Cash flow is the lifeblood of all businesses. Unfortunately, many organizations focus on increasing their sales and profit and overlook this crucial business metric.
Creative agencies are no exception.
In fact, given the lumpy and often unpredictable nature of revenue in the industry, better cash flow management is even more important for creative agencies.
More often than not, creative agencies struggle with cash flow, yet cash is not the problem. Instead, cash is a symptom of a bigger, underlying problem in the agency's financial management. But there's a solution to this problem—Dryrun.
How Dryrun Can Help Creative Agency Owners Navigate Lumpy Revenue
Dryrun, a financial management tool that gives business owners an instant and unbiased view of their company's health, is your best bet at combating cash flow problems.
For creative agency owners, managing cash flow can be a challenge, mainly due to the unpredictable nature of cash flow in your industry. It can be tough to meet your monthly obligations when there are long troughs between incoming cash, and you can easily lose sight of the health of your business.
Dryrun provides agency owners with an instant view of the health of their agencies, allowing them to spot potential cash flow problems on time.
Guy Bauer, founder and creative director at Umault and a loyal client of Dryrun, decided to put this financial management tool to the test by utilizing it to manage cash flows for his agency. According to Bauer, Dryrun gives him an "instant read on the company" and provides him with the "confidence to sleep at night."
In his words, Bauer says that in his industry, the revenue is lumpy. Meaning the cycle of feast or famine is way too common. He goes on to explain that while financial statements are helpful, they don't show the actual financial position of the agency.
In other words, financial statements don't give an accurate picture of the financial health of the agency. For instance, your profit and loss (P&L) statement will not show major asset purchases or loan payments. If you recently purchased an asset, relying on your P&L will not provide an accurate representation of your financial position or cash balances.
In fact, Bauer believes that cash flow is more like the "blood pressure and heartbeat" of a company and that it's crucial to keep an eye on this metric to ensure the agency's survival.
Bauer also speaks of the benefits of Dryrun as a robust financial management tool. According to Bauer, Dryrun gives him valuable insights into the company's financial position, allowing him to make data-driven financial decisions.
Additionally, Dryrun provides him with the confidence to sleep at night. This is because the software gives him an unbiased reality of his company's financial position, with data drawn directly from QuickBooks—the agency's accounting software.
"Your feelings are usually incorrect, they're either too negative if times are tough, or they're too optimistic if you have good times. Dryrun gives you an unbiased reality. It's direct from your QuickBooks…the data is the data, and even if it's showing bad things." – Guy Bauer
With Dryrun, agency owners can gain insights into their cash reserves and make informed decisions on how and where to spend it. This is a data-driven method as opposed to the "completely reckless and insane" method of relying on P&L and balance sheets that Bauer was using before he discovered Dryrun.
With Dryrun, Bauer can see how to "turn the ship" and "ride out storms," even when the company is going through an intense cycle of feast and famine.
In addition to helping creative agency owners deal with the lumpy revenue problem, Dryrun can also help them manage their finances more efficiently and effectively.
According to Bauer, using Dryrun can empower businesses to manage their money intelligently, allowing agencies to take on less work and be less occupied. In fact, Bauer reckons that since he started using Dryrun, his company has made a quantum leap in revenue.
Cash Flow Management Challenges Facing Creative Agencies
The creative agency is known for its lumpy revenue, where agency owners go through a never-ending cycle of feast or famine.
When famine strikes, agency owners with poor cash flow management practices can find themselves unable to pay their bills. A prolonged period of famine may even lead to business closure. But sometimes, cash isn't the only culprit for the feast and famine cycle. Agency cash flow problems can stem from.
1. Mismanagement of Funds
Agency owners sometimes fall into the trap of spending more than the business can afford.
Large hardware purchases can offer opportunity, it can impact your cash flow negatively unless your earnings are sufficient to cover the purchase. It may seem simple, but the best way to control your spending is to know the accurate cash balances in your account and have accurate forecasts.
A glance at your bank account is a common way to gauge your cash position but that can be dangerous. There are a lot of moving parts that will affect your cash. Without tracking all of the expected inflows and outflows, you won’t have a true understanding of where you sit.
A forecasting tool like Dryrun can help you gain an understanding of your near term cash position and time your purchases appropriately. With Dryrun, you'll be able to predict peaks and valleys and minimize your spending if you anticipate a low season ahead.
2. Poor Collections
Monitoring overdue invoices is an absolute must for creative agencies. While it can be tempting to be lenient with clients, especially in the early stages of agency ownership, it's a dangerous game that can lead the agency to serious cash flow problems if not controlled.
Failure to make clear rules regarding payment and deadlines is one of the quickest ways businesses lose cash. Agency owners should be careful not to deliver completed work until the agreed-upon payment has been received.
Having clients who pay in full is crucial, but it's also important to accommodate clients who need a payment arrangement because it creates continuous cash inflows into the business.
Keeping a close eye on your account receivables will keep your business in check and prevent you from having periods when there are no cash flow. That means you'll have cash inflows in times of famine and fewer problems paying your bills.
3. Poor Pricing
Many creative agency owners make the mistake of undervaluing themselves or their products.
Charging a higher price might not get you as many clients, but it will prevent you from running over your capacity.
By charging a premium price, you should have enough to meet your monthly obligations and cover the period when jobs are down, so you’re unlikely to run into cash flow problems.
Wrapping Up
Creative agency owners using conventional cash management methods may find themselves trapped in the unending cycle of feast or famine. Cash flow problems in the creative industry often stem from mismanagement of funds, poor pricing, and bad credit control practices.
Most of these problems can be avoided with the use of robust financial management tools like Dryrun. Dryrun is an invaluable tool for creative agency owners to navigate the challenges of lumpy revenue and ensure the financial stability of their businesses.
With its data-driven approach and ability to provide an instant view of the company's health, Dryrun offers a logical and illustrative way to manage finances and ensure a good night's sleep for business owners.
Want to improve your cash flow management and gain better insights into your company's financial health? Dryrun can help! Get in touch with us today or take advantage of our free trial and register today.
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