Money Matters

5 best practices for marketing and advertising agency financial reporting

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If you are a finance professional in any industry, you are all too familiar with the financial reporting for your business. For finance teams in marketing and advertising agencies you can be faced with the daunting tasks of pulling information in from multiple sources to create a wide variety of reports for executives, project managers, department managers, and anyone else asking for data. It can easily consume most of your day preparing the reports, checking data accuracy, and even ensuring the reports you create are being read and responded to.

This constant reporting cycle typically feels more like administrative tasks and it rarely gives you time to determine if they are the right reports for your businesses. These five best practices can help you move from going through the motions of getting reports to your team, to becoming the financial leader that leads the company towards growth and efficiency.

  1. Monitor the right KPIs: Oftentimes the various ratios, multipliers, and other financial metrics were inherited from previous leaders or brought in by someone who said, “This is how I did it at my last company.” That doesn’t mean you’re working with the best indicators. At a high level, your indicators should measurable and actionable. If they don’t pass at least those two barriers, what’s the point of running them? You should at least be reporting your profit at the agency, service line, client, and project levels.  You should also consider using and adjusted gross income in your calculations. Most agencies will have high dollar pass through expenses through vendors like Google. You will want to get down to the activities that tend to fluctuate such as your labor. Utilization is another great indicator but make sure you are measuring your billable time against the total amount of hours worked in that same period. If you measure your utilization against a flat 40 hours, it can skew the results making it difficult to get a good picture. SPI Research’s 2018 survey reports that agencies average 72% employee utilization. For your professional staff you should aim for 85%.
  1. Get the right reports to the right people: If your project managers are managing their project financial status by reviewing invoices every month then you can almost guarantee that your leaking revenue. Project managers need real-time financial status of their jobs that they review at least every week.  If time and expense get out of control, the earlier they see it the better off you’ll be. Of course, getting them to look at the reports is another problem that we’ll address later. For your production staff, find a way to show their target utilization next to their achieved utilization. This will help give them a goal they can strive for and monitor the progress as they enter their timesheets. It’s a simple gamification tactic but if you have any incentives tied to utilization it can be a very effective tool for encouraging faster time sheet entry and higher utilization rates.
  1. Reports to support critical decision support: You and your executive team face critical financial decisions on a regular basis. If you’re not armed with the right data you could be faced with taking on a project that you can’t staff or opening a new service line without the cashflow to support it.  You may know your cash balance today, but do you know how healthy your cash position will be in the coming months? You need to truly understand your daily sales outstanding (DSO) to ensure there are no red flags. DSO is a simple calculation of your AR Balance/Annual Revenue 365. Remember to use adjusted AR and revenue numbers if you have high dollar pass through amounts. Why is DSO so important? Because it is generally the best measurable that you can take action on to improve. The average DSO for agencies is 37 days according to SPI.  That’s actually good for professional services organizations. If you’re looking for good ways to improve, stop billing on a monthly basis and bill when work is done, any day of the week.  For more on how to improve your billing, check out our blog post on 5 Best Practices for Marketing and Advertising Agency Billing.
  1. Conduct regular project review meetings: It’s really as simple as that. Get your project managers/client owners/account managers and sit them down once week, either with the finance team or a member of their leadership. Make sure the project manager has regular access to the reports that are used in those meetings so there are no surprises. These meetings should be once a week and be focused on project financial status. Make sure this isn’t an excuse to shame a project manager if the project isn’t performing well. You want them to be honest about it’s status and if they feel they will be in trouble, they may try to hide any red flags in the hope they can make up for it at the end of the project. The idea is to fix problems before they get out of control, not after.
  1. Get buy-in from your team: Possibly the hardest part of the equation. People can be set in their ways, and the general rule is, the longer they’ve been around, the less likely they will adopt anything new. In order to get adoption, make sure your team has input into the reports you will provide for them. Listen to their feedback and ensure they understand the purpose of the report. It’s helpful if you have an example of how the report will help avoid a past issue they can relate to. Getting buy-in is a top down driven initiative. Oftentimes the folks at the top can be the worst offenders.  If that’s the case, make sure they understand the consequences of the example they set such as upside-down projects and lost customers.

Financial reporting is critical to running a successful agency. Hopefully these best practices will help you to reflect on your current processes and find way for improvement. Of course, if you’re using a generic financial system, or have issues with data integrity, Sage Intacct can provide the best in class, cloud based financial management system that can give your team custom dashboards and project reports that show service line performance, real time project budget vs. actual and any other metric critical to your agency.