Episode 240

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The panic around COVID lockdown is plateauing. The storm has certainly not passed, but we’ve navigated out of the panic stage and now everyone is realizing they need to get back to business. Whether you live someplace that is still sheltering in place or you are figuring out how to get back to the office — we have to sustain our business through this and come out on the other side. If we do it well, we can not only come out on the other side but we can come on stronger and better than ever.

In this episode of Build a Better Agency, we walk through the five mini plans that I’ve been talking about in our weekly newsletter. I want to help you build them out.

They are:

  • Operational/financial plan (how will you get the work done on time and on budget? Then, determine the minimum acceptable profit margin for your agency and use agency math to manage your way to never dipping below it)
  • Team plan (how will you keep them motivated, efficient, profitable, and striving to serve each other and your clients)
  • Client plan (you need to proactively guide each client into a position of readiness so that when they can step back in — they’re ready and more prepared than their competitors)
  • Prospect plan (what can you talk about that will be valuable — based on what your prospects are ready to hear at any given moment in time)
  • Vision of the future plan (what parts of normal are worth rushing back to and what could/should be different?)

The danger to every agency right now is that we get stuck in place and don’t shake the panic phase. If you and your team work through these plans it will propel you past the paralysis and into a future with a solid foundation. Don’t wait – get working on these plans today!

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here: https://www.whitelabeliq.com/ami/

Agency Leaders | 5 mini plans agency leaders can use to thrive through covid

What You Will Learn in This Episode:

  • How to build out an operational plan that enables you to continue completing work on-time and under budget
  • Financial metrics that agency leaders should be paying attention to
  • How to keep your team motivated, efficient, and profitable moving forward
  • How to proactively guide each client into a position of readiness so they are more prepared than their competitors
  • How to create a solid biz dev plan for your agency’s resurgence
  • How to make difficult staffing decisions in times of crisis
  • Different ways that agencies are successfully managing their teams
  • How agencies are landing new clients in these difficult times

The Golden Nuggets:

“As we rush back to normal, I want you to think about what parts of normal are worth rushing back to.” @DrewMcLellan Click To Tweet “If we don’t talk about planning when things are calm, it is difficult to make decisions when we are in crisis.” @DrewMcLellan Click To Tweet “Agencies usually fail because they run out of cash, not because they are bad agencies. Having accurate cash flow metrics is critical right now.” @DrewMcLellan Click To Tweet “You should be hard to surprise at this point—that’s the kind of financial and operational plan I want you to have.” @DrewMcLellan Click To Tweet “The best agency leaders have not stopped investing in new learning and skills development.” @DrewMcLellan Click To Tweet “The more you serve others together, the healthier and stronger your team gets.” @DrewMcLellan Click To Tweet “With C-19 going on, you have to be the best version of a leader that you can possibly be. But on an equal level, you have to hold your employees accountable and to a very high standard.” @DrewMcLellan Click To Tweet “You have more access to your clients’ C-suite than ever before. How are you capitalizing on that?” @DrewMcLellan Click To Tweet “Don’t let what’s happening now make the decisions for you. Use what’s happening now to start asking the right questions.” @DrewMcLellan Click To Tweet

AMI works with agency owners by:

  • Leading agency owner peer groups
  • Offering workshops for agency owners and their leadership teams
  • Offering AE Bootcamps
  • Conducting individual agency owner coaching
  • Doing on-site consulting
  • Offering online courses in agency new business and account service

Because he works with over 250+ agencies every year, Drew has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written several books, including Sell With Authority (2020) and been featured in The New York Times, Forbes, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”

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Ways to contact Drew McLellan:


Speaker 1:

Welcome to the Agency Management Institute community, where you’ll learn how to grow and scale your business, attract and retain the best talent, make more money and keep more of what you make. The Build A Better Agency Podcast presented by White Label IQ is packed with insights on how small to mid-size agencies survive and thrive in today’s market. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody. Drew McLellan here from Agency Management Institute. Welcome to another episode of Build A Better Agency. This is one of my solo casts. So as you know, every fifth episode, no guests, just you and me talking about something that … Odds are I’ve been talking to a lot of agency owner about, or it’s something that I know I need to talk to a lot of agency owners about. And so I am gathering us together to have this conversation.

I am recording this on May 5th of 2020. For those of you who are listening to this real time, you know that we are in the midst of sort of the wind down of the COVID lockdown. Many states are starting to open up any other states are experimenting with the idea of opening up, and for many of us throughout North America, throughout Europe, throughout Australia, New Zealand, we are on the tail end of sort of what I think of as the panic phase, and we are moving into a more of a containment phase.

Not so much that we have contained the disease because certainly that issue is separate and still going on, but the containment of the sheer panic that business owners and leaders have been in for the last really two months, and now everybody is sort of saying, “Oh, shoot. I have to save my business. I have to get back to business, or I’m so busy, I don’t know what to do. I need to control the business and really manage it through this crisis.”

So regardless of where everyone is at in terms of businesses, so clients, prospects, even us as agency owners, wherever we are on the spectrum of how badly our business has been impacted by COVID, and we are now sort of waking up from the paralysis of panic and realizing that we got to get to work, that we have got to sustain our business through this and come out on the other side. As I have said all along, we’re in the middle of a storm, we have to get our ship to the other side back to calm waters. And that’s the situation that you’re in right now, is also the situation that your clients are in right now.

And so I think what I’d like to do today is I would like to talk about the five mini plans that I’ve been talking about in our weekly e-newsletter and how you can sort of start to build those out. But before that, I want to do a couple of quick announcements. Number one, many of you have heard me talk about it. We have created a Facebook group for podcasts listeners. We just had a really great conversation yesterday, last night with an agency owner who is struggling with a lot of demand in their agency right now, and they’re struggling with getting proposals out quickly enough. And so we had a very interesting conversation about how to manage that demand and how to not give away your thinking for free.

So those are the kinds of conversations I want to have there. I’m not particularly inclined to just throw topics out and have you guys chat at me about them. I really want it to be a place where we can answer your questions and we can help you triage what’s going on inside your shop. So A, do not hesitate to join us. You have to answer three simple questions. Do you actually own an agency? What do you want to talk about inside this group? And will you be nice? That’s it. If you don’t answer the questions, I cannot let you in. The way the group is set up is, without the questions being answered you cannot be admitted into the group.

So please answer the questions, please join us, and then please use it as a forum to share ideas with other agency owners, to bounce ideas off of us and AMI. we’re happy to participate in those conversations. All right. The second thing I want to tell you about is the Build A Better Agency summit is happening. As you know, I am not fan of launching your first conference ever during a pandemic I don’t recommend it, but we did it and we had to move it. So we were supposed to be meeting in mid-May, instead now we’re meeting November 11th and 12th, still in Chicago, same hotel, we are working with them.

As you might imagine, all the hotels are putting into practice social distancing and new cleanliness standards and things like that. So I promise you will be very safe. But by November you are going to be hungry to be around other agency owners and learning from them and sharing your war stories and celebrating the fact that we have survived the virus and that our businesses are intact and that we are moving forward, and we have a game plan for 2021, and we’d like to help you put together that game plan.

So amazing speakers on topics ranging anything from biz dev to how to have multiple streams of revenue coming into your business, which would be a beautiful thing right now during COVID, to how do you prepare your agency to get it ready to sell if that’s what you were inclined to do, or what to look for if you have cash in the bank and you’re lucky to acquire an agency. We’re going to have all kinds of conversations around legal issues, research, new tools, trip campaigns, how to build a sales funnel, all kinds of things, how to step out and be an authority and the expertise that you have. So I would love for you to join us. We have about 100 tickets left.

So head over to agencymanagementinstitute.com, click on the Build A Better Agency Summit navigation button in the upper corner of the navbar, and you can read more about the conference, you can register, and you can come join us in Chicago to celebrate that we have survived this. Okay. All right. So here’s what I want to talk to you about today. So a few weeks ago in our e-newsletter, I was talking about that everybody coming out of this sort of paralysis and this panic stage that we’ve all been in, needs to start thinking about some plan stuff. And so the first one is an operational or a financial plan. So how are you going to get the work done on time and on budget, because that still is critical for us? I don’t care if you’re working from home, working from the office, working from the [inaudible 00:06:53], it doesn’t really matter.

And then also what are you willing to settle for in terms of profits? So I absolutely believe a 100% that you should not go into the red because of COVID. You’ve got to manage your business by the numbers. But I also believe that perhaps this is the year that you don’t hold yourself to a 20% profit like we normally do in the AMI world. So I’m going to walk you through some financial metrics that I want you to be paying attention to, and we’re going to talk about how to put together that plan. Then you need to have a plan for your team. So how do you keep them motivated, efficient, profitable, striving to serve each other and your clients, but also, how do you look at your team critically? Because now is the time for you to decide, boy, when I get to the calm waters, who performed during the storm and who didn’t, who showed up and how did they show up, and are these the people that I want on my ship moving forward as we continue the journey?

The next plan I want you to think about is the team or the client plan. So how are you going to proactively guide each client into not only a position of readiness right now, how do they get back into the marketplace if they’ve paused, or how do they capitalize on the fact that they haven’t paused, but what do they do to make sure that they are ready and more prepared than their competitors, and how can you be a part of that with them? The next one is a prospecting plan or a biz dev plan. So right now the question is who should you be talking to, and what should you be talking to them about? And I’ll walk you through some of that.

And then the last plan, and maybe the most important plan is, when you close your eyes and you picture your agency a year from now, what does it look like? So a few … I don’t know, maybe I think it was my last solo cast. I quoted this line that really has struck with me which is, as we rush back to normal, what parts of normal are worth rushing back to? So I think it’s an opportunity for you to look at how you’ve been running the agency, the kind of clients you serve, the size of your team, how you work, how you work as the owner or leader, and really rejigger all of that. I think this is the global reset button, and we all get a chance to sort of really think about how we come to market with our business and how we want to do that in the future. So we’ll talk about all of that as well. All right.

So I’m the financials, I’m going to walk you through some key metrics, but you need to have a plan. And what I mean by that is, I want you to be watching these metrics very carefully, and I want you to have trigger points. So when metric A it’s X then Y happens. So for example, if our AGI projections dropped to $50,000 a month, we need to reduce our staff by one and that person is [Babbette 00:09:46]. If our cash reserves dip below a $100,000 and it’s a result of a slow pay, then we’re going to do A. If our cash reserve is stable at $100,000 for two months, then we have to do A and B.

So I want you to have a plan. So I’m going to walk you through the metrics, but you’re going to have to decide, you’re going to have to look at your own numbers and decide what are the sort of crisis plans, what are the growth plans, both of them. So, if our AGI grows to X or AGI projections grow to X, we need to hire someone and we need to hire someone in this position. So this is not all bad news or are hard things to do. It could be happy news and good things to do as well. But I’m going to tell you that if you don’t decide this in advance, and if you don’t communicate this with your leadership team or your number two, or if you’re the number two, communicate it and come to an agreement with the owner.

If you don’t talk about this when things are calm, it gets much harder to make these decisions when you’re in crisis. And so here’s what I’ve observed over and over and over again in the last couple of months, which by the way is exactly what I’ve observed over and over and over again, even when there is no COVID. You guys struggle to make hard decisions, especially hard decisions around your people. And you often will make decisions that put the agency at risk, because you don’t want to let Babbette go, or you don’t want to furlough so-and-so. You don’t have that luxury right now.

There’s there’s too much going on. We are in the middle of what, no doubt is going to be a recession. That’s going to stick around for a while. You don’t have the bandwidth and the wiggle room and the safety net that is big enough to allow you to not make the hard right decisions for the right reasons. So you’ve got to really sort of stiffen up your spine a little bit. And again, as I always will say, I am not suggesting you should do this without heart. I am not suggesting that this is not a difficult decision, because I know it is and it should be, or messing with somebody’s life, but you’re not their mom, you’re not their dad.

And I talked to an agency owner just this week who said, “Well, I know I need to let Babbette go, and I know she’s in some credit card debt, or I know that she’s busy taking care of her mom who has Alzheimer’s, or I know that she’s got three kids in college, or I know …” And all of that is true and I love how compassionate you are, but at the end of the day you cannot protect Babbette and put the entire agency at risk. And given the storm that is around us and everything that we’re going through, that’s what you do when you stay overstaffed. You absolutely. Right now, can I stay overstaffed? For most of you, your people are by far the most expensive thing on your P and L, and you’ve got to manage that number very, very carefully. Okay.

All right. So let me walk you through some of the financial things that I want you to be thinking about. First, I’m going to go through these kind of quickly, because for any of you in the AMI ecosystem these are going to sound familiar to you. It’s also why I will tell you that I believe that AMI agencies are faring through this better than the average agency owner I’m talking to. And the reason why is because AMI agency owners have been sort of trained to pay attention to some of these metrics. So when they come to their peer group meetings, they have to talk about these metrics. They are filling out reports that have these metrics in them, and they’re running their business based on these metrics.

So whether you’re inside AMI or not, I would highly recommend it. I am watching this experiment unfold. The agencies that really do run their agency by these numbers that I’m about to give you are the agencies that are thriving and doing better than just surviving with their head barely above water through this crisis. So, all right, let’s talk about that. So the first thing I think you need to understand is sort of where you’re at as an agency. So if you are an agency of two or three people, your decisions are going to be different than if you’re an agency of 50 people. And right now I think it’s actually more difficult to navigate the storm when you’re smaller, because you have less bandwidth to sort of slide down the scale. If you’re 50 people, you can go down to 40 people and still be a very viable agency. If you’re three people and you have to go down to just the owner, that’s a whole different ball game.

So as I’m going through these numbers with you to sort of be mindful of where you’re at in all of that, right? So the first thing I want to talk to you about is AGI, which I have talked to you about before, but let me again just give you the very quick overview of that. So gross billings are vanity number. So we see in Ad Age and AdWeek and all of that, all of the gross billings, but that includes all of the expenses that we take on, on behalf of a client that we just that money just goes right back out the door.

So the only real number that matters to an independent agency owner is AGI. So you take your gross billings, you subtract all of your cost of goods, including your 1099 employees, and what’s left is your AGI, and your AGI is them dollars that you use and you use those dollars to cover three big buckets. Loaded salaries, so salaries and benefits, your overhead and profit. That’s what comes out of AGI, those three things. And ideally you would follow this metric. 55% of your AGI would be for loaded salaries, salaries and benefits, 25%t is for overhead, and 20% is for profit.

Now, many of you as soon as you got a whiff that COVID was coming to the States or coming to your country, you very quickly started to manage your overhead costs. So you renegotiated rent, you cut down on other expenses. And so for most of you, your overhead is very managed right now. In fact, many of you are at a various steer level of your overhead expenses. But what you haven’t done or most of you have not done yet is adjust the 55 parts. So what I want you to do is I want you to go and I want you to look at your AGI by month, and I want you to track it every month, and I want you to be looking at where you’re at in relation to your staffing.

So right now I’m going to say that for some of you, this is going to be a banner year. And then absolutely, if your clients haven’t slowed down, if you’ve landed new business, you absolutely should be in the vein by the 55, 25, 20, and you should be pushing for 20% profit. But if you are like most agencies and your AGI has been impacted, typically for most of you is between 10 and 20%, then 20% may not be realistic. And it may be that you believe that you’re going to come back out of this, you’re going to be back in demand and you need to keep your team. And so you may be willing to carry the salary and benefits and the overhead expense at 85% and only have 15% profit or 90% and have 10% profit. That’s a decision that you have to make, but I do want you to make that decision.

And so what’s important to me is that you are managing to a number that is in the black. So if 5% for 2020 is comfortable for you, that’s fine. But I want you to know what that number is and I want you to manage your AGI to that number. Okay? So that’s number one. And then the employee metrics, here’s where you’re going to make it or break it. So typically when we’re not fighting a virus, you should have $150,000 of AGI for every FTE. But if you’re in a small market, that may not be the case. So the combination of two metrics is what will tell you if you’re healthy or not. The percentage of your AGI, that is for your staff, so again is your 55, 80 because that’s a problem, and your salary for FTE versus your AGI.

So if I say to you, I want you to have $150,000 of AGI for every FTE that is fitting into the 55, 25, 20. That leaves you at 20% profit. If you’re dropping down to $130,000 of AGI per FTE, then that probably is going to mean you’re going to be sitting at about 10% profit. So use those two metrics in concert with one another, the 55, 25, 20, or whatever you decide those numbers should be for your agency, and the $150,000 of AGI per FTE, those two metrics are going to tell you if you’re overstaffed, because the bottom line is, and this sounds ridiculously simple but a lot of people struggle with it, how much money you take in is what determines how many employees you can have on staff.

And so if your AGI has dropped significantly because of COVID, then you’ve got to match what’s happening on the salary side, on the staff side, and these two metrics will tell you if you have done that to the extent that you need to, or if you have more cutting that you need to do. Okay. And I will tell you that depending on the kind of agency you are, your FTE averages in a healthy, normal time vary anywhere from 110 or $120,000 of AGI per FTE. That’s sort of a typical media buying shop or a design shop to over $150,000 if you’re a digital shop. So there’s some range in the spectrum depending on the kind of agency that you are. All right.

One of the other metrics that’s super important for you to keep track of right now is your billable versus your non-billable staff. So again, during sort of normal, healthy times, the number is 20%. One out of five employees should be non-billable and non-billable is 50% or less not billable. So odds are you, the agency owner or leader are not billable. If you’ve got a CFO or a bookkeeper, odds are they’re not billable. For some of you the way you handle your project managers, they’re not billable. So you can see that agency right there if I listed those three people, they have to have 15 people to be able to afford those three non-billable people. I will tell you that in a time of crisis, it is often the non-billable people that have to go.

In some cases, you just do without, like maybe you don’t have someone answering the phone or at the front desk, because right now many of you aren’t at a front desk. For others, you may be reducing head count in your traffic department, or you may be ratcheting your CFO down to part-time. I will tell you that the last person that should go is the person who manages your money. You can absolutely outsource that. And I’m happy to make references to people who help you do that. But if you’ve got a good money person inside and you’re crunching all of these metrics on a regular basis right now, that may not be the place to cut. Okay?

The other thing that’s super important that you measure is billable time and utilize time. What do I mean by that? What I mean by that is, 75%, and and this is agency-wide. This includes billable and non-billable people. Why? Because the billable people have to be [inaudible 00:21:44] billable to cover the non-billable people. And so you need to look at the entire agency and say, all right, I’m going to take all of the hours I have available to me for every employee, including the owner. So anybody who draws a W2 from us, I need to look at the hours that we have available for the year, and 75% of that time has to be time spent doing things that you can bill.

60% of that time needs to be time you actually build to a client. So billable time, 75% utilized time, meaning it actually went on an invoice. Whether you bill by the hour or not, it doesn’t matter, but you recoup that expense, that hour on an invoice to a client. It has to be at 60%. This is a critical number for you. You cannot afford during a recession to have people who are ineffective and inefficient on the team. So this billability and this utilization number are critical for you to measure. And I want you to measure it not only by the whole team, but I also want you to be looking at profitability by clients and by work type.

So by client is because there’s no reason for you to be busting a help serving a client if they are not profitable. If they are basically, if you’re paying for the privilege of serving them, then it’s time to cut them loose, or it’s time to have a conversation with them about the way you’re billing. All right. And then by project, because for many of you there is a kind of project where you are crushing it and making a lot of money. There’s also odds are kind of project where you again, every time you do a website or a landing page or a PR campaign, whatever it is, every time you do it, you go in the red. So you need to watch that.

So let’s get back to the employee. So the way I want you to figure this out is I want you to take the number of employees who gather a W2 from you, and I want you to figure out what that full-time equivalent is. So let’s say you have 12 employees and two of them are half-time. So that would mean you had to have 11 full-time equivalents. Multiply that number by 1920, reason 1920 is because that’s 48 weeks a year at 40 hours a week. And that will give you your available number of hours. So for example, if I had 10 employees, a ten full-time equivalent, and I multiply it by 1,920, that means that my agency has 19,200 possible hours, and my goal is that 75% of that 19,200 hours was spent on billable tasks. So I’m going to be looking at time sheets and task codes to see where that time was spent.

And 60% of that 19,200 hours was actually billed to a client, and the poor man’s way to figure this out is just take your average billable rate multiply it by the hours and compare that to your gross billings, or … I’m sorry to your AGI, because this is just time. All right? And you’ll see very quickly where you’re at. For many of you, this is going to be a frightening number because the reality is it’s not going to match up and you’re not going to be at 75%. You’re not going to be at 60%. And right now you need to dig deep. You need to dig, dig deep, to figure out what is going on and why you are as un-billable or under-utilized as you are. That’s one of the key metrics right now for making sure that you stay afloat and that the ship isn’t carrying so much weight that you are going to sink. All right?

There are a couple of client metrics I also want you to think about. What is your client balance? For example, do you have a gorilla? Is there one client who is more than 25% of all of your AGI? Because as you know, when you have a client that’s 25, 30, 35% of your AGI, they sort of lead you around by the nose. And I want you during this time to really look at the client balance and have a plan for adjusting that balance. For many of you, one of the silver linings, it doesn’t feel like silver lining right now, but one of the silver linings for you is that your gorilla client has got back. And they’ve sort of turned themselves into a monkey rather than a gorilla, which means that you are not as beholden to them as possible. And it’s also great incentive to get out there and try and drive more business that surrounds them so that even if they come back stronger, they are not as powerful and as influential inside the agency as they were.

So I also want to talk a little bit about cash, and I know I’m going through this fast because I’ve got a lot more to talk to you about and I don’t want you to listen to me for four hours today. So I want to talk a little bit about cash. The truth is that agencies usually fail because they run out of cash. Not because they’re a bad agency. So having a cashflow metrics is super important. So you’ve got to keep track of a couple of things. Number one, how much cash do I have on hand? So cash on hand is what’s in your checking account, your savings account. If you have petty cash or you have investments in the agency’s name that you can cash out very quickly, how much money could you gather? If I said, put all your money on the table by tomorrow at noon, how much money could be on the table? That’s your cash on hand.

And then I want you to take your total, your annual total overhead expenses. So that salaries and overhead. So loaded salaries and overhead and divide that by 12. So that is your monthly …  So your monthly nut. Even if you make no profit at all, which I am not advocating, you’ve got to have this much cash just to run the business. So your goal is always, COVID no COVID, your goal always is to have two or more months of cash on hand. If you have a gorilla client, a client that’s more than 25% of your AGI, then you probably have to have four months of cash on hand, because if they pull the rug out from under you, which for some of you has happened, all of a sudden you feel cash starved. So you’ve got to have more money in the bank.

And in another episode, I’ll talk more about how to gather that cash on hand and where to keep it so it makes sense and you don’t misspend it because many of you if you have too much money in the agency, you allow yourself to convince yourself to keep your staff when you really you should be cutting staff or cutting expenses. So we’ll talk about that in another episode, because again, I’m just trying to give you an overview of things. So you need to know what your cash on hand needed. So let’s say my monthly expenses are $50,000. It’s just because it’s easy math, and I have to have a minimum of $100,000 in the bank. One of the things we’re seeing already coming out of the crisis is that clients are slow paying, and this always happens in a recession, it always happens when people are in crisis or in a panic, and we’re starting to see it affect agencies.

So at the very minimum, you’ve got to make sure you keep enough cash on hand to manage through slow client slow paying. And a line of credit is a fine thing, but you really do need right now to have some cash on hand. So most of you don’t have a lot of cash on hand right now. This came out of left field, you got sort of blindsided, you probably didn’t make the cuts fast enough that you needed to, or you’re here in the States and you are relying on the PPP money right now, but you need to build up a reserve because as we go into sort of what I think of as the stretch of this. So we’ve kind of rounded the corner of panic, and now we’re in the stretch and we’re going to be in the stretch probably for the rest of 2020. In terms of rebuilding the business, solidifying the business is really important that you have enough cash on hand to run the business.

And the other thing you need to do obviously is you need to be doing cashflow projections, and this can be super simple. So it’s what milestones where you get paid if you get paid by milestones or complete projects, will you complete and bill in the next 30, 60, and 90 days? So you want to sort of map that out for 90 days. What work will you sell or start in that same 30, 60, 90 days, and will you be doing milestone billing? A lot of you build a certain percentage upfront, or you have milestone billings baked into projects, so you have to put that into the cashflow projection.

And then you have to note, normally for most of you, most agencies get paid within 45 days of sending the invoice in then normal time, and so you don’t necessarily have to break this out by client based on the quickness of their pay, but in this case, you probably do. So you probably need to note those dollars by client and which ones are going to slow pay you in which ones are going to stay on a regular schedule. So the fact that you’ve built someone for $30,000 is very different than that person writing you a cheque for $30,000. So you want to note on your cashflow projection when you think the money is actually going to be in your bank account.

And then you also obviously need to have your estimated expenses for that same 30, 60, 90 days, and then what’s the net of the income you’re projecting for 30, 60, 90 versus the expenses for that same 30, 60, 90. That’s the kind of data you need right now. You need to know that you are staying in the black in terms of cashflow, because otherwise you need to make different decisions. All right? It’s going to be super critical as we’re in this long stretch through the summer that you really, really manage cash. Many of you are going to feel kind of choked around cash, and I’ll tell you a warning sign is, if you say to yourself, you know what? I’m not going to take a paycheck. I’m going to not take my dividend. I’m not going to take my regular paycheck, my monthly or bi-monthly paycheck. That’s a warning sign to you that you have a cashflow problem.

You should not, not pay yourself. So that double negative means you should pay yourself. Is important that you run the business well, and that you run the business based on the metrics that we know keep an agency healthy. And one of the things that is not healthy when the signs of an unhealthy agency is when the owner is not getting paid. So make different decisions than not paying yourself, because that is telling you that you’re making the right decisions for the right reasons. So once you have your cashflow projections, then what I want you to look at is what was it prior to March 1st of 2020? So what did it look like coming into COVID? And then what do you think it is now sort of mid COVID as we go into the stretch? What do you think that that is now, and how much tighter is it?

And then what I want you to do is, and I know this is going to be painful, and I want you to reduce it by another 40%. So, do you still have cash on hand? Because what that’s going to tell you is whether or not you have enough cash in reserve to really weather this, even if all of your clients start to slow pay you. So what was my cashflow projection going into March, what is it now Mid may, and what does that mid May projection look like if I take another 40% hit on my AGI, what does that do to my cash position, and can I weather that deep of a store? And if the answer is no, then you’ve got to figure out how you’re going to free up some more cash. And again, unfortunately, odds are that [inaudible 00:33:37], a salary is going to have to come off the books.

So again, quick review. AGI 55, 25 20, you can decide what that 20 is, but it has to be a positive number. What is my AGI per FTE? How am I monitoring that? What is my billable staff members versus my non-billable staff members, and what is that ratio? In healthy times it’s five to one. For many of you now, it may be asked to go to seven to one or eight to one. What is our billability and our utilization? What is my client balance? So what percentage of my AGI does each client represent, and how do I get that more balanced? How do I use COVID to my advantage to balance that out if I have a gorilla that’s cut back?

How do I build up business around them so that they are not so influential inside my agency as we come back to whatever new normal is? What is our profit by both client and project type? And any client that is a habitually unprofitable needs to either have a talking to or needs to go away. Now is not the time for you to be given away your time and your service, not the time. And you’re better off spending it on developing biz dev materials or doing other things than it is working for somebody for free. So don’t do that. A, never do that, but during this crisis, absolutely don’t do that, and managing your cashflow.

All right. So that is the financial plan I want you to have. So I want you to look at those numbers on a monthly basis, and for some of you, some of you are doing cashflow projections right now on a weekly basis and that’s fine. I want you to look at them as often as you believe you need to, to make sure that you have a really good handle, that there are no surprises. You know exactly what your money situation is, you know exactly where your cash is, you know exactly what’s coming down the pike in 30, 60, 90 days. Ballpark, of course the second to be exact, but that you are hard to surprise at this point. That’s the financial and operational plan that I want you to have.

So let’s say, for example, speaking of operations. Let’s say for example, you’re not billable at 75%, you’re not utilized at 60%. What does that mean? Well, what that means is that you need to figure out why. What is inefficient? Where are people spending more time than they should? Are they over-servicing a certain client? Are they not recording their time properly? Which means you can’t bill it properly, but then you need to dig into those problems. If the numbers tell you, you have a problem … I hope it goes without saying, but if the numbers tell you that you have a problem, you need to dig into that problem and solve it.

All right. So, let’s talk about people for a second. I believe that in a crisis, people reveal themselves to you. And so by now you’ve been surprised and impressed by some of your team members, and you’ve been surprised and maybe a little disappointed by others. And I know that you will give everybody the benefit of the doubt and that you know that they’re working in hard conditions and they’re scared and all of that. But beyond that, do not lose track of those insights because I think that they are very valuable. So now is not the time to ease up on holding everyone accountable. I know it’s hard to work for all. I know it’s hard to work with if you’ve got homeschooling or your kids, or your puppy eating your door jam, whatever it is. I know that it’s difficult, but that doesn’t mean that we can’t rise to the occasion. In fact, you’re seeing some of your employees rise to the occasion and you were seeing some of your employees actively avoid rising to the occasion or not capable of rising to the occasion.

So when every penny counts, we have to make sure we’re as efficient and effective as possible, and for us as agency owners and leaders, that efficiency and effectiveness is our people. So a few weeks ago I had a podcast episode with Adam Carroll and he gave some great, easy to follow tips. He calls it his heat framework. And obviously he does an acronym and for each of those letters, he’s got sort of a methodology or something you need to do to make sure that your team is being held up as being capable and accountable. And it is critical right now that we do that with our team. It’s absolutely critical.

So here are some of the ways that agencies that are really performing well are managing their teams. They are doing daily Zoom or Google Meet huddles and sort of trafficking what work has to get done today, and who’s doing it. So they are very quickly huddling up and sort of managing the day-to-day work. They are still honoring their one-on-one meeting schedule. So supervisors are having good conversations with their employees and helping them keep their head on straight, checking in on them in terms of mental health, taking good care of them, and they’re doing a lot of leave no man behind sort of Zoom calls or texts or phone calls where it’s just a personal check-in to make sure your team members are doing okay.

And by the way, who’s doing that for you? Who’s checking in on you to make sure you’re doing okay? I think during this crisis, it is super important that you have a strong support system. So whether that’s reaching out to other agency owners who understand what you’re going through, whether that’s reaching out to a mentor or a coach, you also need to have personal check-ins to make sure that you are doing okay personally, and it’s okay to raise your hand with any of those people and say, “You know what? I’m having kind of a crisis day. I would like to just curl up in a corner and suck my thumb today.” and asking them to help you sort of work your way through it.

Sometimes just talking about it helps, but make sure that while you’re caring about everybody else’s mental health, you’re taking care of yourself as well. And as you know, many of you know I wrote a blog post on giving your brain and your body a rest and I highly recommend you go over to the Agency Management Institute website and find that, and make sure that you are taking good care of yourself because you, captain of the ship have got to stay healthy to get everybody through the storm.

So other things that agencies are doing, they’re doing a weekly agency updates with lots of transparency around money, job security, client activity, and biz dev. And the reason why they’re doing that is because your employees have vivid imaginations. And if you don’t tell them what’s really going on, they are going to make stuff up in their head and they’re going to panic. And that means they’re going to be less effective and efficient at work. It means their mental health is going to struggle. So you owe it to them right now to be as transparent and honest as you as you can be about what’s happening in the agency, the decisions that you’re considering, how you’re managing through this, and it’s also a great opportunity during those weekly calls to celebrate people, to thank them for what they’re doing and to acknowledge them.

Agencies of course are great at playing. So there’s virtual happy hours, they’re doing word games, they’re doing getting to know you questions, Zoom background, and competitions. You guys are all good at that. They’re also setting some goals for themselves as an agency and also individually and sharing those goals with each other and sort of keeping a whiteboard if you will, a virtual whiteboard of those goals so that they have things to look forward to. The best agencies have not stopped investing in new learning and skills development.

If your team is not fully deployed, this is a great way to help them get prepared for a re-entry and to be even better and stronger than before, so there’s lots of people taking classes, getting certifications, things like that, which is great. They’re recognizing each other, they’re thanking each other. They’re trying to live in an attitude of gratitude. Now is great time to dust off your company values and to reteach everyone how they look in action. I’ll tell you, I have been watching you guys and you are living by your core values. As hard as it is right now, you are living by those core values, and this is a great time for you to re-introduce them to your team and to reinvigorate how committed you all are to following those.

And then many agencies are serving other people together, whether it’s a community project, people helping a client through a sticky situation and celebrating that, supporting a team member who’s having a tough time, or somebody who’s had a baby and you’re having a virtual baby shower, but the more you serve others together, the healthier and stronger the team is. All right. So you know what? C19 is calling on us to be the best version of a leader that we can be, and for many of you, you have felt the pressure of this. You absolutely need to be kind and understanding, but at an equal level you also need to hold your employees accountable and to a very high standard.

So think of yourself as, as I sent in an e-newsletter a couple of weeks ago as a benevolent drill sergeant, and do all you can to not only get good work from your team, but more importantly, prepare and assess them for your future version of the agency. So absolutely take care of them, but make sure they are the ones that you want. Are they the people you want to go into battle with? And if so, do everything you can to make sure that they’re successful. But now is the time to really assess your team. Who are you grateful for? Who have you thought multiple times since this started? “Oh, I’m so glad that so-and-so works for me.” And who has you gritting or grinding your teeth, and every time you see them pop up on Zoom or you get a Slack from them Or whatever it is, you just know that it’s going to be angst? Pay attention to that, because COVID gives us a chance to also … It gives us cover to level up our team.

And so if you were in the US and you got the PBP funds, do not let the forgivability of that 1% loan change how you run your business. If there’s somebody on your team that doesn’t really deserve to be on your team, that is not living up to your core values, that is not rising to this occasion, and you don’t have the work for them, now is the time to get rid of the C players rather than keep them. So take the loan or give the money back rather than keeping a C player on the team. Right now more than ever, your employees are watching right now and saying, “I am busting a hump and they are letting [inaudible 00:44:12] bat, sit on the bench and do nothing but complain and deliver things late or whatever she’s doing. Why am I busting out? Why am I not spending more time with my family? Why am I doing whatever sacrifices I am doing for the team if they’re allowing that to happen?”

If you cannot keep a C player busy and you can’t imagine what you would trust them with post COVID, then now is the time to make that change, right? Again, you’ve got to keep your team lean, you’ve got to manage to your numbers, and this gives you a very reasonable time to trim your staff if you need to. Again, they’re going to be fine. An employment has never been easier to get, and you are not responsible for all their life choices as I said earlier, or the circumstances they’re in. I don’t want you to make this decision cavalierly. I don’t want you to do this without heart and compassion, but I also don’t want you putting the entire agency at risk because you can’t do the hard thing. So here’s the what I would ask yourself. Who is showing up like an owner? Which of my employees are showing up like an owner, and who is sitting around waiting for me to tell them what to do? Very, very telling.

All right. Let’s talk about clients. Are they the ones you want? Not only should you be assessing whether or not you want the employees that you have, but I also want you assessing the clients that you have and saying, are these the people that I want to bust on for every day, and are these the people that are grateful and show up as a great partner? I want clients who are appreciative and who communicate well, and who tried to be fair, even if they had to trim back their budget. People who cared about us as a business, and us as people as well as themselves.

I want to serve those kind of businesses. Did my gorilla become more of a monkey? And do I want them to go back to gorilla status? Odds are no. Have you felt stuck in a never spoken, a just, understood, non-compete, where you felt like you couldn’t go after other clients in their vertical, which is ridiculous because they’d be in another market, but you knew that their undies would get into a bunch and have a cow, and so you were like, “Nope, not going to do that.” What this is really about is this is about you really looking at your client mix and being able to assess who you want to serve and who you want to sort of curtail.

So of the businesses you’re like, you know what? These people have been amazing, they’ve been great communicators, they’ve been appreciative of everything we’ve done. Now my question is, and this would be a great leadership team conversation. How do we become an essential business to those kinds of clients? How do we become the kind of business that they can’t imagine stopping, whatever it is that we’re doing? How do we demonstrate what we’re doing? How do we dot the I’s and cross the T’s so they can see exactly the ROI that they’re getting from our work so that they can justify to anybody, a board of directors, a C-suite, why they have to keep working with us and having us do the work that we’re doing.

That’s a great question to gather around, how do we become an essential business? Because for many of you, what you’ve learned you weren’t as essential to some clients as you thought you were. And in other cases, you have been gratified to learn that your client values you and your opinions so much that they are not willing to cut their budget with you, or they’re going to trim it a little bit and they’re already telling you when they’re going to bring it back. You have more access to the C-suite than ever before. How are you capitalizing on that? What do those conversations look like? What questions are you asking? And what are you offering to do as you sit with the C-suite, which many of you have been hungry to do for so long?

What are those conversations look like? How are you adding value? How are you showing up as a partner? What are you saying to them? How are you proactively coaching them? How are you helping them? So, for example, I have an AMI agency owner who serves a vertical, who because of the shelter in place, basically the entire vertical is shut down. And so because this agency serves many businesses in this vertical, what his agency has done is he has produced a bunch of social media assets for that specific vertical, and because their clients are all in different locations around the US, they don’t bump up against each other.

And what they’re doing is they’re giving their clients, their dormant, stalled clients, they are giving them a packet of social media assets that they can use every month, quizzes, factoids, visuals that they can use so that their clients can stay engaged with their customers, because they know once the shelter in place is lifted, those customers are going to start coming back to that business, and the agency wants the client, their client, to be in good shape, to have been active in communicating with their dormant customers.

And so they’re producing all of these things. It’s not hard for them. They produce it once, they allow each entity to customize it or personalize it, they are being a good partner. So just like you  remember, who’s being a good partner. So what are your clients? Now I am not suggesting you do a ton of free work for everybody, but I think there is something you can do that doesn’t take a huge amount of time, that doesn’t take a huge amount of bandwidth for al