Agency money tune-up for Q4
A few weeks ago, my podcast spotlighted where we need to focus to make sure we finish the 4th quarter strong and kick-off 2021 on solid footing.
I broke my recommendations into the four critical components of running an agency that is growing and profitable. Those four components are:
- Leadership
- Biz Dev
- Getting the work done
- Money
This week, I'd like to delve into the items related to the business's money side that you need to tackle in the next 90 days.
Track cash flow and project out 90 days
Recessions always bring about cash flow issues as businesses try to slow down their A/R payments to hoard cash. You need to be tracking your cash flow to make sure you can meet all of your obligations at the end of each month. Be uber-conservative. No one is disappointed when they have more cash on hand than they expected! Do not let yourself get caught short.
Run your 55/25/20 every month
You need to have a good handle on how you're spending your agency's AGI each month. Are you keeping payroll costs in line? Are you overstaffed because your AGI has shrunk, but your headcount has not? Know where the dollars are going, so you are making very intentional and conscious decisions.
Decide what profit percentage is acceptable and manage to that
For each of you, there's going to be a different line in the sand. Maybe breaking even is a win for you this year. For others, they are still shooting for 20% profitability. I don't believe anyone should settle for being in the red. You all can and should be in the black by the end of the year, even if that means making some tough decisions. But how far in the black is your decision? Just be sure it's not an accidental decision.
Meet with your tax advisor ASAP to deal with any PPP money liabilities
Decide how/when you want to apply for forgiveness and when you'd like to show the income from your PPP loan. Is it better to get it on the books for 2020? If so, if you haven't already applied, you need to get on it. You need to be meeting with your tax advisor around now anyway for year-end planning — so be sure this topic is on the agenda.
Do not go unpaid. Do not delay tough decisions. Do not put yourself in a hole
I'm not sure I need to expound on that. Just don't allow yourself to avoid making difficult decisions and personally pay the price. It's not healthy for your agency, for your team, or for you and your family.
If you're having a good year — clean up any debt and build a nest egg
If you're one of the fortunate agencies (about 30+%) who are having a record-breaking year — be smart about that excess cash. Pay off any debt you might have and build a nest egg of 2+ months of operating expenses.
That covers all four quadrants! If you can complete the checklists I've given you for the last four weeks, you should wrap up 2020 in a position of strength and be ready to take 2021 by storm!
You can listen to the podcast episode and download the To-Do checklist here.
Drew McLellan, with Agency Management Institute, produces a weekly newsletter with updates, tips, and market information of value to marketing agencies, owners, and employees. If you'd like to receive the weekly newsletter, follow this link to subscribe.