Agency Accounting 101 with Chris Hervochon - Episode 27

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...