16:2 How to manage costs in agency life
Being profitable is not always about selling more and gaining more clients. In this episode we talk through basic cost management and how we keep our finger on our financial pulse to make informed decisions and ensure we have a good balanced approach to work and play.
Profit and Loss
It is essential to know the current state of play. What do you have coming in? What is going out?
This allows you to:
- Understand your business as it currently is
- Predict the next 12 months of operation
- See where you can make savings to increase profits
- Be pre-warned of any upcoming rough months
- Removes the guess work
- Be purposeful in your planning
Knowing your business allows you to make relevant decisions in both spending and in cutting costs.
Resources:
- Bookkeeping Master Series
- CatewayCFO – Financial Projection
- Profit and Loss Template
- Our own P&L Template
Creating A Budget
Without a clearly planned budget, you are going to be making purchasing decisions blindly. Planning purchases, SaaS subscriptions and new hires based on what is in the bank at any one time is inefficient and likely to bite you on the behind.
The steps to creating a budget can be broken down into:
- Add together all your incoming revenue channels (grab your P&L)
- Sales
- Affiliate income
- And so on
- Record all of your regular costs (grab your P&L)
- Rent
- Salaries
- Insurances
- Software licences
- Etc
- Set a prediction for variable expenses
- For example costs that are less predictable like contractors
- Establish any up-coming one-off purchases
- New laptop
- Upcoming compliance consultancy
- Finally get all this information in one place, keep it updated and review it regularly
Freshbooks have put together this fantastic article to get you started.
Getting Advice
If you are either struggling to get the data together, or are not sure how to read what you see, then consider getting in help. We often can’t see the wood for the trees. It’s very easy to miss things in our calculations. Equally without financial experience, we may misinterpret what we see.
Despite running financial data in agency life for years, I still lean on my accountant for regular advice and to sanity check my planning and my predictions. It pays to have an expert on board.
Summary
The keys to cost management are
- Knowing what you are earning and spending
- Ensuring your spends are worth while and have value
- Having planned budgets and sticking to them
- Seeking regular advice
