Picture this: You run a digital agency, realizing modest growth with high gross margins, yet your bank account is empty..
This was exactly the situation when they knocked on our door. The owner was struggling to understand what was the issue – where was his money? Where was his profit? Was he going crazy? He even for a moment thought his team may be stealing from him.
Our objective was to give them answers in order to get the business back on track.

Revenue:

Challenge

01

We started with a deepdive into their numbers and the business reality behind the numbers.. We looked in detail at the operations of the business from a financial side: Who was doing what? What did the key financial processes look like? What was the reporting information flow?
We saw that they had stellar gross margins ( think 80% and up!), but overall profitability was mediocre at best, and the cash balance was problematic. We identified key issues:

  • Understated Cost of Sales (COS): A quite sizeable part of their Cost of Sales was actually booked as expenses. This may sound like detail, but it has a large impact on the overall health and scalability of the business!
  • Misallocation of Costs: Costs were not broken down over the various services or clients. So it was impossible to get a clear picture of which clients and services were actually making money, and which ones were not..
  • Cash Conversion Cycle: The amount of outstanding invoices was another root cause of the situation. A few factors contributed here: Their client base is not very tech savvy, so payments were slow or in old fashioned ways, and above all, there was no clear process to follow up with overdue invoices. Some clients paid upto 6 months late!
  • Unclear Budgets and Reporting: There was no clear financial reporting in place and no budgets to benchmark performance against. This added to the overall problems by making it less visible..
Case Study Office

Solution

02

We started with the low hanging fruit:
  • We helped them implement an improved Accounts Receivable process that reduced the amount of outstanding overdue invoices – adding a one-off cash injection into the business.
  • Reorganizing the Chart of Accounts made it possible to match the cost of sales to the revenue streams, and track the gross margin per revenue streams, for example between onboarding and ongoing delivery.
We then focused on build better reporting and improving control:
  • First, we updated their annual budget process from a “ + 10% on everything every year” approach to an exercise where we built the budget from scratch and dove in the relation between their plans, what those plans cost and what they anticipated in results
  • We implemented monthly financial KPI reporting to give the general manager and the owner a full overview of how the business was progressing – evaluating progress versus last year and versus the budget. Evaluating not only cash flow, revenue and profit per service line, but also diving in 10 other KPI’s that were specific for their business – highlighting also their marketing & operational performance.
  • Finally, we implemented weekly reports that are less overall strategic and more actionable and provide the general manager with weekly insights that go deeper into marketing & operations.

"10x Growth in 4 Years"

Results

03

The results of our strategic efforts have been remarkable:

  • Improved Cash Flow: The percentage of total AR that is overdue has dropped from over 50% to less than 20%. In other words, the business has more cash in the bank, and spends less time chasing clients.
  • Increased profitability – over the past 2 years the company grew revenue with 50% and operating profit with 100%
  • Empowered Management – with proper financial reporting in place, the owner felt comfortable to delegate the day to day management to his general manager. This freed him up to invest significant time into launching another business.

Profit:

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