How to Get a Better Handle On Agency Cash Flow

Do you feel like no matter how smart you are about money, you just can't get a good handle on agency cash flow? Are you looking for a way to make sure your agency is prepared for times when there's a downturn in the economy? Cash flow can be a big problem, and it's one that few have a real grasp of. But when you understand the principles of a smart cash flow plan, you'll be ahead of the game.

In today's episode, we cover:

• 3 Ways to find success as an agency.
• What does good agency cash flow really look like?
• How to control your agency's cash flow.

Today I had the pleasure of talking with Steve Buck, co-founder, and president of Black Tie Digital Marketing. Steve's one of the rare ones who actually sought out a role in the agency space. After working for a big company in Rhode Island, Steve and his partner had a crazy idea — "Wouldn't it be fun to do this on our own?" In 2011, Steve and his partner started Black Tie and have learned a lot of lessons along the way. He's on the show to share insight on agency cash flow management.

3 Ways to Find Success as an Agency

There are so many things to learn when you first start an agency. How do you get clients? What do you charge? And most importantly, how do you make a mark? Steve says he's learned a lot along the way, but much of his success comes down to a few basic principles:

1. Balance. Balance can be hard to find, but it's one of the most important things as a business owner. Steve says he was lucky that he and his partner had personalities that balanced each other out. This helped them make smart decisions along the way.
2. Luck. Let's be honest — much of business comes down to pure luck. But…
3. Perseverance can make the difference. You're more likely to be in those lucky situations the more you persevere. If you put yourself in enough places, enough times, eventually you'll find yourself in the right place at the right time.

What Does Good Cash Flow Really Look Like?

Ask anyone in the industry how much money you should have in reserves and you'll get a WIDE range of answers. Steve says he's always been told 12 months is a good mark to strive for. Personally, I feel the number is closer to three months. Anything more than that and you're not investing enough back into your agency.

Reserves are important and one of the basics in finding success as an agency. These reserves will make all the difference when the financial market undoubtedly goes south. Those that have reserves will survive (and thrive), while those that don't have cash reserves will make great employees when you're looking to hire.

How to Control Your Agency's Cash Flow

Cash flow is so important. But why is it so hard? A lot of it comes down to basic management styles and human psychology. How can you avoid cash flow pitfalls?

1. Be aware of the "people pleaser" tendency. We all want to impress new clients and make them stick around long term. But this mentality often causes financial hardship. Why? Because when we try too hard to please new clients, we often give away too much for free. Over delivery is a common problem - remember balance. It's important.
2. Understand the scope of the project. Just because you think you understand what your client is asking for, it doesn't mean you actually do. Get a clear understanding of what the client wants and how much work it will take. Don't undersell yourself and don't over-deliver. Reduce or eliminate scope creep.
3. Track what you spend. Freebies and gimmes are okay, every once in a while. But it's important to track everything, even things you are giving away. Down the road when the client asks for another freebie, you'll have a record of how much you have already given them.
4. Pay yourself. You'll never have an accurate valuation of your agency if you are paying yourself less than what you would pay someone to do the work that you are doing.

Cash flow is one of the most important, if not THE most important part of running a successful agency. It doesn't matter how good you are at everything else if you can't manage your money. Be smart, think ahead, and make sure you have a plan for when things get hard.

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