Monthly Financial Insights to Drive Agency Success

Effective agency management requires overcoming significant challenges, with a strong finance department playing a crucial role. Having a team that provides monthly insights is vital for navigating the complexities of running a successful business. It enables a clear understanding of your agency's financial state, empowering you to make informed decisions. In this edition, we will offer key recommendations on monthly analysis to ensure you have the necessary insights for effective decision-making.

Analyze Your Month-End Close Activity

Analyzing your month-end close activity is the first crucial step. Although it may seem insignificant, a fast and well-executed month-end close lays the foundation for gaining essential insights to drive your business forward. Ideally, aim to close your books by the fourth business day of the following month, but no later than the 10th business day. By scrutinizing this process, you can gauge your performance in terms of closing the books and identify areas for improvement to enhance your efficiency. Key metrics to consider include the number of days taken to close the month, the reconciliation of banks and credit cards, the number of matched/added transactions, and the creation of journal entries. These metrics provide valuable insights into the speed and complexity of your closing process. Timely and efficient month-end closes are crucial for making informed decisions promptly. The longer it takes to complete the month-end close, the fewer timely insights can be gleaned.

Analyze Your Overall Financial Health

The next step is to analyze your overall financial health. This includes understanding your cash relative to your monthly overhead, whether you are profitable, how quickly you are collecting your cash, the likelihood of paying your bills, and your ability to pay down your debt.

Understanding these metrics will help you gain insight into your financial health and provide a clear understanding of the areas you need to focus on to improve it. For instance, if you are not collecting your receivables quickly enough, you may need to change your payment terms or strengthen your collection process.

Analyze Last Month's Performance

The next key recommendation is to analyze last month's performance. Comparing your performance to your original budget, latest forecast, and last year for each element of the income statement and balance sheet is necessary. The most crucial part is understanding why you are deviating from your plan and last year and what decisions need to be made based on the results.

For example, if your expenses are higher than last year or plan, you may need to reevaluate your operating expenses to cut down on costs. If your revenue is lower than expected, you may need to look into your churn or sales team's performance or marketing efforts.

Analyze Quarter-To-Date and Year-To-Date Analysis

After analyzing last month's performance, you will want to do the same for quarter-to-date and year-to-date analysis. This analysis allows you to track your business's performance over time, providing you with the necessary insight to make future decisions accurately.

Quarter-to-date analysis helps you understand how well you're doing in the current quarter compared to your original plan, latest forecast and last year's results. Year-to-date analysis provides a broader view of how well you are doing overall, giving you insights into whether you are on track to achieve your business goals.

Analyze How You're Benchmarking Compared to Other Agencies

Lastly, you will want to analyze how you are benchmarking compared to other agencies. This analysis will help you understand how you're performing compared to your competitors, and whether you need to make changes to improve your business performance.

There are several financial benchmarks you can use to compare your performance. The three though most crucial metrics are to understand how you are doing relative to your peers in terms of year over year revenue growth, EBITDA margin (EBITDA/Revenue) and cash relative to monthly overhead.

Analyzing your finance department is essential to make informed business decisions. It gives you insights into your agency's financial state, allowing you to identify areas that need improvement. By analyzing your month-end close activity, overall financial health, last month's performance, quarter-to-date, year-to-date analysis, and benchmarking compared to other agencies, you can keep your agency financially healthy. These key recommendations will provide you with the necessary insights to make informed business decisions and maintain financial success.