Budgets and The Art of Storytelling

Recently I was looking forward to sharing next year’s numbers with everyone at one of my lovely clients. Secretly I even enjoy this bit of  public speaking – I love the numbers and I love to share what they mean with a willing audience.

I’d put together the budget diligently. I had a robust revenue forecast. The new business target was a stretch but achievable. I’d reviewed and was happy with the staff costs and overheads.

I’d prepared my slides with just enough detail to be credible but not enough to bore. I’d rehearsed my opening line. In short I was happy and looking forward to sharing the product of my work.

However I’d not noticed who and what was on before me. Our newly appointed Creative Director was up explaining what he wanted to do to our new website.

This wasn’t to be a dry run through of a wireframe. There was barely a finished visual. But there was a compelling story. Explaining what we did for our clients told as a story not as a row of options to navigate to.

A compelling story captivates the audience. They absorb the messages easily. Stories have always been how we communicate best. Some evolutionary theories have it as a way we have progressed so far so quickly. They speak to our hearts and minds.

Following on from this story my trot though the numbers seemed dry and, if I’m being honest, a little dull in comparison.

Now, as the Finance Director, there is something reassuring and comforting about being dull but the contrast between the two different presentations led to a moment of painful clarity. To get the real meaning of the budget across and to make it real to everyone rather than a set of imposed targets I had to tell a better story.

What this means I’m not 100% sure of yet. Who the heroes and villains are is yet to be discovered. What challenges and setbacks they face are still unknown.

There may be a different format with different interactions. There probably won’t be a campfire but let’s not rule it out totally.

To be effective the Agency Finance Director has to be a good communicator. Running through a table of numbers, one by one, does not make a good communicator.

Telling the story of the Agency as it unfolds in a way which engages everyone in the challenges ahead is a pretty good way to improve the chances of success. Now doesn’t everyone want the hero(ine) to get the girl/boy? Doesn’t everyone want their Agency to hit target? Maybe, just maybe, telling a good story is as important as double entry bookkeeping.

Help Manage The Future

The role of the Finance Director has evolved significantly over the years; due in part to technology but mainly due to changes in expectations.

No longer is it enough to report on what has happened. More and more the focus is on Finance’s role in strategy – what is going to happen.

Only by having the basics sorted can a good FD shift the conversation from “what has” to “what could” happen.

The first and most important requirement is a robust forecast. Based only on booked work for the next month or quarter this will give you a clear starting position. Because it includes only booked work it will also be the worst case scenario.

If we add in the running totals for staff costs and overheads we will then have a very simple forecast P&L. Depending on the nature and volatility of your Agency’s work you will either have a vaguely comforting feel or a downright scary vision of the future.

So far, so easy. To make this into a simple planning tool we need to add some “what if” tools to help manage that future.

Again they break down into the main components of the forecast;

Revenue. What is in the pipeline that is likely to be signed off quickly enough to affect the numbers? Be realistic. Assuming you are going to win that big contract that you are pitching for as 1 of 8 is a surefire way to walk into trouble. However if a client has verbally agreed to start the project next month there’s a good chance it will happen. Depending on the client obviously.

Staff. What changes are already planned and known about? Leavers, joiners and reviews should all be planned in.

Freelancers. Ifyou have freelancers supplying core activities on a regular basis then you need to include them at a realistic level. If needed though you can take a zero based approach if the forecast activity is expected to decrease so that workload is shifted from freelancers to staff members. 

Overheads. Are there any discretionary costs planned in the next quarter? Consultants, training and entertaining should all come under scrutiny if the forecast looks bleak 2 months out.

With a simple analysis of each of the above that feeds into your main forecast you have a very simple but effective tool that helps you know what levers you have and how hard you need to pull on them.

I Really Need To Shut Up Now

Sometimes the title of these blogs come first and the content suggests itself straight away. This is one such a blog. I was having a lunch with an old friend and we were swapping gossip and making plans. Lovely and the talk came naturally.

Not all meetings are like that though and suddenly a phrase occurred to me that expressed perfectly a thought I sometimes have during meetings. Whether it’s a Board Meeting or a coffee with a potential client there will come a point where I really need to shut up. And listen. And let other people work out what to do.

I’m sure it’s partly character but the serious point for me is that whilst I love numbers and what they mean for improving the understanding and management of agencies not everyone has the same tolerance. Go on too long and your message gets lost. Repeat yourself and you risk losing your audience.

These days I try to say the key points once, as interestingly as possible and then shut up and listen. The people I’m talking to know their business better than me so if I can frame the discussion clearly around simple, robust financial analysis and then step back so they can figure out what to do with that information I’ve done my job well.

You’ll notice this blog is a fraction of its usual length. I’ve said what I’ve had to and now I’m off to listen some more.

How the “SUMIF” formula can make you more profitable

I’ll come clean. I do love a well-constructed spreadsheet. Done properly they are simple, logical and informative.

That said, use the wrong formula, and you’ll fall out of love with them soon. Too simple and they will be too much manual interference. Too complicated and you’ll end up managing the spreadsheet rather than the agency.

This is perfectly illustrated for anyone using Xero or FreeAgent. I’m a big fan of these online accounting systems. They’re really easy to use. Intuitive. They’re also really good value. What they aren’t so good at is organising your accounts in a way that is insightful into your business.

Faced with a P&L which has every account from the vital (Revenue, Salaries) to the less important (Postage, Books and Journals etc) it’s understandable to skip to the bottom line to see if you’ve made a profit and loss and move swiftly on.

This would be a mistake. With a little effort up front it’s possible to turn this long list into a useful P&L which would give you the key metrics for your business and, therefore, a vital clue how to manage your business better.

“SUMIF” is the magical little formula that can make this happen. If you know and use it already my apologies for preaching to the choir. If not here’s how you can make it do most of the work for you.

To produce an insightful summary P&L it’s my opinion that you need only 6 numbers. These are

1)   Sales

2)    Cost of Sales

3)    Salaries

4)    Freelancers

5)    Overheads

      6)    Headcount

With these numbers you can look at revenue, staff costs and profit per head to see how effective your commercial model is and a big pointer to what you need to improve.

In order to get that insight you’ll need to do a little initial setting up work in Excel but believe me it’ll be worth it.

Here are the 4 steps needed to transform your P&L.

1)    Export your system generated P&L into a CSV file

2)    For each account assign a category from the 5 above (excluding headcount) and insert into a column next to the value

3)    Set up a simple P&L format like the one below  

Sales                                  £X

Minus Cost of Sales £      £Y

Equals Revenue                £X – £Y

Salaries                             £XX

Freelancers                       £YY

Overheads                        £ZZ

Profit               =  £X – £Y – £XX – £YY – £ZZ

4)    For each of the categories above use a “SUMIF” formula to add up all the amounts in your original P&L that fit into that category.

Now for a science bit. The format of the “SUMIF” formula works like this; =SUMIF(range of categories, category name, range of values of categories).

This may sound difficult but that’s more down to my inability to translate formula into English. Basically you are asking Excel to add up all the numbers that have “Sales” or “Overheads” in the category column.

You can extend this logic to both your balance sheet and an analysis of your overheads. For both the balance sheet and P&L you need an extra category to split your trial balance (a list of all of your accounts and their balances) between whether its a P&L or a Balance Sheet account. For overheads you’ll need another category field to break them down into useful sub totals. My personal preference is

a)    Property

b)    Legal & Professional

c)     Marketing

d)    Other Staff

e)    Office & General

That should cover most eventualities as well as giving enough information to investigate if there is any unusual spending.

Once you’ve set up the columns you should be able to cut and paste in your new numbers monthly and you should have a really useful, simple and quick to produce P&L and Balance Sheet.

Why is this worth it? It’s probably the most lucrative hour or so you could spend. Knowing what you’re charging per employee and how the cost of your staff compares to your revenue is the first step to improving your margins. All from a SUMIF formula. Now you know why I love it so.

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..