Transcript
Hello. Hello, everybody. Hello, Rachel. Hello Ben. How? Are you guys doing?
Rachael Marshall:<span data-ccp-props=”{“201341983″:0,”335559739″:160,”335559740″:259}”>
So good. Thank you.
Chris Simmance:
We yeah, we we are we got are we good to have a really interesting conversation about accounting and maths and stuff today.
Rachael Marshall:
Yes, the cabins good.
Chris Simmance:
I’m I I’m I’m still jet lagged from the trip that I’ve just come back from Vegas. The MD centre did a meet up over there and I am very tired. So if we get into the boring realms of money and numbers, I’m probably gonna make some jokes about something. Thing, I don’t think it’s gonna happen though, because I know both. Of you. Quite well and. You’re the. Only reason you’re on. Here is cause you’re interesting and you. Know what you’re talking about.
Ben West:
Where do?
Speaker 4
You stand on overseas trips and and tax, I suppose. Well, should.
Chris Simmance:
Well, this is the question.
Ben West:
We not getting.
Chris Simmance:
Maybe we could answer today. Who knows who? Who knows the answer to that one. Rachel, would you love to? Would you like to give a little introduction to yourself and what magic digits do?
Rachael Marshall:
Yeah. Thanks, Chris. So, yeah, I’m Rachel. I’m the director of magic digits. So we are a finance consultancy. We specialised mainly in management, accountancy and bookkeeping. Services. But we work primarily in the creative sector and and yeah. That’s that’s us.
Chris Simmance:
Nice one. And and Ben, go on, give us your intro. You’ve got loads of certificates behind you. So I’m guessing you’re smart.
Speaker 4
Swimming budgets. You can’t leave. That’s half the benefit. So financial adviser, prosper, wealth management and we Germany help managers, founders, directors of companies, actually in conjunction a lot with the sort of stuff that Rachel does in managing. How to run the business but also make that work for the director? Or the employees. Or anyone essentially involved for the longer. Term. That’s that’s it, right.
Chris Simmance:
So once you’ve got your cash, where to put it? And Rachel helps make sure you get your cash.
Speaker
I get it.
Rachael Marshall:
Grow the business, yeah.
Chris Simmance:
So. So where are you? Where are you? Based today, Rachel, whereabouts are you?
Rachael Marshall:
It’s warm in Bournemouth and live in Bournemouth from Newcastle and lived in London for a while, but then decided once we had kids sunny kind of Bournemouth would be a just a. A better place live cause we’ve got family here. So. But we work so everyone at magic Digit is rumoured, but we all we’re all based around the country basically which is great but a lot of our clients are actually based in London. And so when we’re back and forward forth to London quite often, but it be we want to venture more, we want to get more. You know we want to go. Newcastle, we want to spend more time. In Manchester and so that that would be.
Speaker
Chris Simmance:
Well, the OG. Centres planning a lot of events over the next few few months and years, and you’ll undoubtedly be coming to those ones there, especially the ones in, in, in, in the north. But where we’re gonna sort of start focusing those, Ben, your prospers based in Saint James’s Place, isn’t it in London?
Speaker 4
Yeah. So Jeremy Artbank, I’m, I’m just north. I’m St. Albans. Sort of way. So I guess splitting the difference between between Bournemouth and Newcastle. I suppose you could say that. Geographically, but yeah, I’m I’m pretty London centric with. Mines dotted all over the place. If I’m completely honest. So. We get some nice little Rd trips up north or down South and then you can get out.
Chris Simmance:
Nice one. So should we jump straight in? Cause I’d I’d love to start talking about some of this stuff. And I think the first thing to kind of have a chat about is realistically what the pillars of of cash flow management might well be. There’s a lot of people just assume that it’s well, I mean, at its broadest amount, it’s cash in minus cash out. Kind of type thing, but there’s a lot more to it around like. The difference of revenue streams tracking things like knowing what might come in might well come in in the future. From a forecast point of view and. Stuff like that. So do you. Wanna kick us off? Rachel? What? What, like from your perspective? Like some of the core pillars around this.
Rachael Marshall:
Yeah, absolutely. So I mean like in terms of understanding revenue streams, I mean it’s it’s obviously it’s different for every business and especially at the minute I’m hearing a lot more about project revenue versus for change revenue and how sort of manage the cash flow more around that side of things. So I guess basically I think you need you know you need to make sure you’ve got a plan to move. Can you move any of your project revenue to retained and just be a little bit more picky about any new business that comes in and whether or not it’s going to suit your model and how you can manage the the structure of your business and the cash flow? Around it, based on that and then. Just basically I think other things, sorry about that.
Speaker
From what their?
Rachael Marshall:
You know. But yeah, I think what a lot of it is just basically assessing the the sort of income that you’ve got again is it project revenue and if it’s unlikely to change, it’s sort of it’s.
Chris Simmance:
Their invoice is paid.
Rachael Marshall:
That’s in your pipeline versus, you know, confirmed revenue at all times. If there’s any gaps, consider using things like freelancers avoid permanent hires. Maybe if you are project based and just sort of removing any long term committed costs until sort of your revenues are a little bit more consistent and your cash is increased, but yeah it’s. You need to build the business based on on you and and your revenue stream and how you know it. And if you’ve got cash flow and you can monitor it over a period of time, you’ll notice trends. As well as having that.
Chris Simmance:
So let let’s get super basic for those, but. Though because in in in digital. Agency land. You guys definitely know this because you speak to these people as well as I do. Lots of people say they know a thing, but they don’t necessarily know. What the thing? Is. Yeah. So the amount of agencies that. I speak to and. I’m sure you guys have spoken to literally don’t know what their numbers. Are and. It’s not because they don’t know. Is because they think that that everything is, you know, relatively simple and. There is a. Big difference between gross profit and net profit. There’s there’s all sorts of acronyms just to just. In your in your. In your land as well. So what is, in a nutshell, cash?
Rachael Marshall:
Cash is that I’m. I’m going. Yeah. So cash flow, it’s yeah, it’s basically so that is all of your current cash in the business. It’s you want to roll it forward so you can get a good view of what current cash you’ve got all. Of your income. That you’re expecting to receive in from your clients all of the projected income that you’re going to get in. Versus all your current costs, which are going out and all of your projected costs, which basically leaves your end balance for the for the. And then that basically you know that’ll go up and down over the months based on sort of your you know, your forecast and you can plan and predict how you run the business based on that and look for any you know low points or any points where you may struggle with cash so that you can do what you can to sort of protect you in, in the business from those low points?
Chris Simmance:
There we go. That was. Exactly what I needed to hear. That’s gonna. Get transcribed. Lovely. And going and also this.
Speaker
I’ll be.
Rachael Marshall:
Like another 10.
Chris Simmance:
There you go. It was a test you passed. So, so Ben, I know that in your in your area you you look at quite a long time in the future, but a lot of that is around forecasting in the in a sense as well isn’t it because you know that if you put certain pots of money into certain places that you need to kind of forecast what it will return in the long in the long run when it comes to cash flow forecasting. I know that it’s. Not a million. It’s probably not a million miles away from that because you kind of have to consider. Where this money is going and how often it’s going to change hands and where it’s going, how how, it’s how that cash. Flow will flow. So how?
Speaker
How how would?
Chris Simmance:
You probably how would you start the process of doing a cash flow forecast? Assume that you know you’ve got like you know zero or something and you can export your P&L. Is that a starting point?
Speaker 4
Yeah. So, I mean I think similar is what Rachel was saying in terms of of like taking everything that comes in and then forecasting forwards taking it back. Sometimes, if you’re starting zero bits while treat this like wage, the company has been paid a wage. If we’ve got our project revenue versus our regular guaranteed. If we can have. The plan that takes care of all our base costs, so going back to your gross and your net, well, one is essentially everything minus tax other expenses. If we can have the company take care. Of everything for. Us out of our gross costs and know we’ve just. Got that? Maybe even a small bit of net, but that’ll work for us over a longer period of time. Then that can account for everything. So where do I tend to get involved? Generally is right if we’ve got, say, say there’s really basic £100 coming every month and our cost so. Right. We say we need tax of X amount. We’ve got salary coming to the director because we need to live. We’ve got professional subscriptions. These other things which choose up say 70% of all the cash. Business then that remained 30%, that’s. Coming every month. What are we going to do for that? How does that make me benefit from my business long term if we know that 100 is the base? We want to do something from that because a lot of people get into the the pitfall of brilliant. We’ve got loads of money coming in the business that’s standing. Well, that doesn’t benefit me anything in the long term. So I’ve not done.
Chris Simmance:
Yeah, this this is. This is why I bring it. Up because I. Think it’s it’s a core thing. Lots of the boring stuff. And I don’t mean to say what you do is boring, but a lot of the boring stuff from digital agencies point of view, the creative guys, the people that build websites, the people that do SEO and PPC from their perspective, all of this stuff is. Is not that fun, but it is like a really it’s like getting your insurance in in place, things like cash flow forecasting is a. I’ve been working with uh with, with agencies that that genuinely don’t know how, where the money is coming in and out, they just know lots of money is coming in and then 6 to 8 months into the future. They don’t realise that there’s an erosion of their cash flow because they have to pay for recruiters. They then have to pay for new laptops. And additional contributions and subscriptions, and they just see revenue coming in, but every time there’s another load of operational expenses that’s actually eroding their net profit and loads of cash is coming in there. So it must be good. We must be doing well. And so that forecasting is essential. All right.
Rachael Marshall:
Yeah, absolutely.
Chris Simmance:
So if if you’re. If you’re looking at like building out a decent forecast, obviously you can go crazy. And go like. Absolutely mental and have every single line item and every single thing in there. How much would you like? Is it like a minimum expectation? Do you think an agency leader should probably have and I and I realise that the the real answer is. It’s a professional to do it properly, but in agency land we like to make our mistakes first, then come. To you later so. How do we make our mistakes first?
Rachael Marshall:
Yeah, to be, I mean, most people who come to magic digits, they’ve normally been running their agency for like a year or two anyway by themselves, and then they usually it’s. It’s at that point they’ve they’ve tried to be, you know, do their forecasting and probably not casual models. They do get quite a lot where they’ve cameras and they don’t have cash flow models. They’ve just purely got like a. Very basic profit and loss. And that they’ve tried to write out themselves and it’s worked for them, but then they get to that point where they’re like, we need more help, we need more visibility over over all of these costs and and you know how we’re gonna make a profit. But I think you know something it with, you know, like I know when I do accounts like we do get very detailed and we do really traffic. Fences, you know, in terms of putting, you know, splitting out direct expenses, which are like staff costs and things like that to like to your overhead expenses, which are like office costs. And then we look at gross profit and net profit staff ratio like we look at all of that stuff and we go into a lot of detail, but honestly to keep it really simple, as long as you know. Your your income, but your invoice on a monthly basis, your cost for freelancers, your cost for your staff including Pye and pension and all of the extra stuff that sometimes you might not. Think about and and your you know your very basic overheads. Just you know your. Subsistence costs and writing about getting coffee, things like that kind and entertainment events and awards. If you got any events that you want to go to, because obviously in part like that is a big that can be a big cost line sometimes and and and that’s it really and it is just tracking those costs. It’s it’s planning them out out in your financial year. So over 12 months so that you can, you know you can monitor. That and. You usually have a budget that you you plan for the year and that you wanna follow. But obviously your forecast. Is still going to change based on different things that happen throughout the business during that point. But just a really simple tracker to to track your cost is good enough in terms of the forecast.
Chris Simmance:
Yeah. And I and I reckon like you know, you can without going too crazy on it. You can you can plug that into the the agency’s strategy. So ex new number of clients means this many more Staffs and this many more PC’s and this many more. This is so then every single time you get the new client in it will add to your cash flow. And remove from your cash flow accordingly. And and we, you know, we it was a it was a real watershed moment for me when we started doing stuff like that because you start to be able to make more informed decisions like you get the statements there that say you can essentially at this point in time spend this much money to grow the agency into the next step or do the next thing without kind of being too too. The risk, and I think one of the areas that agency leaders are least happy about taking risks is when it comes to the cash. Side of things. And you know, Ben, you’re you’re very much focused on like that long term long term view around like making the most of the the future money and the future savings. And you can only really do that, I think. If you kind of leverage the cash that you’ve got maximise the cash you’ve got essentially like optimise your. Cash flow because then there’s more available to do more with later, right? So what what would you say would be like a like a practical way that you can optimise your cash flow beyond just saving money? Because I mean that’s that feels that feels like a tad. Obvious we’ll lose viewers.
Speaker 4
Yeah, yeah. I think you can write what you said, you know, saying about, well, if if I get X number of new clients, that makes me a certain amount, which means I can forecast forward I that’s a return on investment that’s that’s a cash flow management tool, isn’t it? Do you think if if I get five more clients? Which is going to cost me say 2 1/2 more stuff or which can’t get half a person, can you and.
Ben West:
Well, we won’t. Get that? But. I am 2.
Speaker 4
And a half more people, which means my actual revenue is going to increase and my net gross profit, whatever we want to call it is going to increase by an amount then to my mind that’s an. Investment still so. Getting new clients means an investment of the. Cash if we’re. Spending things to get those fine, so that benefits the bottom line. But then if we get to say right, while I’m comfortable with the amount of income that I’ve. Got coming in. Or we know what it looks like on a more stable basis. We’ve got surplus. Coming into the business. Then you can start plugging into different things, and I know, I know holding companies and that side of things is quite topical, isn’t it within the agency space at the moment. And then what those can hold. Yeah, the IT is, but. From being then you’ve got learned decision to make of does the company do something? Does the company make investments? Obviously the the term. Is it a company investment? Do we hold company cash and shares? Do we hold it in cash or do we get it out of the business and do something else? With it which? Sorry I’m going, I’m. Not going to plead the. 5th But there’s there’s no right or wrong. Answer for a lot. Of agencies, and I think there’s a. There’s an element and Rachel, I’m sure you’ll agree it depends on the person into who’s running the business to what they decide to do with it. The invest in the person you can decide no, this is going to be my when I’m 55, this is going to be my. Nest egg. This is this is. Long term capital for the company. Then I don’t. Know why an office block or if people go back into offices or something else think it’s around. And having a a bespoke or personal view for your business and you the person running the business. To getting you to that position.
Chris Simmance:
That’s awesome. Rachel. I’m. I’m pretty confident. You’ve got like, a Swiss army knife for, like, practical optimization strategies here. So like. There’s there’s, there’s gotta be. There’s gotta be like. If a client comes to you and they’ve got cash flow problems, there must be like a a list of stuff that you would like try and tackle first around, you know, invoicing and all sorts of stuff like that. So what what kind of areas would you look at in that regard cause?
Rachael Marshall:
Yeah. I mean it’s like if if they are, if they are having cash flow problems. I mean obviously first thing we do is gonna. Make them crack cash flow, but. It’s it’s basically just analysing again everything in there. So it’s one how first thing is like how are they managing their debts. Like, that’s the huge thing. It’s like if, if if they got bad debt and is that causing them problems with cash flow because. If, if, if basically if they’re just if they’re planning their cash will based on the clients paying on 30 days and they’re not, then that will cause you huge cash flow issues. So the first thing I definitely look at is how they’re invoicing their clients and how what are their debt is and is there anything we can do? To help them. With that, and then the second thing I would do would it, it would be to work more. On the profit and. Loss side of things. First off and it would be to look it you know where they make and profit is a business where they spending too much money potentially on their staff costs on their overhead. Was there anything that we can cut out that they don’t really need? And and also just looking at you know how they were paying their suppliers as well like are they, have they got like you know really good a method in place, where are they? Paying people. On payment plans twice a month, or once a month? Or are they paying people really sporadically and don’t really have method to how they’re doing it? And sometimes people just I know some directors that I’ve worked with because they’re so busy and they’ve been managing the finances. For business, they’ll literally just get bills come through their e-mail, and we’ll just pay them there and then just to, you know, they won’t even put them in a full cast. And like that’s going to cause you issues straight away. So it’s yeah, a lot of it is sort of stripped back business and how they deal with things and working out you know it what can we do to make things as streamlined as possible. And look, first of any areas in and problems that the businesses currently have and how they’re operating and how they’re managing the financial structure of the. And then after that it’s more drilling into like where are you spending this money and what are you spending it on and or you’re or you’re reissues, right? Are your margins right or you know, do you need to look at your pricing structure or something maybe so it would. It’s all everything fits together, but those, those are the sort of really basic things that you would. Look at first to to sort of, yeah.
Chris Simmance:
And good timing for this, we’ve got a. A question just. Come in here. What in? Your opinion is a healthy percentage for gross and net profit of an agency. I’ve got a. It depends kind of answer because it really does depend what you wanna do in the long run. If you wanna grow really, really quickly, if you wanna accelerate your growth, lots of net profit helps you do that. But it really does depend on what you what you’re aiming for. So what would there be like a like a benchmark that you? Would look at.
Rachael Marshall:
Yeah. Do you want Ben? Do you wanna go? Do you want me to go?
Speaker 4
Well, I I mean. I suppose we’ve got. Maybe it’ll probably be a question to you at. Once Rachel, because I. Would always. Say like you can have.
Rachael Marshall:
So I would always say that basically gross profit can vary. I think gross profit really depends on the business. Pros. It’s the net profit which is the the figure where it shows you how profitable you are as a business and if you are you know if you’re a healthy business I think and their profit a good percentage to set it up is after dividends. I think you should. Dividends don’t comment your profit and loss, but always take them into consideration if you’re pulling. Money out of business. You want it to be between 10 and 15. If you’re a start up, it probably might be a little bit lower. It might be somewhere between 5:00 and 10:00, but it’s still profitable, so it’s still good. It’s basically as long as you’re profitable, it’s. Good. But I would say definitely the benchmark that I’ve always settled my clients is between 10 and 15% net profit after dividends. But your gross profit will change based on. You and your business and how, like you might deliver a service which which doesn’t require much cost of sale or or many staff. You might be able to deliver the service with a really small headcount, but you might have massive overhead costs. You might have a big office. So the gross profit is everything that’s it’s above your overhead line and your staff salaries sit above that as well. But it’s so if again the gross profit can really change if if your staff salaries sit above. It like standard. I’d say about 30% gross profit is, is is a very healthy gross. Offered to work towards. But again, it really does change with every agency. It’s I think it’s the the the net profit line which is is the the line where you know you can see how healthy you are as a business but but bear in mind gross profit will change agency the agency and the type of service that they’re delivering. And how they deliver it, yeah.
Speaker 4
I’m glad you. Meant sorry, Chris.
Chris Simmance:
May please.
Speaker 4
I was going to sound glad you mentioned the dividends, cause that’s a better way than I could. Have explained. I think Rachel.
Speaker
Is that like?
Speaker 4
Comes down to if it’s a lifestyle business as well. If as you say, you’ve got really high staff costs or no staff costs. There you can run at a really low profit level, but I mean, you’re taking everything out. Of the business so. You’re you’re not running technically that much for profit, but you’re. Living a lifestyle. Yeah. So it depends. If you’re trying to get massive like you say, Chris, or have just a nice kind of lifestyle.
Chris Simmance:
Yeah, and this is absolutely a plug for the OG centre, but the the agencies that are going through our agency accelerator programme definitely have a higher net profit than that benchmark there, so. Yeah, yes, so.
Rachael Marshall:
Chris Simmance:
Well, no, it’s all. It’s all the great coaches as well. It’s not just. Me and and the agencies have to do the hard work.
Speaker
Yeah, yeah.
Chris Simmance:
It’s just, you know, it’s it’s nice to know that rough benchmarks for all businesses and things like that. And you know, as a general rule, having a higher net profit. Is usually better than having a higher headcount as a as a vanity factor if you’re ever gonna have one.
Ben West:
OK, OK.
Chris Simmance:
So just as a an aside, if you’re at a conference or anything like that and you say to anyone, you run an agency their. Next question invariably be ohh how. Many are you. How many people do you? The answer to that is it doesn’t matter. I’ve got a good net profit. Thanks very much for playing.
Rachael Marshall:
Yeah, exactly. Yeah, absolutely, absolutely.
Chris Simmance:
And and I I think that there’s a a part of this optimization stuff like optimising your cash flow is is getting the money in as quickly as possible. You’ve said it, I think, Rachel, about getting it repeat the recurring system, kind of the recurring revenue in place, but I think there’s like a technical technological aspect to this. As well, like invoice chasing tools and people and systems and processes for making sure things happen on time, I mean it sounds really silly, but have good relationships with clients because if you have really good relationships with clients, they’re not gonna pay late or usually it’s not because they don’t like you, they pay late just because you aren’t, you’re an afterthought. So you know, go cardless or stripe or whatever else it is. If you have to get. Get clients on that so you can guarantee the money’s coming. At a rate that is, is what you’re after.
Rachael Marshall:
Yeah, they can be quite high cost attached. I think it’s. I can’t remember which one. I think one of them do something to have high cost, but it’s worth it some if you know you’re getting paid. On time.
Chris Simmance:
Stripe is the more expensive of the 2GO cardless. Also it just this is just a little tip for everyone. If you use go card list. The cool thing is. You went before a client will tell you that they’ve cancelled. They’ll cancel their direct debit. So you know that you can building a case to keep them. And just as an aside. There for everyone, most in terms. Of like, it’s not all like. You know sunshine and rainbows. We all know that we all run businesses, we’ve we’ve, we work with people who run businesses. And business is tough in the service. Sector. So how? What? What would you say around sort of how we could tackle some of these cash flow challenges that come through? So you know it’s it’s, it’s not just as as much about getting paid on time. It’s also probably not wasting so much cash and. Things like that, but where? Where, where would you start on that one, Rachel?
Rachael Marshall:
So I would say definitely, yeah. Some of the issues that you come across, a lot of the time, people forget about like corporation tax and their back bills like that bill.
Speaker
We just took.
Rachael Marshall:
They do, and then we get shouted. At whether or who’s about return, who’s who’s your corporation tax they’re like. What? Where? Where? How’s this happened? And you’re like, well, because you got a business, but it’s very common and it’s it’s really sad because some businesses don’t put money aside and they don’t account for it. And then that it absolutely does. And it’s everybody’s, you know, paying their tax. Everybody should be doing it. But at the same time, it is can be very catastrophic for businesses if they don’t plan efficiently for it and just sort of, you know, go along. I think what’s really good is like if you do have a casual, you just drill that into your cash flow. And what I always say every single time and. Do it myself. I put the money aside every month based on the fact I’ve collected and paid in that quarter and I’ve you can, but if you’ve got zero QuickBooks, you can easily run it and say what what that amount is and I put it into it in in my savings account and seeing the corporation tax. I work it just times my profit by 19. That month and then I I do that every month because it goes up and down and then I put a small pot of money aside and put it in my cash roll so that I don’t get stolen by any. It’s not shock when up here and it’s just that it’s OK because it was it was, you know, it was there. Anyway, if you if you don’t have that, those cash reserves available, if it’s like, OK, well that must be nice. For you, because you have money aside for it, it’s like that’s not always the case. Sometimes you might have had a really difficult challenge, a month you might not have your clients pay. You one time also depends. Sorry this is getting into quite accounting terms, but you have my cash accounting and and and that’s basically on cash collected. So depends on debt is pay.
Ben West:
But if.
Rachael Marshall:
For instance, if your debts haven’t paid on time, you’re expecting money in your you’ve had a a big bill one month or something like that, and you’re just like, you know what? I really can’t afford my that bill this month. It’s good to know your options. So hmm, I’ll say they do. They offer payment plans. I mean they they can be very strict on them and don’t rely on them. But it’s like corporation tax, like every few years. I think it refreshes. I can’t remember, but you can get payment plans for corporation tax. You can get payment plans for that bills to pay them month on a monthly basis. Sometimes rather than quarterly, or you can. Spread the bill that you’ve received on a quarterly basis over, you know, a couple of months to sort of ease the pressure up here. You’ve us, they will work with you and they can be demons sometimes and it’s they can be very, you know lot. They’ve gone long haul time but they will find ways around it. So it’s like don’t just hide into a corner you know you. Can’t pay something? Kind of like ring that person and and try and work our way through it and and guarantee if if they know you’re gonna pay them something, they’ll work. With you to do it. Yeah. And so and it’s good to know as well, like if you’re paying that. Bill, you the the. Fines are very quite high now from HMS. If you’re late paying a bad bill, so try not to be late doing that. And if you can discuss a payment plan before it’s due, do do, do it. However, PY A is I think you just get interested and it’s not fine, so it’s worth assessing that as well. Saying, OK, how much interest would I gather in this period if I’m waiting for this massive invoice to pay you in a month? And I’m not saying pay your bills late, but it’s just assessing. How can you manage this through? How can you? If I just incur 100 pound interest for a month, but then I can pay my back bill in a month time, it’s fine because that money’s in then great. I’ll do that. I’ll not stress myself out, but it’s sort of manage. It is really managing it and it’s it’s looking at, you know, those those points where you are really struggling how. Can you get through it and what your options? And and then again. Yeah, it’s it’s, you know. It’s making sure that you you do have structures in place to manage any bad debt and and make sure people are paying on time and inefficient.
Speaker 4
I think that you said. There as well, Rachel, about get in touch before. It’s due. It’s massive. It’s something it’s 7%.
Rachael Marshall:
Yeah, yeah.
Speaker 4
The interest due on any late payments at the moment, so the late moment find it’s levied and then increases. Whereas if you start paying it or have an agreement in place with age MRC labs. So you almost make the problem less. Sad. Sorry Chris.
Chris Simmance:
Yeah, my my assumption is that for those in other countries listening to this. Right now that. The same. The same applies almost certainly that you.
Speaker
Yes, Sir.
Chris Simmance:
Can call. IRS or whatever else it is in in in the other, in the other states, because the the fact is they will want their money, they’ll charge you if you don’t pay it. So if you there will be a. Reasonable way of of resolve? Yeah, I think. As well if. If I’m just thinking maybe illogically, but if you’ve got clients which are not paying on time, but you’ve got good relationships and they’re getting good results, they may not be paying on time because they’re struggling as well. So potentially look at payment plans for clients so that you get a lesser but steady flow of cash, which then you can. To make as part of your payment plan for your for your stuff as well. But what we used to do like and we’ll get on to sort of resilience in a in a little in a in a minute or two, but one one of the one of the things we used to do was literally say OK we want 15% net profit for example the every month. We would always put 15% of every invoice in a separate profit pot. Then we’d do corporation tax and we just say it’s a flat 20%. We have no other cost, 20% goes in there, 20% for VAT because you put it on top already that that’s the amount. That small amount there is what you’ve got to spend to be able to deliver those. Services and once you’ve paid your. VAT through there’s a small amount at the end. Once you’ve paid your tax bill through, there’s a small. At the end, there’s a small amount because you haven’t spent all of that money and then your net profit is pretty decent. And that then sort of means that if anything does go wrong, cause things do go wrong, there is a A, you know, little war chest for for the problems.
Rachael Marshall:
Yeah, absolutely, yeah.
Speaker
It’s so.
Speaker 4
There’s so much we said as well. It sounds silly, but having different names for different ports as well. What my corporation port on my VAT pot. You’re laughing, but.
Ben West:
I’m not going to, you know, sleep.
Speaker
Too often, yeah.
Speaker 4
Well, that’s where that pot. That’s my corporation.
Ben West:
Just, yeah, there’s, you know, it’s there.
Speaker 4
It’s covered. Is there’s something about Peace of Mind there rather than looking and just. A large sum of money in an account. Give you everything you can.
Rachael Marshall:
Spend absolutely.
Chris Simmance:
Yeah. Where do you guys stand on the likes of things like invoice factoring and things like that? Because that that’s usually a like I would say a last last. Option kind of thing.
Rachael Marshall:
This last option? Yeah. I mean, if you can avoid it, I would cause it’s very hard to leave it once you get into it. And but it’s there and it’s an option and it’s something if you really need it, that’s something to rely on. But in in in my my view that I do would try and avoid it if you can and just because again I think it’s it’s quite difficult to come out of it. Once you’re in it. But it is always an option and that’s it. And it’s knowing your options and. Knowing what you can do.
Chris Simmance:
Yeah. And are there any other other options around those sort of things, Ben, make sure what, what, what other things can you do in the you? Know just stuff happens. OK, you’ve called HMRC. You spent six hours on the phone waiting to get through. You got through. You’ve spoken someone who’s spoken to 50 of yours in the in the same week, and they’re all they’re they’re. Happy to to help because that. Their job and but it doesn’t end there, does it? There’s there’s gotta be other things that we can do to kind of tackle some of those challenges. And I, and I’d say you know.
Rachael Marshall:
Yeah, the The thing is, I mean it is having a cash flow as well. Like if if if you’re totally blind to all of those payments which are coming out, you can’t plan for it, you can’t, you can’t look ahead, you can’t. You know you can’t make sure that you’ve got that money aside or next month it’s gonna, you know, you need to not spend too much money on client entertainment this month. Because, you know, we’ve got those big bills going out next month, so it’s having. That view, but it’s even stuff like protecting yourself, like in terms of the type of campaign that you’re that or project that you’re working on. So you might be have a client who has a lot of third party costs attached to it and costs like which you’re incurring upfront. So it’s like make sure with that your invoicing. Your client upfront for those costs, if you can, that you don’t want to spend everything and be out of pocket and then be waiting for your client to pay you as well. Like, come to some sort of, you know, negotiation with them where you know, part of it, you know, the fees may be paid on 30 days that you’ll see, but the costs are paid up front so that you’re protected. In in that area as well. Try to think of anything else.
Speaker 4
And there’s one thing we’ve not spoken about as well with cash flow problems and if the person running the business is ill. If my brain main bread brain Med winner, the main breadwinner, or the the bringer winner is is not able to do that, which can cause again if you’ve got half a year and then you’re unable to bring funds in or to. Bring business in that that does cause a bit of a problem with cash. Flow. So I think a lot of. Yeah, that that fun topic, that’s good.
Chris Simmance:
We go down that we’ve done that webinar, key man insurance or key person insurance or whatever it’s called. It’s really, really it’s a, it’s a big, big thing if you know, if you if you’re a, if you’re a web designer and you get your hands broken, not a lot you can earn. And if you’ve got an agency, who, who who do lots of work but you, you know, you’re the main main earner. Insurances can help with those kinds of things because that’s what we’re.
Rachael Marshall:
Yeah, I’d say as well, like if you are, when you go into business with a new client just to try. And avoid any. Sort of surprises with them. Any new prospects if you can always check them out on Companies House and credit save if you’ve got it. If if you pay for subscription for that or Experian, it’s and sometimes you know it. They can look like a brilliant prospect and they can look like they’re doing really, really well. A quick check. On Companies House or something, you can see that they haven’t got their accounts up to date and their confirmation statements up to date and their directors switched roles like 15 times and the companies went into liquidation and being settled and you named 15 times and then that’s a huge long. Bell that. OK, there’s something not right. I might. OK paid by this client.
Speaker
Yeah, yeah.
Rachael Marshall:
Nine times out of 10, when I’ve seen something a little bit odd on Companies House or. On credit safe, I’ve been right about it and there’s been a problem with. That debt, so always. Always check that before you go into business with someone and and derisk yourself.
Chris Simmance:
Which I think is a is a way of building this financial resilience is de risk is a big part of that like insurance. Is red flags from potential clients. You know fares if there’s discussions around break clauses in a relatively simple contract, and they’re probably looking to almost always that was a red flag at some point in time that there was gonna be a payment problem like, say, companies. Much changes and things like that, and I know that financial resilience is, is you. Know it’s it’s, it’s. Really important, especially nowadays, because things cost so much more. What, what? What would you? Where would you start then? On like from an agency owner, an agent? The business itself to build that financial resilience, where would be a a good starting point.
Speaker 4
I know we’re repeating ourselves here, but what Rachel was saying earlier about syphoning off bits of your net profit. Into different pots. If we’re talking about being able to maintain our safety in times of bad debt or being able straight and not wanting to go down other routes, I would always think well what’s what’s my cash flow look like for the next three 612 months. If something happens and if I have one invoice late versus 2 invoices late, what do I need to be able to then function, pay my staff pay my other costs and then I would have in mind a number to guesses again when you speak to someone who has an idea. What that number? Should be and please then. Have that so that you’ve got almost your war chest. So that we’ve stress tested where where my weak point. If I’ve got potentially someone who might be dodging the future, or a company that would pay late because they run into financial difficulties, I would be through no fault of their own. I don’t want that to derail me. So I need. My again can call. It can call it safety chest or war chest or whatever. It may be. The bank might have a good laugh at that, but I’d be looking to build that up. So that that allows me to not. Not not have that issue around, yeah.
Chris Simmance:
A large part of this as well I I I think is actually having a plan for your business and building a strategy which is achievable and not just one that sounds flashy because again, building a proper strategy isn’t easy. But having a strategy. That that will. Allow a few punches in the face to happen. Will will essentially build that resilience in, you know, roughly where you’re going, the cash flow forecasting because of the strategy allows you to see when’s a a leading measure of something terrible happening in the future. What are your thoughts? On this, Rachel.
Rachael Marshall:
Yeah, I mean it’s the same. I think a lot of it what we do is when we we look at sort of scenarios when we’re we’re planning if like for instance I’ve got a client and they’ve got it’s, it’s good to know obviously what’s your, what’s your current, what cash reserves at the minute, what you got in the bank, they say rule of the film, it’s like 3 months. Cash reserves you should hold in the bank at any point, which is basically what is the cost of your overhead, your salaries, your dividends. You should have that times three. That’s very hard to do with the minute. I think for some agencies. And it’s great if you’ve got that and if you’ve got that though, you’ve got good stability and you’ve got good flow to make decisions. But I honestly think at the minute that’s very difficult for agencies to do. I think you know with with cost of living, everything’s going up, including office costs have gone up, everything’s gone up, salaries have gone up, people are expecting more money now. Cost of living so it. That is, I think, a little bit unrealistic at the minute to say to businesses. But I think. One thing that we really look at is like when we build out a forecast, we look at this is our. And we’ve got two of their project revenue. We’ve got grit 2 months of confirmed revenue. But then in like 5 months time, we’ve got nothing. How do what do we do? Because we’ve. Got all. These staff, and so how do we plan a cash flow based on this? How do we know? We’re going to. Have enough money to pay them, so it’s like it’s. Basically assessing. One, what’s your current cash balance? Do you have time now to invest in something to help because it’s either going to be make or break, so it’s like? If we we have this pipe. If if if you have more pipeline whatsoever survive. Is that OK? Well, maybe we should just really, you know, be really sensible and just hire some freelancers if we get some project revenue in, we’ll not commit to too. Many costs board. If you’ve got a pretty decent pipeline, but still nothing’s concerned but you’re a bit worried about me and those investments. It can be like one if. If you’ve got the money in the float, it’s like you can do it. Do it now, even though you’re paying. Looks really bleak in three months time, and it looks like you’re making a loss every month. If you make those decisions, you might just save the business from that point.
Chris Simmance:
Right. And and it’s not just the business, it’s the people in it. As well and.
Rachael Marshall:
Exactly, exactly. And that’s the thing. So sometimes you have to. Hit risk and you can’t always just, you know, play it safe, but it does depend if you’re, if you’re. If you’ve got a really, really terrible cash balance and you’re struggling through. Every month I don’t suggest you hire a new sales person like yeah, straight away, because that’s a huge cost for the business and it’s.
Chris Simmance:
Yeah. When the business like a. Business is the best.
Rachael Marshall:
No, but it is. It’s all about assessing that I think and sort of how much do you really have and like how long have you got put a time frame on everything, give everything a time frame.
Chris Simmance:
Not that, not.
Rachael Marshall:
You know, there’s probation reasons for it, for for a reason. So probation periods for a. Reason which you know. Might sound a bit harsh, but there is. You’re running a business, you have to do what’s right for. You and the business and for the. Staff that you’ve got. So it’s just it’s assessing everything and even if you sign up to a new subscription, so you might sign up to a new sales subscription or something to get you some new, you know more pipeline, but don’t let them sign you into a 12 month fixed contract. You have to you argue it down and tell them your position. Tell them you can only do it for a few months. You need to assess it and if you’re. Not making a return on it. You need to stack it. But yeah.
Chris Simmance:
Absolutely. And final tip guys, 111 tip from each of us. The one then you start.
Ben West:
Russia and I know it’s we we said not boring, didn’t we? Thank you.
Chris Simmance:
We I know it’s hard. I know it’s hard, but try.
Speaker 4
I was going to say little and often, but that’s. Boring and. Cliche, but that’s. That’s that’s that’s literally where I’m at, is plan. Stick to it. And just. Keep going with that. Like you’ve obviously got yourself into a situation positive situation. Running a business. Yeah. Treat it the same way with making your cash flow planning. If you can make it consistent over a long period, then you can scale that up and. Scale that down. That would be my 1:00. That’s more 3, isn’t it?
Chris Simmance:
It was basically, yeah, I mean you’ve not done anything, right? So far today, Rachel.
Rachael Marshall:
And it’s a hard one. Now I feel like I said everything. I think what I would say is never let anything slip. Like when you’re running a business and it’s in the early days like I think obviously things will slip, but. I think it’s. More like dawn. Don’t get tired of chasing people. Like don’t let that come off your radar. What the cash flow come up your radar like make set, get a schedule and stick to it. Credit control set yourself weekly reminders to do it. Cash flow reviewer on a monthly. Basis and always be aware if you’re forecast costs and always be updating your cash flow in line with it and it’s like just just just being like be in the moment of course and you know be aware of everything that’s going on, but just really try and anticipate like what what’s coming at all points and try and be ahead of the game. Because you don’t want to get a shock and by doing any reports on a monthly basis. Weekly basis. Anything that you can do, like don’t leave anything too long. Always try and just be ahead of it and just and that gives you you know you know reliability and comfort in your business and it’s either you know opportunity to make changes quickly if you need to and you can save risk so that’s that’s sort of my advice to be on it.
Chris Simmance:
Yeah, mine. Mine is. If you haven’t got a strategy, get a strategy because it makes all of this a lot easier to do because you know where you’re where you’re aiming for cash flow forecast is just as good as your your sales and marketing plan if you don’t. Have one of those you can. So we just. Doing the same column every single month and guys thank you so much for coming on. I think everyone got a lot out of this. The replay is gonna be live forever, or as long as youtubes existing. So yeah, maybe forever. But thanks very much. And if anyone needs to get in touch with you, they’ll find you through the MG Centre website, but also magic. Digits you’ve got. What’s it magicdigits.com? No, and you you in the mean time.
Rachael Marshall:
You know my own website. You know it’s it’s it’s, it’s there somewhere. Magic widgets is probably one of the only company names.
Chris Simmance:
And then, Ben, where can we? Find you other than the OG Centre website.
Speaker 4
Yeah, I was having thesame.com.co.uk question, prosper well, yeah.
Chris Simmance:
The Internet. The Internet is the answer. Thank you so much for coming along, guys. It’s been great having a chat to you.
Rachael Marshall:
Alright, thank you.
Ben West:
Bye bye.