consistent in their form and at the group level to set up a common language,

• Allow to set up reward and penalty grids.

Footnote : Importance of the original budget (EBIT in value).



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Reporting

• A way to gather information and analytics (actual * vs. budget vs. forecast vs. LY).

• An action -oriented summary.

• A validation through the closing accounting process.

* Monthly ; sometimes a « flash ».



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AGENDA

3. Financial forecasting : Budgets and reporting


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A firm is a complex organization.

To do well this organization needs the most possible secured and efficient management and functioning systems.

Two levels :

– the « governance » to ensure an independent and top-quality« government » of the company,

– The internal control and audit to ensure that the systems and procedures are running well.

4. Monitoring the systems


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The company « governance »

• The objective is to give a company a top-quality managing system ensuring its independence for a better protection of the shareholders on behalf of who the company must be run.

• A reinforcement of the governance rules has been implemented after the Enron and WorldCom scandals in the States.



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The company « governance » : the main rules• An important proportion of « independent » Directors with precise independence criteria

prescribed by the texts.• An Audit committee composed in majority or totally of independent Directors (3 in

general). The audit committee makes certain of the implementation of appropriate audit procedures and review in details the conclusions of the legal auditors .

• A Compensation committee composed as well in majority or totally of independent Directors (3 in general). The Compensation committee draws up the compensation policy for the senior executives.

• A Nomination committee. Same composition. The committee selects the candidates for the board of Directors.

• The various committees report to the Board which remains the organ for decision. Their works are disclosed in the Annual report.



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The internal control

The internal control represents all the actions taken to prevent any mistakes or frauds inside the organization.It is articulated around policies, systems and procedures that aim to allow a smooth processing of the company operations and the drawing up of reliable financial and accounting information.



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The audit

The audit goal is to give an independent opinion on the Company Financial Statements confirming (or not!) that they give a « true » and a «fair» (i.e.faithful and in accordance with the rules) view of the activity.

The Legal auditors first grasp the company activity and organization, and the quality of its internal control as well, to allow them in a second time to scrutinize the financial statements in accordance with the accounting principles and to issue their report.



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Burning question and prospects

The recent scandals have led to an awareness of the importance of the quality of the Financial statements. The lawmakers reacted enacting rules in terms of financial transparency and investors protection :

– Loi Sarbanes-Oxley in the States,– Directive Transparence de l’UE,– Loi de Sécurité Financière in France.

These rules aim :– the transparency and accuracy of the information disclosed by the company

(e.g.. : limitation of « pro-forma »),– the increase of the liability of executives, members of the Board and legal auditors,– the reinforcement of the internal control and its validation by the legal auditors.



1 Session 2 – The management of a communication company Strategic and financial stakes for media...

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