The challenge

The agency knew their strengths were in PR, not accounting, so they were already working with an accounting professional. However, this resource worked from a remote location, wasn’t connected into the business in any way and had rudimentary record keeping in place with a focus on just making sure they filed their VAT returns.

A billing system was in place to produce their invoices but they had no accounting system and they just handed paperwork over to their bookkeeper who simply processed the information. This meant no insight into how the business was doing, who owed them money and who they owed money to.

There was no credit control whatsoever and owed money was not chased up. Cashflow was suffering and with very little money in the bank, they didn’t have enough to even pay their tax bills so needed to set up payment schemes with the HMRC and the business owner often had to delay paying himself. They had a significant amount of debt where clients weren’t paying them – approx. £190,000 was considered “bad debt” and turnover was £600,000.

The solution

The agency was working with a business coach who recognised that, despite being very successful at winning new business, their cashflow and their accounting practices were holding them back from achieving their full potential and growing as a company. This coach had previously worked with YRH so recommended us as a resource to overcome these finance related challenges.

The first step after carrying out a full review was to focus on the immediate cashflow issues. Our financial controller advised them to change to the industry standard of billing a month in advance instead of in arrears, which accelerated a whole month’s worth of revenue.

YRH took on responsibility for their credit control/cash collection and retrieved £124k of very old debt from 3 clients. We also worked with their internal account managers, running informal training on best practice to give them the confidence to ask clients to pay and agree terms at the start of their engagement.

YRH then focused on increasing visibility of the business’ finances. All current year transactions were put on a cloud accounting system with access for the team so that they could also raise all their bills and track payments in one place. A simple PO system was also implemented so the team could get purchases for clients, and the office, approved quickly. Those POs were then used in accounting and cash forecasting.

YRH prepared their first set of management accounts and worked with the Directors so they could start to engage with the numbers. We also worked with them to develop a 3 and 6 month forecast every month and created a dashboard so all financial information was available in real time, something the Directors had never experienced before.

The results

Due to the implementation of a robust and proactive credit control process in the first 6 weeks of working with YRH, an additional £104,000 was collected and the average amount collected monthly improved from 32% to 56%.

Cashflow was accelerated with 75% of clients agreeing to being billed in advance rather than arrears. This had a massive impact on the agency’s bank balance, ensuring they always had money in the bank.

After the first 12 months we prepared 2 cashflow forecasts. The first based on what they could achieve in the future if they followed advice based on our knowledge and expertise of how a PR company of their size should perform = £120K in the bank. The second on what was achievable based on current practices = £35K in the bank. We are proud to say we managed to get very close to this figure.

The implementation of simple P&L accounts showed their cost base and how it changed over the months. They knew they were understaffed, and this proved it – the difference was they now had the cash to employ more people.

We also helped them see their client retention was poor, and through some client evaluation they changed their strategy for targeting new business, seeing average retained client values triple resulting in a much more stable business which is cash positive, going from £600k to £1.8m in 3 years.

A snapshot of how accessing the right expertise helped the agency achieve their potential:

  • Credit control process sees monies collected monthly rise from 32% to 56%
  • Cashflow accelerated with 75% of clients moving to billing in advance
  • Cashflow forecasts implements after 12 months
  • Client evaluation resulted in new business strategy implementation
  • Vat inspection received gold stars
  • New offices opened and increase in staff numbers
  • Profitable business with much higher turnover
  • Owner doubled income and gained the freedom to make informed choices

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