Did you, as an agency owner, find yourself struggling to keep up with your financials and business planning during and after the pandemic? Many business owners had to quickly learn how to apply for Paycheck Protection Program (PPP) loans, Employee Retention Credits (ERC), and PPP loan forgiveness, as well as figure out how to run a company with many, if not all, employees working from home.
Now that many agencies have changed their working models post-covid, agency owners have a whole new set of challenges to address, including maintaining company culture, paying taxes on employees who may live in other states, and be able to manage an entire company from their kitchen table.
Agencies now need a whole new set of financial and organizational benchmarks as they aim to manage and grow their business. In this revised and updated blog, we are including new things that agency owners should consider post-Covid.
Trying to find the right CFO services? Reach out to Clare Advisors for help with all your financial planning.
THE HYBRID WORKING MODEL
Agencies that were remote prior to the pandemic were likely not as affected by the sudden shift in working policies and environments. For most agencies, the pandemic forced owners and managers to consider completely new work environments at a time when no one knew how long the pandemic would last, and / or which changing rules and regulations to keep up with.
The post-pandemic working model is significantly different from prior years. Some agencies are fully remote, some have people back in the office full-time, and others have hybrid versions of the two. When agencies went remote, many employees moved counties or states as their employment was no longer tied to the physical office five days a week. This means that agency owners who were not remote prior to the pandemic now need to enhance internal financial reporting and payroll systems for employees (potentially) spread out across the country.
Firms that have the right financial and benefits infrastructure in place can leverage the new remote work environment to their talent acquisition and financial advantage. In the search for talent, employers now have the ability to search from a much larger and more competitive pool of candidates. Firms that used to have small team(s) in one location can now have staff spread across the country. However, given the different employment laws and tax regulations each state may have, agency owners need to invest in a more robust financial / accounting infrastructure to leverage this new opportunity and best manage payroll taxes / laws appropriately.
In addition to learning how managing payroll taxes for new employees, leadership needs to consider how and when to hire employees from different locations. Generally speaking, you want to hire more people when you feel your agency’s growth and/or new client work will not be sustained by the current number of employees. For agency owners either wanting to build up a senior team or hire more junior people, they can now consider a much larger and competitive pool than before.
As the leadership team expands, the senior team can take on more responsibilities within the organization, whether it is handling billing, taking over business development, or creating new roles to maximize efficiency within the organization. If a firm is not large enough for a fulltime secondary layer of financial leadership, firms like Clare Advisors can assist agency owners by offering financial planning and analysis services to help owners reduce revenue concentration, increase profitability, manage headcount costs, and plan for growth, depending on what is most helpful.
STRATEGIC AND FINANCIAL ADVISORY
One service you might consider is holding recurring meetings with your advisor. In these meetings, you can discuss the financial state your agency is in and where you want it to be. Regular meetings will allow you to stay on top of your agency’s financial status and make informed decisions along the way. This type of systematic growth management prevents your agency’s growth from racing ahead of your resources, stagnating, or even declining.
During your monthly meetings, an advisor can walk you through a detailed monthly report. This report may include a variety of financial statements and analyses to show you how your agency performs in a particular month, quarter, and/or year-to-date. These reports are helpful whether you are trying to increase your revenue growth, decrease concentration, make hiring decisions, or want to see how the current YTD financials compare to budget / plan. Components of this type of comprehensive report may include any or all of the following:
- Profit and Loss Statement: With a P&L statement, you can see what percentage of revenue goes to compensation and other expenses, as well as tracking EBITDA (earnings before interest, taxes, depreciation, and amortization), or operating income. This also helps you see how you are performing relative to your annual plan.
- Comparisons with Other Agencies: Your advisor may include a section that compares your financial and operating performance to similar / comparable agencies to highlight where you are tracking relative to industry benchmarks.
- Balance Sheet: A balance sheet is like a snapshot of your agency’s financial well-being at a point in time. It shows your agency’s assets and liabilities, the cash on hand, and working capital.
- Cash Forecast: Determining your expected cash flow helps you plan and budget for your financial decisions. The cash flow forecast shows your projected income and expenses, which can help owners make investment and hiring decisions with confidence.
- Client Concentration: Monthly and annual reports on your client concentration can help you understand how much of your revenue comes from a select number of clients. Generally speaking, if a few of your clients generate most of your revenue, you risk both losing a material amount of revenue if those clients decide to no longer work with you, and overservicing those clients to keep them happy (harming agency profitability).
- Utilization Reporting: Your financial advisor can also present monthly utilization reports that can give you a better understanding of your employee’s billable and overall utilization rates. Billable hours are particularly important in business service industries as they show you how many of your employees’ hours are spent directly on client work, which in turn reveals how many hours you can invoice your clients. Managing utilization across staff and clients is key to generating consistent profitability at an agency.
HELP WITH EVALUATING OPERATIONAL METRICS
Operational metrics are essential in determining where your agency stands. With a financial advisor assisting you, you can gain more value from these statistics and glean the right conclusions from them. Some of the metrics a financial advisor can help you with include the following:
- Revenue/Salary Ratio: This key performance indicator shows how much of your revenue goes to wages / salaries. An M&A advisor can tell you what the typical revenue/salary ratio should be for an agency like yours. This can vary based on how profitable your agency is, the services you provide, and how many key employees you have.
- Profit Margin: Profit margins are a common method to evaluate financials, as they gauge the degree to which your agency actually makes money. Your advisor can discuss where you want your profit margin to be going forward.
- Working Capital: Working capital is a measure of a company’s liquidity and short-term financial health. It represents operating liquidity available to a business at any given moment.
- Staff Utilization: An advisor can work with agency leadership to establish billable and overall utilization goals with employees. Employees can track towards certain billable percentages or see how many billable hours are spent on each individual client.
MAINTAINING COMPANY CULTURE
Pre-pandemic, if employees needed to talk or schedule a meeting, it used to be a matter of turning around to talk to a neighbor or walking down the hall. That is rarely the case with a hybrid or remote model. Prior to remote work, new employees were taught and experienced the company culture onsite, and this was reinforced by experiences with co-workers.
In a remote environment, employees generally do not have the same level of connectivity they would otherwise have in an office setting. To maintain a unified company culture, agency owners need to set communication standards that are both effective and efficient. A few solutions that leadership can implement are:
- Implement a weekly zoom call to go over department events, goals or share feedback.
- Hold a mixture of structured and unstructured activities that vary between large and small groups to suit the needs of a wide range of employees, such as:
- Virtual team-building events
- Slack channels for different interests
- Develop a company-wide newsletter that shares what is happening across the entire organization.
As many agencies have reduced or eliminated their office space, in-person get-togethers are not as common. Some of the decrease in rent expense can be used to free up budgets for annual or bi-annual company get-togethers, retreats, or group education sessions.
Clare Advisors is a merger and acquisition and financial advisory firm. The firm has completed over 35 buy-side and sell-side M&A transactions. The Clare Advisors team has provided exceptional financial advisory services to agencies across the United States and is committed to helping companies reach their highest potential.
Are you looking for the best financial advisor for your marketing or advertising agency? Contact Clare Advisors today for a consultation.