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• The Agency Profitability Toolkit - Get the templates, formulas, and frameworks we've used with our consulting clients to help them double their profitability in under 60 days, absolutely free
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• Love the podcast? Leave us a review on the platform of your choice at this link
• Want to see/read more about this episode? Then do make your way to parakeeto.com/blog

GUEST LINKS:

• Operations Agency
• Alyson’s Instagram
• Operations Agency LinkedIn
• Operations Agency YouTube

ABOUT:

Author of recently released book, The Sabbatical Method: How to Leverage Rest & Grow Your Business, Alyson focuses on helping her clients at Operations Agency to build scalability AND sustainability through ops.

Points of Interest

• 0:00-1:20 - Introduction to Craig Cody, a tax strategy expert focused on helping agencies pay less tax.
• 1:21-2:12 - The unique focus of tax planning for marketing agencies.
• 2:13-3:04 - The role of business model in tax planning for agencies.
• 3:05-4:29 - Understanding the tax code and the importance of tax planning.
• 4:30-5:45 - The importance of proactive tax planning and thinking year-round.
• 5:46-6:50 - The importance of tax efficiency and its impact on building wealth.
• 6:51-7:30 - Thoughtful decisions and tax efficiency for agency owners.
• 7:31-8:31 - The tension between making business tax efficient and the reality of business costs.
• 8:32-9:45 -The impact of entities and location on tax planning.
• 9:46-10:53 - Retirement planning as a key tax strategy for agency owners.
• 10:54-12:18 -The value of documentation and proper planning for tax efficiency.
• 12:19-14:00 - Strategies for maximizing tax benefits and expenses within the boundaries of the law.

Show Notes

• 12 Biggest Tax Mistakes Book: https://craigcodyandcompany.com/ (form on homepage)
• 5 Simple Ways to Save Thousands on Taxes Course: https://craigcodyandcompany.thinkific.com/courses/5-tax-strategies
• LinkedIn: https://www.linkedin.com/in/craigcodycpa/
• LinkedIn Business: https://www.linkedin.com/company/craig-cody-and-company/
• Facebook: https://www.facebook.com/CraigCodyandCompany
• Website: https://craigcodyandcompany.com/
• Agency Research Report: https://craigcodyandcompany.com/agency-tax-research/
• Re-launching The Progressive Agency Podcast: https://craigcodyandcompany.com/agency-podcast/ - Date TBD
• Email: [email protected]

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Leave is a review here.

About Chris Hervocohon:

Chris Hervochon is often referred to as the Michael Jordan of accounting. A graduate from Elon University with a degree in Accounting and minor in Finance. He is a Certified Public Accountant (CPA) in South Carolina and Pennsylvania, and also holds the Certified Valuation Analyst (CVA) certification. A Certified QuickBooks Online ProAdvisor, and have earned the Data Analytics Executive Certificate from the AICPA.

In 2018, he was one of only 41 CPAs honored by the AICPA as a member of the Leadership Academy’s tenth graduating class. In 2019, I was named as one of CPA Practice Advisor's "40 Under 40" in the accounting profession.

He started his firm called Better Way CPA, where he helps creative, digital marketing agencies, and service-based businesses with intelligent, actionable accounting.

Follow Chris Online:

• Website
• Facebook
• Instagram
• Chris’ Twitter
• YouTube Channel

Resources:

• From Freelancer to Agency Ebook
• Wayfinder
• About Page
• My YouTube Channel

Timestamps:

Intro 0:00

Who is Chris 01:00

How Chris Started in the Service Business Industry 2:20

What Makes Accounting Service Businesses Unique 4:48

Why is it Important for Agencies to Have a Clean Accounting Data 8:58

Common Mistakes Agencies Commit in Terms of Accounting 10:04

Why Service Businesses Must Use Accrual Basis 13:53

Revenue Recognition for Accrual Accounting 17:25

Benefits of Cloud-Based Accounting 19:48

Cash Reserves for Agency’s Survival 22:30

The Right Corporate Entity for Your Business 28:10

Biggest Problem for Service Agencies’ Chart of Accounts 30:35

Freelancers Vs. Full-Time Employees 35:00

Allocating Your Salaries 39:48

Gross Profit Vs. Net Profit 41:50

Maximizing Profit: Pricing and Operating Perspective 45:50

Outro 50:00

Often, we base an agency’s success on its profitability. However, we tend to forget the financial aspect of things. And, why agencies need to understand the importance of accounting. And so there's just so many things that I want to talk to you about. And, I want you to ask yourselves why you chose to run or work on a service business.

And according to Chris Hervechon:

“Marketing agencies are a lot like accounting firms. How they operate. It’s a different service. Sure, it’s more creative, generally speaking. But they’re both service-based businesses.”

What Makes Accounting for Service Businesses Unique

According to Chris Hervochon, there’s a lot of agency owners that do not realize that running a service business when it comes to accounting, which is very different than almost every other service business.

And, its main difference happens above the margin. So your margin is your gross revenue minus all the variable costs that go into generating that gross revenue.

If you think about a retail store that tends to have lower margins, your gross revenue is gonna be all the stuff that you sell. Let’s say you sold a television for $850, then that’s already your gross revenue. If it cost you $500 to buy the television, including taxes and licenses, then your gross profit is $350.

On the other hand, service-based businesses tend to have higher margins. There is not much variable cost going into generating the revenue. It is solely based on human capital, on the amount of effort agency owners and their employees put into to generate profits.

Why is it Important for Agencies to Have a Clean Accounting Data?

The entire purpose of accounting is so that you can ask questions about your business and get accurate and reliable answers.

According to Chris, you must ask yourselves these questions while also knowing how to answer them to see whether your business/es are properly tracked and documented:

• Is this project profitable?
• Is this service profitable?
• Is this niche profitable?
• What are the fixed expenses?
• Where can I cut costs to be more profitable?
• What's too expensive?
• What's not expensive enough?
• Am I spending enough or too much on my marketing?

Through these questions, you will be able to know your agency’s trajectory and what to expect.

Common Mistakes Agencies Commit in Terms of Accounting

You wi...

About Erik:

Erik Huberman is the Founder & CEO of Hawke Media, a full-service Outsourced CMO based in Santa Monica, CA that launched in 2014 and has been valued at $80 million. In just 5 years, Hawke Media has grown from 7 to over 120 employees and has serviced 400+ brands including Raden, BeautyCon, The Ridge Wallet, Buscemi, Red Bull, Evite, Verizon Wireless, HP.

Want to See More of Erik? Follow him Online:

• Hawke Media Website
• Erik’s LinkedIn
• Erik’s Instagram
• Erik’s Twitter
• Erik’s Facebook

Time Stamps:

Useful insights and questions from this episode:

Introduction 0:00

Who is Erik Huberman? 2:12

Starting Hawke Media 3:01

Challenges in Growing an Agency 4:17

How Important is Understanding the

Cash Flow of Your Agency 8:05

Figuring Out Your Business Goals 10:43

How to Increase the Value of Your Agency 12:23

How to Know the Right Time to

Offer More Services to Your Clients 16:38

Process of Adding New Services to the Agency 18:06

How to Manage Employee’s Capacity 19:24

Ensuring Your Team’s Well-Being 21:27

Different Tools and Systems to Ensure

the Performance of Your Business 23:02

Convenient Automated Profitability Software 24:29

What are the Important Core Metrics in an Agency 26:12

Advice to Start-Up Agency Owners 28:14

Blog:

Hawke Media is one of the Top 20 Most Promising Digital Marketing Solution Providers in 2017 and was named at the Top Inc 5,000 fastest growing companies in 2017 as well. Hawke Media has worked with over 400+ brands including Evite, Red Bull, Verizon, HP.

Today, Hawke Media continuously provides exceptional marketing services to the business owner along with their team of top tier experts that helps the different aspects of a business.

Erik began consulting and advising and it was organic when he started an agency. He first sought out help, hired people, until it grew into an agency with over 170 people and is continuously growing up to this day. Understanding a niche that is completely under-served and needed help drove Erik into building the agency that is now Hawke Media.

Despite being offered to sell the company quite a few times, Erik liked the idea of continuing. He loves the idea of working with different companies, helping entrepreneurs, and most importantly he is truly passionate about what he does.

What are the Challenges in Growing an Agency?

It’s not always smooth sailing when it comes to running an agency. And, according to Erik, here are the challenges he faced while growing his company:

• People are volatile and emotional. People have different personalities, wants, goals, and needs.
• Even though their payroll is similar to their monthly revenue five years ago, there are times where they get thin on cash wherein it took a while to catch up with the revenue to make money for the team.

He also shared a challenging experience when they had a $400,000 payroll and $800,000 for a month while having only $13,000 in the bank. Entrepreneurs also said that it could happen again so he better get ready for his business.

“That is very rare that you when you're growing a business like this and you don't have a ton of outside funding and you're not publicly traded, you’ll have so much cash that you're never gonna get thin.”

Erik added, “Don't just let your money sit on the bank, invest it.”

How Important is Understanding the Cash Flow of Your Agency

The very first model Erik used to start his business was paying the flat base salary then giving 30% of what they get paid by the clients.

On the next batch of talented individuals he hired, Erik said that they followed the same payroll model of which they give 30% of what they made in addition to their agreed flat rate. Erik found out that his employees are reactive.

Erik added that they also looked at their amount of expenses on their first year to see how much they spent on overhead, advertisements, payroll, etc. He had a profit of 40% in the first year and from then, he knew it wasn’t sustainable. And, from the data which they have gathered, Erik and his team decided to change their business model, and see which works best for them.

Figuring Our Your Business Goals

The team experienced hitting their benchmark early so they had to find ways to maintain it. Erik's original plan was to get into 10 million in revenue. He didn't have a grandiose plan and now he has a multinational, m...

Robert Patin is the founder of Creative Agency Success, a consulting firm dedicated to helping creative agencies scale. Robert is known for being a deeply inquisitive and analytical leader with a distinct ability to devise solutions that elevate companies and lifestyles.

He is a two-time international best-selling author and is passionate about sharing his next-level strategies so that creative agency leaders will find fulfillment and growth.

Find his books here:

The Agency Blueprint
The Practical Agency

Points of Interest

00:01:06 – 00:01:26

Meet Robert Patin

Marcel highlights Robert’s background and accomplishments, emphasizing his expertise and experience in operations, finance, and consulting for creative agencies.

00:03:38 – 00:03:43

Introduction to Client Lifetime Value

Marcel initiates the discussion on Client Lifetime Value (CLV) and its importance, setting the stage for the main topic.

00:04:01 – 00:05:17

Importance of Increasing CLV

Marcel and Robert discuss the significance of increasing CLV, especially in the context of expensive client acquisition, and outline key levers to maximize its impact on agency profitability.

00:06:01 – 00:06:22

The Churn Ceiling

Robert introduces the concept of the “churn ceiling,” highlighting the critical role of client retention in agency growth.

00:08:18 – 00:08:54

Strategic Client Relationships

Marcel and Robert delve into the importance of building strategic relationships with clients, emphasizing the value of being a trusted advisor.

00:10:04 – 00:10:32

Undermining Factors in Client Retention

The discussion uncovers factors that undermine an agency’s ability to retain clients and improve CLV, focusing on delivering value and adapting to client needs.

00:12:45 – 00:13:00

Expanding Revenue without Operational Drag

Marcel and Robert explore strategies to expand client revenue without adding operational complexities, emphasizing understanding client needs and navigating opportunities wisely.

00:14:21 – 00:16:23

Quality vs. Quantity of Revenue

The conversation deepens into the tension between client lifetime revenue and gross profit, highlighting the importance of careful balance and considering long-term impact.

00:17:53 – 00:18:18

Creating Value through Adaptation

Marcel and Robert emphasize the value of adapting agency operations to facilitate problem-solving for clients, creating goodwill and trust.

00:18:55 – 00:19:15

Value vs. Short-Term Gains

The discussion reveals the pitfalls of contrived efforts to inflate CLV without providing genuine value, emphasizing the importance of solving customer problems.

00:22:59 – 00:23:40

Balancing Revenue and Profit

The podcast concludes with insights into balancing revenue and profit, stressing the importance of reconciling price, scope, and cash flow for long-term agency success.