No one expects you to be able to see into the future. But, you can manage the near term effectively with the right elements in place.
As a digital agency, providing your Essential base of data collection is effective. Luckily, there are processes and tools you can use to form a view of what is coming on to the horizon. If these are implemented and running well they turn from one-off and periodic exercises into core disciplines. Transforming time-consuming but valuable tasks into important management tools.
Within the Agency Maturity Curve, the tool digital agencies can use to assess the strength of their operating model. This falls within the second phase called Enhanced.
Requiring finance to tell you about what is going to happen, and to understand how this compares against expectations is not unreasonable. It’s an important reflection of capability. Providing valuable insight for agency leaders. As well as having a good enough mechanism for controlling cash, is a competency all agencies should benefit from.
Putting together a thorough budget sets the foundation for ongoing live tracking of data. Whilst giving you the ability to map expectations around sales and costs in a structured way. Armed with this, your cash management can be put into the proper context of risk and opportunity.
To help evaluate where you are on the Agency Maturity Curve we have created the simple to use Agency Maturity Scorecard – Take the test now
“Too many businesses make life hard for themselves by not having the right financial maturity in place. By following this methodology, you will be running a far more robust operating model.”
Stuart Brown, Portfolio Non-Executive Director
The Enhanced phase of the Agency Maturity Curve houses three elements that are intrinsically linked but need to be developed and focussed on in turn.
Thorough annual budget
A detailed and achievable budget that can be used to formulate an operational plan for the next 12 months
Many agencies can claim to have a budget in place. But it is important to have confidence that it has been produced following a robust and meaningful process. A 12-month budget needs to be modelled around the key areas and reporting requirements of the agency. Not just a narrow view of sales or core costs.
Hallmarks of a good budget are if it also includes an accompanying capacity plan, marketing plan, balance sheet, and cash flow model. It should consider departmental reporting and useful recognition of different types of revenue. An effective budget, therefore, is a key part of your business plan for the year ahead.
Live forward projections
Having a near-live view of the business, and being able to project performance
Being able to manage the day-to-day operations of the business is a different task from being able to talk in a consistent manner about the near future. Providing that the Essentials are in place, your budget can be used as a reference point to create a near-live account of how well the agency is doing against the plan.
This is more than just having reporting technology in play. For truly effective projections overheads and revenue need to be updated continuously, and integrated with a live understanding of target, converted, and quoted revenue.
Projections at this level are as much about assurance of meeting the planned future. Rather than just measuring against past expectations.
Rolling Cashflow Forecast
Provide reassurance and warnings around the future cash position
Certainty around cash isn’t just about meeting regular commitments, it’s also about matching reserves to investment, capacity, and contingency.
A 13 week forward-looking rolling forecast should be a minimum standard for all agencies. However, this also needs to be in tandem with appropriate controls on managing that cash.
Knowing that outgoing payments are organised, authorised, and affordable helps to ensure that the budget and forecast are not just realised on paper, but in reality too.
Bringing facts into the figures
In conclusion, focus on the Enhanced aspects of your finance function allows you to align your business closer to your overall objectives.
Being able to understand what might happen in the future – even if you are unable to predict it – provides clarity. As a result, it can reduce stressful situations into something that can be looked at rationally.
This also means that the wider team can input into analysis, and not just the business leaders. Asking questions of every department becomes a cohesive activity. As it is easier to see how their contribution impacts the bigger picture.
While it can take a while to perfect, mastering the Enhanced phase of the Agency Maturity Curve can be transformative. Bringing certainty and predictability, and facts into the figures.