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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.

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.

How a kludge can help manage your agency finances.

Definition: A kludge is a workaround, a quick-and-dirty solution, a clumsy or inelegant, yet effective, solution to a problem, typically using parts that are cobbled together. This term is diversely used in fields such as computer science, aerospace engineering, internet slang, and evolutionary neuroscience.

Agency finances and financial systems can get very complicated, very quickly. The data available to analyse can grow exponentially leaving your head swimming and no better informed about the state of your finances.

Now, a good accounting system will solve this in the long term. Set up correctly to reflect how your agency operates it can give the right level of detail to the right people at the right time.

However if your budget can’t stretch to a new accounting system at the moment there are manual fixes that can give you enough information to help manage your Agency better.

An excel sales invoice register can break down your revenue and generate departmental P&Ls. Headcount numbers can give you a simple recovery analysis. Media commission can work out an approximate cost of sales accrual. If needs be a trial balance model can even generate monthly accounts from Sage50.

I’ve used all of the above (with a few others) to give some clarity and direction to Agency finances. My preference is always for a solidly based and integrated accounts and job costing system. This takes some time though and if you need some management accounts by tomorrow you’ll need a well designed kludge or two to get you through.

A word of caution though. I’ve seen spreadsheets that started with the best of intentions but then veered crazily out of control. Be especially careful if they are open to the entire agency.

Luckily for me what to focus on and what the information means and when to move to a more robust system means my role isn’t made redundant by a spreadsheet no matter how good it is.

If you’d like to know more about how I can help your Agency become more profitable with or without a kludge then contact me on simon@novemberfriday.wpengine.com

Are your Bonus schemes working for you?

Bonus schemes can be a mixed blessing. Handled well they can incentivise good performance and improve profitability. Handled badly and they can become a focus for unhappy employees.

I’ve helped set up many schemes. Most have worked well and rewarded people for performance which has improved profits. Others, not so much.

What separates the good from the bad? Here are some basic principles.

  1. Reward people only on what they can control. If the bonus is for the CEO then company net profit performance is a pretty good target but can a Business Director control overheads? You want them concentrating on maximising profitable revenue. Likewise a department head can’t usually bring in revenue so for them it’s about performance and efficiency.
  2. Communicate clearly and communicate early. People take an interest in bonus schemes so get them out before the year starts and get all the awkward questions sorted in advance.
  3. Tell people how they are performing against their targets regularly. Bonuses should be about improving performance, finding out about performance and discussing how to improve it is the main reason for bonus schemes.
  4. Balanced approach. Incentivise purely against revenue and you could motivate people to discount quotes to buy business. Make it about margin as well and you’ll guard against the risk of bringing in unprofitable business.
  5. Align to company performance. Ideally you should build your bonus schemes into your budget planning so that revenue and margin targets are in sync with company targets.
  6. Allow a discretionary element. Life is complicated and can take unexpected turns. Through no fault of the employee circumstances could dramatically change and you might want to reward an exceptional performer who was just in the wrong place at the wrong time.

Done well bonus schemes will more than pay for themselves. Done badly they can be counterproductive. If you need help incentivising your employees please contact simon@novemberfriday.wpengine.com. The author has over 20 years’ experience of devising bonus plans.

7 virtues of an Agency Finance Director

Over and above the ability to balance a TB it will be your personal qualities that will makes the difference between a good Agency Finance Director and an average one. In no particular order and with no pretence at being comprehensive here is my list.

1. Calmness. Most problems will come across your desk at some point so get used to projecting a feeling of calm. Fake it if you have to but don’t panic.
2. Flexibility. In most agencies you can’t do just the numbers. In my time I’ve looked after IT, HR, Admin, Operations and facilities. Don’t know a great deal about any of them but nobody else did either. Apply some common sense, find good suppliers and make it work.
3. Niceness. Apparently to keep relationships working well you need a ratio of 5:1 between positive to negative. Praise more than you criticise.
4. Curiosity. Things change quickly in agencies whether it’s client relationships or technology. Always ask questions even if you think you should know the answer. Assumed knowledge is dangerous.
5. Patience. It’s unusual for your requests to beat a client deadline. Patience and persistence will get you there.
6. Experience. I would say this but most situations have occurred before and it helps if you’ve seen it before.
7. Enjoyment. Working in an Agency should be fun. Enjoy it.

The author, Simon Collard, has had a mostly virtuous career as an FD in marketing services for the past 18 years. If you would like a chat about how I can help your Agency make more money please email simon@novemberfriday.wpengine.com

How to prepare for a successful Procurement meeting

Person pressing head against wall“It usually takes me more than three weeks to prepare a good impromptu speech”

Mark Twain

Procurement meetings are a routine part of the Agency FD’s diary these days. Whether it’s new business or annual reviews they are part of the furniture now. I’ve written before about how important it is to treat this as a positive development but this isn’t to ignore the fact that this is a negotiation.

Negotiation is a skill in itself and requires a broad range of inter-personal skills. Most of these can be improved on over time with training and experience but in the short term there is only one way to improve the chances of a successful outcome and that is to prepare. And then prepare some more.

So far, so obvious, but I’ve been in too many meetings to miss the opportunity to repeat this. Preparation is your best bet to level the playing field. Your procurement manager has the purchasing power as well as the specialist skills. You have the detailed knowledge of your agency, your pricing and your operations. If it’s important enough don’t have the meeting until you know your subject better than anyone in the room

Only by being all over the detail will you be able to negotiate effectively. To do this you need to understand the following;

Operations. Unless it is a very simple, linear project there will be variables. Is it possible to alter the scope of work? Only by talking to the people doing the work will you be able to work this out. It’s not a spreadsheet exercise. One simple example of this was when we were able to cut the scope down from 3 templates to 1 master template plus amends. By changing the scope of work we were able to fit into the client’s budget but still preserved our margin.

Margin. It’s vital you understand the likely effect on margin. This has to be done on a marginal basis. What revenue will this bring in versus any additional costs? Don’t look at the cost per hour. Once you know your likely margin you know what you can and what you can’t give away. I also much like to talk to talk about fee reductions in terms of the effect they have on margin. 10% fee reductions can sound reasonable until you realise that could be over 50% of your net margin.

Documentation. If you’re properly prepared you will have plenty of spreadsheets, word documents or presentations to choose from. Think carefully about what and how you show this information. You have to tell a clear, convincing story. Especially if is a mixed audience I would try to keep detail to a minimum.

Negotiation. There are many simple rules about negotiation skills. I have some of them written down and laminated on a card in my wallet. Some of them I agree with, some not so much. Find what works for you and use that – being natural will always be more comfortable and more effective. However (apart from preparation) there is another golden rule which is always ask for something in return. If your client wants something, usually a lower price, then ask for something in return. It may be a longer term relationship, payment up front or a longer termination period. If you don’t ask you don’t get.

Realism. Don’t expect to “win” the negotiation. You are going to have to give something away. You need to be in control of what you give away and what you ask for in return. Both parties walking away happy is victory. Think about what your procurement manager needs to achieve and work towards that aim.

It’s a messy business sometimes and the answer won’t pop out of any analysis. You will need to think on your feet about what to agree to and what you need to time to think about. You will need an appreciation of procurement’s target and knowledge of how your agency can deliver that and still deliver a good margin. Square that circle and you’ve done your job well.

The author has spent a large part of the last two decades working towards procurement targets. Never really got there. If you need some help with procurement please email him on simon@novemberfriday.wpengine.com.