Every business goes through peaks and troughs in its lifecycle, especially in the agency world when so many are reliant on project-based revenue. Combine that with the fact that you often have a primarily fixed cost based on your people and it doesn’t take much for monthly profits to swing into losses. The market is more competitive than it has ever been and because of that many agencies are going through tough times. The good news is that if you do find yourself in a rut, with the right planning and implementation there is always light at the end of the tunnel. Here’s how we would go about planning your survival goal.
1. Understand and reflect on your current position. Why are you in financial difficulty?
The start of any plan is to understand your current position and how you have got there. Only then do you know that the decisions you’re about to make are the right ones? There will be things that have gone right, and of these, you need to understand what the key drivers were in those results and how they can be duplicated moving forward. There will also have been mistakes and failures, and the same principle applies here. Make sure you understand what caused those mistakes and that you have made the right changes in your business to stop them happening again. It can be useful to apply the Pareto principle here too – you’ll most likely be achieving 80% of your outcomes from 20% of your activities, and vice versa.
2. Know what you need to prioritise and set the right targets.
Cash is always the first thing to hit in a struggling business and your cash flow forecast will tell you at what point the business will run out of cash if nothing changes. First and foremost you must be generating cash quickly on what work you do have coming into the agency. I’ve written more here but by that I mean being paid up front, working to the right milestones and having very tight credit controls in place. Each individual client and project should have a positive cash flow cycle.
However, the above is only a short-term fix and the number one priority has to be returning to profitability as quickly as possible. When it comes to overheads make sure everything has been reviewed and is returning value to the business, otherwise, it can go. The business must be as lean as possible and unfortunately difficult decisions may also have to make when it comes to your people. Some will be adding value and paying their way, others won’t. You will know deep down who they are but it’s important to try and take your emotions out of it. Your financial data and your individual job scorecards should paint a clear picture.
After that, the next big factor in returning to profitability is going to generating sales and increasing revenue. There are only two ways to increase revenue – through selling more to your current clients or by winning new ones. Current clients should be the first port of call as they already know and trust you. Have you explored all angles for how they could increase their spend with you? Alongside that you need a solid marketing and sales plan to generate new leads and convert as high a percentage of them as possible. I would say that your biggest chance of a turnaround comes if you make it a team effort and as the business owner try not to take all the weight yourself. It’s safe to assume that there will be spare capacity in the agency and every spare second should be spent contributing to your marketing plan and generating those leads.
Finally, all the above should revolve around your financial forecast. In this scenario, I would build a detailed 12-month forecast so you know first and foremost that your plan is the right one. How much retained profit are we going to have and how much cash in the bank? You’ll then know what you need to achieve month on month and most importantly what the key drivers are to hitting those outcomes. What are the smaller day to day activities, inspired by the reflection phase, that is going to result in you hitting your targets? That’s the only way you can cut through the noise and have confidence that things are moving in the right direction.
We’ve helped dozens of agency owners to plan their future with clarity. If you would like help then arrange a discovery call and we’ll be delighted to meet you!