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You Bake With The Flour You Have (Danish Proverb)

It’s a homely image. After all baking is a lovely thing. Everyone loves baking. It also makes some sort of sense. A touch obvious maybe.

Less obvious is the connection to my favourite subject, Agency finances.

I always thought there was a kernel of an idea there, if you’ll excuse the pun, that could illustrate the important point of maximising your profits whatever the size and shape of your Agency.

This became a lot clearer during a meeting I had recently with an Agency owner. It was a new business meeting so I was on my best behavior and trying to impress. I needed something more than my ongoing obsession to make sure everyone knows the importance of the compensation to revenue ratio.

They described their problems with their clients who were price driven and paid a flat project fee. There were substantial 3rd party elements – both freelancers and suppliers.

Thrown into this difficult mix were competitors who would undercut their prices (and suffer a loss if necessary) for the promise of future, more profitable, work.

My proposed, improvised, solution was to use their numbers (I always want to use numbers) to figure out their strengths. How much of their work went out to freelancers. Was there enough to hire in more cheaply? For skills they could not or did not want to bring in-house could they get a better deal by offering volume? Could they approach their clients with a sliding scale volume discount scheme that would help them secure the savings they needed whilst getting the better service from their preferred agency partner?

The meeting ended with smiles so the ideas weren’t too far off the mark. Food for thought at worst; a solid plan to improve margins up at best. Not revolutionary but a better combination of proposition, buying and selling approaches.

Walking back to the tube after the meeting it struck me this was just a better way of baking with the flour you had. Every agency has assets. They could be cash, they could be intellectual property or they could be a range of strong client relationships.

Too often we do what we did before. Before some Maverick dropped some yeast (I suspect whilst making beer) into their flour and noticed some interesting results all bread was flat. Suddenly we had loaves.

Whatever our assets I convinced we can do something better than we did before. Make our cash work harder for us. Leverage our client relationships to guarantee work volumes and lock competitors out. Use our IP to work smarter. Drop some yeast into the mix if things aren’t working.

Too often we overlook the assets we have and look longingly at those we think we need. Sure it would be nice to have a Head of Artificial Intelligence and that might help you become more profitable. Might. What definitely will is maximising your existing assets. Start by baking with the flour you have.

 

Consolations of Philosophy – Lessons for an Agency FD

As a latecomer to philosophy I’m struck by how much I’d have gained at an earlier age by an earlier study of the subject. Even at my more mature age there is still plenty to learn from the greats of the ancient world and whilst there’s nothing about revenue recognition there is a surprising amount that can apply to managing an Agency. Here are a few examples.

 

Employ your time in improving yourself by other men’s writings, so that you shall easily gain what others have laboured hard for.

Socrates

Wisdom begins in wonder.

Socrates

Agency Finance Directors can get a little insular. You’re likely to be in a minority of one. However, help is at hand, as the odds are that someone else has come across any problem you encounter, whether it’s technical or commercial. Reading around your subject, talking to peers, keeping a sense of curiosity about your business and your industry is vital. Socrates knew what he was talking about.

No man ever wetted clay and then left it, as if there would be bricks by chance and fortune.

Plutarch

A self-evident but well expressed truth. Building a successful finance department or a successful agency is not going to happen by chance. It requires knowledge, direction and hard work. Working out the key drivers of your business and building a strategy and culture that delivers profits year in and year out is the target.

A good decision is based on knowledge and not on numbers.

Plato

This looks like an odd one to pick out for a Finance Director. However numbers are useless without context and knowledge. Together they are a powerful combination but you can’t run your agency on numbers alone.

Luck is what happens when preparation meets opportunity

Seneca

Enjoy present pleasure in such a way as not to injure future ones

Seneca

Luck has little to do with making your Agency successful. Hard work, a clear strategy and talent are the basic ingredients. Throw in careful and prudent cash management and you should also be able to avoid Rapier’s fate.

Man is most nearly himself when he achieves the seriousness of a child at play.

Heraclitus

Big results require big ambitions.

Heraclitus

Character is fate

Heraclitus

You cannot step into the same river twice.

Heraclitus

Heraclitus of Ephesus was a self-taught philosopher who had a tendency to misanthropy and had a shaky hold on DIY medicine. He died shortly after treating himself for dropsy by covering himself in cow manure and baking himself in the sun. Dodgy physician but insightful philosopher.

Agencies must keeping changing in order to keep ahead and must have an ambition and a passion. As an FD it might be your job to temper that ambition with some reality but better that way around.

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

Aristotle

Aristotle was a polymath who wrote about physics, logic, linguistics, ethics and biology as well as writing poetry, plays and music. Apart from putting most of us to shame he put his finger on an eternal truth. Call it practice makes perfect; calculate that it takes 10,000 hours of practice to become an expert but we have to put the preparation in. Mastery of the subject matter is under our control, whether it’s a Board meeting or a procurement negotiation.

So, as well as democracy, science, oratory, art and straight roads the ancients have also given us some clear hints at running a successful agency. Read widely, prepare thoroughly, don’t take yourself too seriously and have the enthusiasm to think big but keep enough cash tucked away for a rainy day. Follow that little list and the ancients will help your agency today.

The author has been helping Agencies make more money for nearly 20 years now. To have an initial chat how this can be done please contact him.

Accounting for Start Ups has never been easier but there’s still a vital role for a Finance Director

One of the many pleasant surprises I’ve learnt over the past 18 months or so as a freelance Finance Director is how much online accounting systems have moved on.

I’ve always counted my blessings I’ve worked more in Excel than Kalamazoo. The speed, ease and accuracy with which you can manipulate data has taken a lot of the drudgery out of the FD role.

The explosion of new, simple and exceptional value online products such as Xero, FreeAgent and KashFlow has had the same effect on accounting systems for the start-up entrepreneur. They enable anyone’s accounts to be on a robust platform from day 1.

Being able to log on wherever you are to check on the cash position or raise an invoice for work you’ve just done makes accounting easier, flexible and more relevant.

So far, so bleak for the accountant whose role could be marginalised to the annual accounts and tax computation. However there is a real opportunity for the Finance Director to become a trusted business advisor.

Naturally I’m a little biased here but no matter how simple and easy it is to process transactions or pay suppliers there is always going to be an important role for an FD who can explain not only why the numbers are what they are and ways they could be improved.

It is this added value role which can’t be replaced (yet) by software. In fact having the right software at the right time and cost should mean the time saved on the more day to day functions should mean a greater focus what the numbers mean.

Getting that advice and insight in a cost effective package is what I’m about. One of the things that can improve the chances of a small agency surviving and thriving is getting good, practical advice from an experienced, flexible and cost effective Finance Director. If this sounds interesting contact me.

5 Songs and 5 lessons for an Agency FD

Reading the stats about how people come across your blog is fascinating. You learn first-hand about the long search tail. Quotes have proved to be a popular route to my thoughts on the role of the Agency FD and in the hope of repeating this here are some lessons drawn from song titles.

 

Everything is free – Gillian Welch

Probably the biggest change I’ve seen in marketing has been the rise of social media. It has changed many of the basic parameters not just of marketing but also the business model of many industries, especially music. Not especially fertile ground for songwriters you’d think but this defiant paean for the creators makes it clear everything shouldn’t be free even though if it is she’ll still carry on writing and singing.

The threat and opportunity to marketers is how to harness this power and how to make it pay. Free content, paid for content and earned content should all amplify the client’s brand. The FD’s challenge is to make sure that content providers and Agencies can make it pay. Whether it is using social media to respond to customer service issues or generate links to boost your page ranking there has to be a solid commercial model behind. Everything isn’t free unless there is a very dramatic change happening.

2 + 2 = 5 – Radiohead

Not the best known Radiohead song but the only one to have such a blatant arithmetic error in the title. But yet…….

The ultimate goal for any Agency is to be greater than the sum of its parts. It can be frustrating for an FD but not every decision can be decided by a well-constructed spreadsheet. In the balance between magic and logic in an Agency it’s the FD’s job to be on the side of logic without dismissing the creativity, the passion, the magic that can make the Agency stand out.

Money Changes Everything – The Smiths

Yes I was a student in the 80s and have an unashamed nostalgic warm spot for Morrissey and Marr. Not least for some of the longest and most poetic of song titles of which the above is one of the simpler examples. I was tempted to include You Just Haven’t Earned it Yet, Baby

It is axiomatic that money does usually change everything. This is why it’s a golden rule for every Finance Director to make sure that everyone knows up front how the money works. Who owns what, who earns what and how it’s worked out. You’ll need to be transparent and explain regularly and clearly how this works. This is especially true for company bonus schemes where simpler is better and updates must be frequent. If not the bonus scheme won’t be the good news or the incentive that it should be.

Brand New Day – Van Morrison

Famously the grumpiest man in music this optimistic tune always cheers. It also serves as a reminder that what has gone has gone and what matters is what happens today, yesterday has gone.

In finance terms the link is that we should always concentrate on future costs and revenue and not historic ones. What is best to do next? Asking this question backed up by accurate and up to date historic data is key to maximising profit. Providing systems that means every manager in the Agency can answer the question is transformative.

Every Little Counts – New Order 

Firmly dating my formative musical years the lesson here is fairly straightforward. Anyone who has worked with me will have heard my favourite personal cliché that, yes, it is only x thousand/hundred pounds but it still matters. I’d still like it in the bank account.

Every little cost saving or extra billing is marginal profit. The quickest money an agency will make or lose will be through these kinds of decisions; especially at the estimate stage.

Making sure you have a sound commercial model, understanding that not every decision can be backed by a spreadsheet but when a decision has been made to be transparent about regular with updates. Recognising the emotional impact of money and instilling good disciplines into costs and revenue opportunities without risking client relationships. These are 5 valuable lessons for any Agency FD.

Over the last 20 years as an Agency Finance/Commercial Director I’ve commuted to work listening to music, some of it even post 1990, and tried to put these lessons into practice.  As a virtual or part time FD specialising in the independent sector I’m using these lessons to help Agencies grow. If you’d like an initial chat email me.

What should management accounts do?

 

I’ve seen a lot of management accounts in my time. Bad sets of accounts can be too short or too long, too simple or too complicated. They can focus on the wrong metrics and they can lack context. They can be produced so late that everyone has already moved on. Sometimes they can focus entirely on the profit and loss and ignore the balance sheet entirely. Most importantly they can entirely lack any insight into why the numbers are what they are..

To be useful accounts need to meet the following criteria;

i)     They need to be produced quickly within a maximum of  7/8 working days, ideally fewer.

ii)    They need to show the overall financial position including current and future trading, balance sheet strength and cash flow.

iii)   There should be enough detail to inform but not enough to confuse.

iv)  They must include words of explanation and insightful analysis not just numbers.

v) They should summarise with more detailed analysis available if needed.

Sounds simple doesn’t it? Not surprisingly I think good management accounts and sensible advice from your FD is a vital part of growing your agency profitably. To have accounts quickly makes them more relevant and speeds up decision making. Monthly accounts should always focus on the balance sheet and cash flow as much as the P&L as careful management of cash is integral to growing your agency.

Striking the balance between detail and summary is difficult. There is always so much detail that could be reported. One way around this is to deliver at both levels so there is a summary P&L which just has the headlines with detail, if required, on the inside pages.

It’s also important to recognise that whilst accountants are number focussed not everyone shares this fascination so a narrative which includes an explanation of the events of the month is a good idea. What client activity has driven revenue up or down? How have leavers or joiners affected staff compensation? Have any one-off overhead costs affected the profit? Not least what light can they shed about the immediate future and how can they inform the conversation about what to do next.

At a conservative guess I’ve prepared just over 200 sets of management accounts as a Finance Director of Marketing Services Agencies and more importantly have had to explain them at least twice as often to everyone from Managing Directors to Interns. Anyone who would listen basically. Take a look at your next set of accounts to see if they meet these criteria. If they do, congratulations. If not why not drop me an email on simon@novemberfriday.wpengine.com and we can chat about how I could help improve the quality of your accounts and how they can make your agency more profitable..

 

 

“It measures everything, in short, except that which makes life worthwhile”

 

Why you need more than a P&L to understand Agency profitability. Part 1

Robert Kennedy’s quote was a pretty good response to a recent think tank proposal that costed the loss to the British economy of a bank holiday. Seemed to sum things up nicely. It also made me think a little about how successful management accounts are at measuring what makes agencies profitable.

In order to understand why an Agency is profitable the P&L is the tip of the iceberg, the starting point. Revenue minus costs is the easy part. Trying to figure out and explaining why revenue and costs are what they are should be the challenge facing Finance Directors.

That’s not to say the humble P&L can’t offer you some instant insight into the fundamentals. Starting with revenue, staff compensation and operating profit numbers you can easily work out your per head metrics. This will give you a direct comparison with your competitors and will highlight areas of strength or weakness.

Even armed with information on your relative performance won’t enable you to answer the fundamental question about profitability. It will point at where you should be looking at improving performance but what drives revenue and costs?

Building long term, profitable client relationships with a happy, well-motivated team is the answer to a profitable agency but how do you measure this?

The lifeblood of an agency is the new business pipeline and the value of this pipeline over time along with the conversion rate are key drivers for any agency. In addition tracking the reasons for failure will help sharpen future proposals. What weight you put against a proposal is up for academic debate but as long as you are consistent it is the trend over time you’re interested in. It’s such a simple thing to measure and vital to your future profitability but it needs to be front and centre in reporting.

A happy, well-motivated team is vital to the intangible culture of the agency as well as saving time and money by not having to constantly replace people who leave along with the client and agency knowledge they’ve accumulated. Whilst some churn is not a terrible thing if it gets too high it will eat into your bottom line. Short of polling everyone whether they’re happy each week you can and should measure staff churn. I would also go a step further and measure churn of your star performers who have left to go to a competitor as well as total churn. Learning why people who you would want to keep have left to go to another agency has to be important to know – is it money, career prospects or culture that drove them away or attracted them?

The above are by simple to measure. As an FD making the time to sit down with the new business team or the HR manager to measure these pipeline and people metrics is as important to the long term health of the agency as the monthly accounts.

I’m an experienced FD of marketing services agencies. If you’d like an initial chat about how I could help your agency be more profitable then please contact me on simon@novemberfriday.wpengine.com .

A Finance Director’s role in 4 quotes

Our life is frittered away by detail. Simplify, simplify.

Henry David Thoreau

It’s surprising the amount of data that even the smallest Agency can generate. Timesheets, invoices or forecasts it soon builds up and it can be daunting. The well ordered mind of a Finance Director will want to be all over it. We want to capture the data, ensure its integrity and organise it logically. Then, maybe, if we have time, we’ll share it.

The role of a FD is to make sure the rigour of good data prep goes on unnoticed in the background. The details that make it out for discussion should be simple and concise.

Systems and processes should be simple and unobtrusive. Spreadsheets should be logical and well formatted.

With all this in the background the Agency FD will be able to concentrate their effort on the real target; maximising profit.

 

Our business is infested with idiots who try to impress by using pretentious jargon.

David Ogilvy

Finance Directors come to agency life from a different angle with a different set of priorities, a different language. It’s not better or worse but it is important to realise it is different and we need to translate back and forth.

We need to try and understand what is important to an account director or a creative director and make sure our answers are intelligible and constructive.

It’s no good talking in jargon. Finance Directors more than ever will need to find a way to communicate, to explain, to find a common language.

To get your message across, to help people to manage job or client finances better; this is at the very heart of what makes a good Agency FD.

 

If one does not know to which port one is sailing, no wind is favourable.

Lucius Anaeous Seneca

It’s safe to assume that although Seneca never had to produce an annual budget he’d have produced a decent one if he set his mind to it.

All agencies should have a budget, its a direction of travel and a method to get there.  I’ve said before and will say it again; all budgets are wrong from the moment they’re written.

What is important is the plan;  how are you going to win and support new business, what is the effect of staff churn, how much should you pay your key staff, what is the effect of client attrition.

A budget alone won’t mean you reach port safely but the proper strategic thinking behind it certainly increases the odds.

 

Everyone has a plan until they’re punched in the face

Mike Tyson

You may have an incredibly well thought out budget with sensible assumptions but along the way you’ll be punched in face and those plans will be scrambled. A large client will leave, key people will leave, budgets will be cut and pitches will be won and lost. Whatever happens it is always about what you do next.

There are a few challenges here. One of which is about the difference between tactics and strategy. Clients and people will always change but if you have the right strategy it should pay dividends in the long term. The FD has an important role here in not only keeping calm but also in setting up management information that focuses on the success or failure of strategy over the long term; not just this month’s results.

The second issue which always crops up is about reducing headcount in the face of a business downturn. It’s a delicate balance here and whilst I always shy away from the macho brand of management that insists its best to cut early and cut hard. You’ll need to argue convincingly why this isn’t always the best approach. Cut too much and you’ll be in danger of limiting future growth, not enough and with too much emphasis on the next pitch and you’ll put the entire agency at risk. It’s a difficult job with no easy answers.

I’m a Finance Director who has specialised in Marketing Services. If you’d like a chat about how I could help improve your Agency’s profit drop me a line on simon@novemberfriday.co.uk.