Running a successful web agency takes more than good ideas and a creative, driven team. Unlike finance directors and CFOS in the old business models who only need to maintain a cash flow budget, know sensitivity, manage the credit they are extending to their debtors, keep their payables up to date, reduce expenses and perform such other basic financial management tasks, you, a finance manager or director in a digital agency, needs to stay at the top of your game.
If you think this is a hype, look at the following statistic from a report by Anton Roelofse, the general manager of Business Partner Ltd; “34% of business failures are a direct result of poor financial management and 12% of the failures are because of poor record keeping,” On the contrary, the report tells that only 12% of these failures can be attributed to poor economic and political conditions. From these statistics, we can attribute more than 50 percent of business failures to poor financial management. If ever there was a powerful and succinct reason for you to focus on your agency finances management, this is it. Luckily for you, we have some financial management tips through which you can better manage your web agency’s finances.
Managing that CC correctly:
Don’t Co-mingle: This sounds pretty obvious, but it happens quite often. Never mix your web agencies finances and transaction with your personal financial affairs. It punishes your agencies credibility in the eyes of creditors; it can cause nightmares when filing your tax return and it never helps with money management. In simple terms, do not go out for lunch with your agencies dime’s, or foot your personal bills with your agency finances. It is a wise way to avoid getting into trouble with tax authorities.
- The solution? Have 2 credit cards: Have Two credit cards – one for recurring expenses, and one for daily expenses and emergencies. In any event, your digital agency should have a budget that ensures you have a handle on its expenses. Knowing your cash inflow and outflows will aid you avoid overextending your agency.
- Limit the number of people with credit cards: Seasoned finance directors will tell you that we tend to spend more whenever we have money in our pockets. As such, limiting the number of individuals with credit cards in your firm comes in handy in lowering your agencies expenditure.
- But do not cut on marketing: During times of financial crises in digital agencies, most finance directors tend to cut on marketing first. This is because its’ results tend to be less immediate compared to let’s say, production. It, therefore, looks like the agency can do without it for some time – this is a disastrous pitfall. By all means, during tough times your focus should be on marketing: Simply stop spending on wasteful marketing campaigns, but make your focus on marketing sharper. Ideally, issue your marketing staff with credit card with a limit on daily expenditure. This stimulates them to better manage your web agency finances. You should also have a credit card policy, and ensure everyone has a printed copy, and he signs it to indicate his willingness to comply with the terms laid out.
- Monitor your business credit cards: Use a credit card monitoring services, such as Equivax, Identity Guard, Experian, etc to monitor your credit cards. You can also monitor them yourself. This helps you ensure that no one is using your digital agency credit cards fraudulently. Further, make sure to open your credit card reports as soon as they arrive in your mail.
Prepare for the fasting:
Are you feasting or fasting this month? In a weak economy, it’s very tempting for digital agencies to overspend. This is because the niche they are operating in is very dynamic. For example, one can safely argue that by trying to expand your agency during a financial crisis, you will have underestimated the cost and operational difficult that results. As a rule of thumb, keep the expenditure of your agency below its income. And avoid expanding during times of economic crises. Bear in mind that most of the opportunities that arise are mainly because some of your competitors have found it infeasible to operate in those markets. If you want to venture into them, ensure you have a solid financial strategy in place.
A good way to prepare to take such risky opportunities is fasting; during times of boom, save some funds. The savings also come in handy during times of tightened cash flow, such as when a creditor fails to pay in time. They ensure you remain liquid and that you’re still paying your web agency bills in time. Thus, avoiding penalties while at the same time improving your firm’s credit score. This will payoff when your agency decides to seeks debt finances – you will obtain lower interest rates.
Further, look for extra opportunities to save your agency finances. For instance, your finances go towards either variable or fixed costs. By nature, fixed costs are like body fat’ you agency has to bear them whether there is money or not. But you can still manage them. For instance, try Skype meetings or using other communication tools, instead of travelling long distances for meetings. Find out whether there is quality open source software you can use, before buying proprietary software. You can also try bartering for much needed services with professionals with whom you have long working relationships. For instance, offer your accountant free marketing materials in return for a free tax return. The bottom line, make your web agencies expenditure lean, without hurting customers satisfaction.
Automate your financial management
A great way you can ease web agency financial management is to automate most of the tasks. For instance, set up electronic bill payment for everything; electricity, gas, cable, internet, etc. It will take some time, but it will help you eliminate future late fees. A wise way to achieve this is to give your credit or debit card company a list of bills that you want to pay each month, and authorize them to be paying them as they fall due. You can also instruct them to alert you whenever a certain expense goes beyond a certain level (the principle of management by exception). Doing this enables you to win rewards on repeated purchases, and eliminates the possibility of an overdraft in your bank account. Just ensure you monthly bills are not anywhere close to your credit card limit. Otherwise, if they exceed the limit, interest will be charged and possibly overrule all the gains.
- Be careful, don’t substitute your oversight with automation. You will still need to check the bills for erroneous payments, expenses that have been flagged as outrageous’ and the reason they are so, etc. The earlier you discover an error in your agency finances, the faster you can get it fixed. At least once in a month, reconcile your bills with your credit card statement.
- Talk to a finance expert. It’s easy for your digital agency to cut corners when it’s new, but getting the help of a financial expert goes a long way in making sure you are in full compliance with tax regulations. It also helps you avoid tax mistakes such as paying too much taxes or paying less which normally results to penalties. A consultation with an expert need not cost you a lot. In fact, most tax franchises will offer you the first consultation for free.
Finally, if you have not yet taken your web agency finances from desktop software to cloud accounting, it’s now the best time to make the switch. Even if you don’t “get” the cloud, it can save your data’s life. Cloud accounting gives you real-time insights into your finances that you access from anywhere at any time. It can offer a huge efficiency boost to small web agencies. It allows you the capability to dig into your agency finances at any time, and from anywhere, even from home.
What months does your web agency fast or feast? Which season do you peak at?
I’d love to hear from you. Shoot me an email at firstname.lastname@example.org.