Financial management glossary
- Working capital is the everyday working money available to run the business.
- Current assets - current liabilities = working capital.
- The amount of working capital required can be reduced by accelerating the rate at which money circulates through the business (for example prompt billing).
 Working capital turnover rate
- Annual statement of income and expenditure that shows if a company has made an overall gain on trading performance.
- A picture of the business as it stands, providing a statement of total assets and liabilities at a given point in time (usually the year end).
 Monthly 'flash' profit & loss report
Actual vs budget information based on:
- Net Income (after paying others) (work in progress not included).
- Gives an indication which area might be responsible for a loss or profit.
- Useful over a longer period of time to spot trends and blips.
Profit/ loss based KPI's:
- Profit per fee earner / partner.
- Turnover per fee earner / partner.
- Break even rate.
- Overhead rate.
- Analyses ability to pay bills as they become due.
- Current ratio = current assets (including work in progress) / current liabilities.
- Quick ratio (acid test) - quick assets (cash+bank balance+debts) / current liabilities'
- Ratios over 1 are deemed satisfactory. The higher the better.
Financial Performance plan:
- Sstablish costs for employing the employee / number of working hours = cost rate per hour.
 Project resource plan
- Shows hours of each grade of person required monthly.
- Hours translated into cost x by rate per hour of each grade.
- Projected fees vs projected cost - plotted on graph.
- Compare projected with actual to monitor performance.
- Share information to give a sense of involvement and responsibility. This will allow them to align their actions with the best interests of the company.
Captive fee forecasting:
- Fees are agreed, fully documented, contractually binding and scheduled for current projects.
- An indicator of how busy a company is likely to be in short to medium term.
- Avoid the cliff edge - when a project is delivered fees reduce so it is important to win more work to maintain cash-flow through fees.
Future possible fee forecasting:
- All possible fees hoped to be earned. Anything but certain.
- Quantify probability of winning them with a success probability factor %.
- The aim is to attempt to predict the medium to long term.
- Establish whether the right number of people are available to deliver the work lined up in the captive fees forecast.
- Keep a rolling weekly forecast of people required vs people available.
- Plan for flexibility so there is always some resource available for general work.
- It is most efficient to use those with recent experience on similar projects to achieve good results quickly.
- Cashflow = total money in and out of a business affecting liquidity.
- The most accurate way of predicting the financial health of a company in the short - medium term.
- Gives an idea of when cash shortage problems may be approaching.
- Rolling 6 monthly.
- If seeking a loan / overdraft, a 2/3 year forecast may be needed.
- PAYE/ NI.
- Office supplies.
 Credit Control
- Good organisation is the key to good credit control.
- Invoice for fees in a regular and determined way.
- Chase up when they are not paid on time.
- Agree payment terms.
- Keep a record of all correspondence regarding fees.
- Logged in aged debtor report - all outstanding payments and for how long.
- Understand clients payment systems.
- Outstanding invoices should be chased
- Remind them of agreed terms in invoices.
- If over due send reminder email with copy of invoice.
- Further 1 or 2 weeks… phone call.
- Last resort: Dispute resolution.
Featured articles and news
5 out of 10 filtering facepieces fail HSE tests.
Eleven Magazine announce the winner and runners-up in their Moontopia competition.
As January is the time for hitting the gym, Designing Buildings Wiki lists the best gym architecture in the world.
London is at the top of the list of global construction megacities, beating Dubai and Abu Dhabi.
What are the innovative business models of the future, and how to incentivise supply chains to work on a whole life basis?
One of the largest churches in the world, the monumental St. Peter's Basilica.
How thermal comfort is quantified and how it can affect wellbeing.
Snøhetta complete a treehouse cabin that allows guests to lie beneath the Northern Lights.
Christiania is an anarchist 'freetown' in Copenhagen where strange and experimental architecture has flourished.
Why buildings crack, how cracks are categorised and what can be done.