Adjusting Staffing Levels Leads to Profit Improvement

CUSTOMER PROFILE

Professional Services

Headquarters

New York

Challenge

Professional Services Firm Seeks More Capital, Struggles with Financials

The CEO of a professional services business contacted us saying, “We want to raise more capital, but our financials don’t make sense to us.”

We quickly analyzed the company’s financial statements and informed the CEO, “Your financials look bad because your business isn’t profitable.”

Of course, that was just the beginning.

Approach

Identify Key Profitability Drivers – and Problems - Across All Service Lines

Next, we identified the key drivers of profitability (or lack thereof) for the business across each service line and determined that the biggest problem was that the company was overstaffed – they tended to associate “hiring” with “growth” – and their people were overpaid.

How did we identify the source of the company’s profitability problem?

It is one thing to recognize a business is unprofitable at the bottom line – it’s another thing to dig into the “why”. We took apart the income statement to make sure we understood all of the performance drivers. We fixed the accounting records so that we could determine revenues and actual costs for each business line.

We analyzed the company’s capacity to provide each service, based on headcount. We determined that while the company generated strong revenue on an hourly basis, they were overstaffed and had not established long-term employee utilization targets. In other words, we explained what had previously been unexplainable.

Outcome

Adjusted Staffing & Hiring Optimizes Efficiencies

Based on our analysis, the company eventually stopped hiring, let some of their redundant employees go, and adjusted staffing to appropriate levels. With the right-sized staff, the business was able to decrease costs and return to profitability.

We also suggested hiring a COO to implement our recommendations, and to replace the controller who was, unfortunately, incompetent in their position and was responsible for the chaotic state of the company’s financial statements. The CEO and COO decided to hire G-Squared permanently, as their outsourced CFO.

How the Right Outsourced CFO Can Drive Profitability Improvement

Since the CEO intends to cash out some time over the next five years, he knew he needed to clean up the company’s financials and right the ship. G-Squared charted the course and helped the CEO get the business on a profitable path.

One of the advantages of outsourcing the CFO role to us is that we had taken the time to thoroughly understand what was happening inside the company. Also, we could be an impartial go-between when others in the company had turf issues that affected the company financially (they usually do), we could deliver information dispassionately to those who might be defensive, and we were able to step in to help deliver difficult news.