The Four Financial Systems to Ensure a Profitable and Predictable Agency
You’ve worked hard on your financial plan, you understand what the targets are, what clients you want to work with and what services you’re going to provide to them. You’ve even mapped out your team and how it needs to evolve over the course of the three year plan. Now as the agency owner you’re looking at that plan and considering what the next step needs to be to give you the confidence that the end result is going to be a robust and stable business. The team needs to be able to consistently deliver your best service for clients, and consistently deliver financial performance for the business. The answer is systems, and at MAP we believe that it’s critical to map out your entire financial processes from when a prospect shows interest in working with you, all the way through to the cash ending up in your bank. Here are those four stages broken down:
#1 Prospect From Shown Interest to Proposal Produced
We would always start with understanding how a prospect can show an interest in working with you in the first place - do they fill in a form on your website, will they make a call to the studio, or email the business development manager who they met at an event? There will be a few and it will be slightly different for every agency, but what does your sales process look like? An example could be:
Prospect completes form on website > Discovery call > Internal qualification meeting > Meeting with prospect to discuss brief > Produce proposal.
These first interactions with your prospect are key and the experience they have could make or break the relationship. At best it should give them 100% confidence that you’re the right agency for them to work with and that they should trust you with their hard earned project budget.
#2 Prospect from Proposal Produced to Signed Customer
Once the proposal has been produced, how is it shared with the prospect? We would encourage you never to email over a PDF and cross your fingers. There’s a lot of opportunity at this stage to add value and nurture them closer to being ready to sign. Can you arrange a meeting with the key decision makers in their business to present the proposal and handle any objections there and then, making it more of a consultative selling approach? At the very least try and arrange a video call to talk it through, and always be in control of the next step and end every interaction with the next touch point being arranged.
How does your sign off process then look? Contracts are really important at this stage so both parties understand what exactly the deliverables are what should be expected of who and when. This is also the first point at which payment terms are formally agreed.
#3 Customer from Signed Up to Project Milestones Completed
You’ve been given the go ahead by the client, the sign off process is now complete and the studio can get started on the project. Here it’s about working through the internal processes that we want to take place with every new project. Who is involved in the kick off meeting and what is the agenda for that meeting that we stick to every time? What project management systems do we need to set up to give us visibility of the progress being made and the confidence that it will come in on budget?
We encourage all agencies to take deposits up front and most are now working on the basis that they won’t start work on a project until a 50% deposit is received. It’s important that is communicated as cash being received before you start, rather than just raising an invoice up front. The next key step is to always be working to milestones that are under your control, for example when you send over the website design or when the first sprint is complete. Don’t leave yourself waiting for them to do something before you can raise the invoice. You’ll need to leave a small percentage of the payment until completion so the client maintains an element of control, but the top agencies are reducing that down to as little as 5%.
#4 Invoice from Raised to Payment Received
When you’ve raised your invoice the final step is minimising the time it takes to receive payment. Our number one tip when it comes to receiving prompt payment from your customers is to over communicate at every stage. When they first sign up make sure you get the contact details of their accounts team so that you can start to build the relationship. Throughout the entire project give them visibility of when they will be receiving invoices and when they need to make payment - there should be no surprises.
The key things to confirm are what your payment terms are, which can be as low as 0 days if the communication is right, and what your credit control procedures are. Do you have a direct debit set up, can they make online payments or do they need to manually make a bank payment. Do you have invoice reminders set up in Xero? It’s important to make every step as seamless as possible. Finally, how do you then chase payment if it’s late and what is your escalation process if they reach 3 days late, 7 days late, etc.
The output of all the above is that you have digital flowcharts of the key financial processes in your business. They’re ever evolving, but the first step is to have visibility of them so you can understand where the areas for improvement are. The most important outcome is that you can now have the confidence that your business plan is going to become a reality.