Following is a hard-learned, hard-earned summary from Second Wind to you; hard-learned after years of seeing agencies fail to mind the financial store, and hard-earned by helping ad agency owners figure out how to manage after surviving a crisis.
Tony’s Agency Financial Rules
Run your agency on an accrual basis. You must place the sale and the corresponding cost into the same month. We don’t care what you and your accountant do as far as tax filing is concerned, but for the sake of your profits, keep your internal records on accrual.
Insist on a formal close each month. And make sure your billing is completed soon after that so that you can send bills to clients. Lack of coordination in month-end billing, or more accurately, putting off billing, leads to more agency financial problems than any other single inefficiency.
Progress-bill clients. Even if projects are not complete, make sure your clients know that you cannot be their bank, and that your workers have to be paid each week.
Check financial statements each month without fail. After the month is closed, P&L and balance sheets must be on a full accrual basis by the 10th of the following month. You need these financial statements to run the business in some sensible way. A financial statement is simply a snapshot of where your agency is at that point.
Collect your money. As we said, you are not a bank. Please note that many companies play games with their cash to avoid paying their suppliers on terms. Doesn’t that “frost” you? CASH IS KING. Make collections a regular duty for AEs and, if necessary, your accounting staff -- and if all else fails, YOU, the principal.
Bill media to the client as soon as the insertion order is issued to the media. Do not wait for tear sheets or affidavits. You can make good in the future for clients. Don’t let your money be held up by proof of run. If pre-payment is an issue, have the media bill the client directly and forego a media commission. This is something you and your clients have to agree on up front.
In closing, let us give you some good financial news.
The agency business is changing. We are migrating from the agent-for-commissions model and into the results-based strategic partner model. This is good for you and good for agency finances. As clients discover the empowered consumer, they also discover that the way into consumers’ hearts is strong marketing and enduring brand relationships. This should put your agency top of mind with many C-level executives. As that begins to happen—and perhaps it has already begun—you will find fees and bonuses are more readily accepted, and less likely to fall prey to client renegotiation.
Could it be that we are heading into a new age in smaller and midsize company dependence on and recognition of the importance of marketing? And if so, could it be the start of a new golden age for smaller and midsize agencies?
We can only hope. In the meantime, estimate accurately, negotiate for your prices, scrupulously record your time, bill regularly, write off fewer unpaid invoices, and fight the good fight.