Resilience is key to Agency Longevity.

So far, so obvious. But what does resilience mean? The ability to carry on? To shrug off bad news and concentrate on the next thing? To keep working towards your goals?

Well, yes, these are certainly resilient behaviours but to be truly resilient you need more. You need to know how to know how bad the situation is, how you should react, you need to make choices. In short you need a plan.

That plan should start before any bad news. You need plan for bad news whilst times are good. What does this mean in practice? There are a couple of simple things you can do;

  • Keep cash reserves in the business.  Ideally keep at least 2 months’ costs as cash in the business as a buffer (your monthly costs are your overheads plus your salary bill). Buffers are great, they give you space to react and plan if a crisis hits. Be wary of taking dividends or investments which drops you under this.
  • Keep an eye on your client dependence. Ideally no one client should be a greater % of your business than your profit margin. Which hopefully is 20%. You don’t want one call from a client putting your business into the red because the CMO has changed. For your bigger clients make sure you know how strong the relationship is; look to see if there are any contractual safeguards in place
  • Use freelancers. It’s a balancing act between flexibility and profitability but having some freelance resource that can be flexed is an easy cost reduction if revenue drops. Just make sure they don’t turn into permalancers (with tax implications) or the main client contacts.

Assuming you do all the sensible things above and there is still a problem. What more can you do? This is where clear information is vital. Here’s a short list of information you need to have;

  • What is your lean run rate for running costs? What do you have to spend money on? Rent is a fixed costs; the summer party is discretionary. Know what your total fixed cost is.
  • What is your break-even target? After reducing your running costs to a minimum what revenue do you need to break-even?
  • How long can your cash reserves last?
  • What is your revenue forecast for the next 3/6 months. Confirmed work only.
  • What is your pipeline? This includes potential projects from current clients as well as new business. Are any of those likely, in a cold eyed review, to convert into paying projects. Don’t be overly optimistic here.
  • From the above what are the worst case, best case and most likely scenarios?
  • Assign responsibility to a small team for each element of the plan. Meet regularly for updates. What movement has there been? What costs have been reduced? What has happened to the pipeline?
  • When you’ve worked through (quickly) the above then you may need to think about redundancies. This needs a blog by itself but a quick summary is to look at areas with spare capacity balanced by a long term view of the skills and experience you need to retain. When you have to make this decision will depend on the health of your cash buffer and the strength of your pipeline.

Planning is a key part of resilience. Making sure you have clear information is part of resilience. Making everyone knows their part in the recovery is resilience. And then getting up each day to close that gap is resilience.

I’ve seen many instances over the last 25 years of potential business ending problems. The agencies that survive and thrive are those with a management team that pull together around a clear plan. They show leadership to the rest of the team and they focus on the things that can pull things around.

 

Simon Collard is a CFO who specialises in Marketing Services. He is also the co-founder of Agencymap.io which helps agencies plan for their futures.

Survive or Thrive?

How your revenue forecast could be the difference.

A good revenue forecast won’t make your clients happier; it won’t make your agency more creative or your coding more elegant.

What it will do is help you manage your costs in line with your income. It will provide a warning of harder times coming or it will provide you the security of knowing you can afford to recruit and remain profitable.

I’ve seen some shocking forecasts over the years. Over complicated, over optimistic and at their worst a very real threat to the survival of your agency.

Turning that round to make the forecast a roadmap to thriving is easier than you think.

It involves separating confirmed revenue from pipeline opportunities.

It means being able to scenario plan for the many, many things that affect revenue and costs.

It should show what effect those scenarios have on your cash flow.

If you have something that does the above well, then congratulations. However if you haven’t or you’d like to improve on what you currently use I may have just the thing for you.

Agencymap.io is a forecast tool like no other. Designed by agency professionals for Agency professionals it will help you survive then thrive.

How AgencyMAP will increase replace spreadsheets, make life better and increase profits,

There are many, many ways to approach the goal of improving agency profits.

Ultimately though it boils down to 2 things; either you increase your revenue or reduce your costs.

This is a statement of the obvious. How you go about either (or both) is the challenge. I’ll explain how I go about it a little later but first a word about the most important number in Agency finances.

The best indicator for Agency profitability is the ratio between total staff compensation and revenue. The compensation to revenue ratio (CTR) determines whether you are profitable or not.

This stands to reason. People costs are the single biggest agency cost. And your people produce the work that your clients want and are paying for.

If you can improve the decision making, in advance, around your revenue and staff costs then you will improve profits.

This sounds deceptively simple. It’s not. Revenue is constantly changing. Project timings change. Pitches are won or lost. Freelancers are used or not. Each revenue or cost decision is binary but the sheer number of them makes it complicated to keep accurate track.

If, like most people, you use a spreadsheet to manage your revenue and costs then you know how quickly they either break, become obsolete or become way too complicated.

Faced with so many bits of information about timing of projects, pitch progress and freelance resource needs the spreadsheet is not fit for purpose.

Something new is needed. It needs to be robust so that everyone can use it at the same time without breaking it. It needs to be flexible to reflect the constantly changing landscape of project and pitches. It needs to be quick so that by the time you’ve looked at 1 scenario it’s not out of date.

This is where AgencyMAP.io comes in. Agency professionals are currently building AgencyMAP.io.  It is a tool which looks after your revenue forecast, keeps a track of your pipeline and deals with multiple scenario quickly. It keeps you focused on the profit effect of your decisions.

AgencyMAP.io will give you back control of your agency forecast. Interested? Sign up at Agencymap.io. I’ll throw in a copy of my ebook “Where Is The Money? A Guide To Agency Finances”.