What goes up, must come down.
It’s true of balloons and it’s true of the economy.
As a business owner, a recession is a pretty scary thing—and something that can be challenging to predict.
When I wrote an article just six months ago about the early warning signs of a recession, no one predicted what would happen in March of this year.
We knew something was coming—every economist on earth was predicting it—but no one predicted a global pandemic or depression.
Measure Your Work to Cold, Hard Cash
If you’ve lost your job or have been furloughed or your agency business is down by A LOT, know this: you will be OK.
Once you have the mental capacity to start to plan for the future (you know, beyond just the next 30 days), know that there are benefits to doing what we do during a recession (or depression).
When larger companies with budgets for marketing or communications are nervous, they look for other service providers.
If you have products, services, and solutions that are competitive, you have an opportunity here to win some new business.
Organizations are still outsourcing and still hiring. You may not get the premium dollar you did just two months ago, but you’ll be working.
If you are working or you do still have clients, now is a great time to start to show your executives or clients real results—the kind that matter to the organization versus likes, impressions, and engagement.
If you can attribute the work you do to cold, hard cash, you’ll be sitting in a completely different spot when the accounting team says it’s time to cut more expenses.
The leadership team will know you’re making them money and it’ll make it harder for them to cut your salary or your budget.
You can also find information in our PESO Model content.
On the agency side of things, this is a great time to audit what you’re doing:
- What are your goals?
- Does your team and product service mix match those goals?
- Do you have expenses you don’t really need?
- Are you like me and are paying for software you don’t need or no longer use? (I have a problem!)
Trim your own fat and start saving some cash.
We’re creatives, and that means we thrive in the face of restrictions or challenges.
Four Tips for Communicators to Prepare for What’s Next
Recession, depression…whatever is coming next (and it sounds more like a depression), it’s time to be smart and strategic about what that means for communicators.
Right now, as states begin to reopen (or countries in other places in the world), your main focus is on getting back to some sort of normalcy.
Maslow’s Hierarchy of Needs states we have to have basic needs (food, water, shelter) in place before we can move to safety and security. That’w where we are right now.
Once we feel safe and secure, we can move on.
Now is the time to prepare to be able to move on.
Forbes has advice for preparing for a down economy.
Though the down economy is already here, there are four things communicators can focus on now:
- Manage profitability
- Identify and maintain your strengths and best customers
- Be ready to decide what you can stop doing
- Manage liquidity like you do your profitability
Let’s talk about each of these.
Manage Your Profitability
When I talk to agency owners for the very first time, I ask them what their profit margin is on the services they provide.
Less than one percent can answer me.
That means 99% of communicators don’t know how much money they make.
Sure, they may know what you take home, but it’s the rare breed who can tell me what their margins are on gross and net revenue. theyThrow in the word EBITDA and you’d think the sky was falling.
This is imperative.
You need to know what your margins are on gross and net revenue AND by client.
I served on the board of an accounting firm until they sold and I can tell you that is one thing accountants have on us.
They can tell you exactly where their money goes and they work a plan that is specific to meeting a certain profitability goal.
While I don’t recommend profits over people, you do need to know how much money you’re making.
And, if you want cash to be king, your profit margin should be at least 15%.
Similarly, you need to know where your money is going.
Once a quarter, I go through our credit card statements (a task I do NOT enjoy) to make sure what we’re paying for is truly necessary.
Doing this isn’t fun, but it’s necessary.
One of the things I ask our agency owner clients quite a bit is if it’s truly necessary for them to have office space.
Some want it for the stability of having it and others need it because clients require it—and both of those reasons are fine.
After all of this is said and done and we start to go back into an office, ask yourself how necessary it really is.
For those of you who have kids at home, going back to an office—even after states reopen—may be impossible for now.
We also wrote a series on How We Work that will be helpful.
To be profitable, you have to cut the fat and spend money only on the things that help you grow your business.
Know your profit margins and review your expenses and then cut out the things you truly don’t need.
This will help you both be profitable and save the cash you need to get through the next couple of years.
Identify Your Sweet Spot
When you’re jittery about the financial future—or even when you’re starting out or you haven’t met your goals for the year, your first instinct may be to cling on to every client you have to keep revenue flowing.
But if you have customers who are causing you as much grief as profit, or services that are more trouble to deliver than they are worth, firing them now and freeing up some mental space may seem counterintuitive, but it works.
It’s always pretty amazing how much easier things get—and what new business you can bring in—when your pain in the butt client is gone.
Once you realize what it frees you up to do, you’ll be mad you didn’t do it sooner.
This, by-the-way, works with colleagues, too.
If someone is a bad apple or they’re not pulling their weight, it’s human nature to want to work with them to try to turn things around.
But when you let someone go, it frees up your brain to focus on other things—and growth almost always comes from that.
There also may be some services you have to let go.
We have a program that I love.
I love working through the program with our clients—and I love the results they get. But we’ve also found that less than 20% of agency owners are ready for it.
It’s far too advanced for the majority of people who sell their services for fees.
Because of that, we let the program go.
It makes me very sad, but I’ve come to realize it’s not the right fit for our agency owner clients. Yet.
I won’t let it go completely and will probably revitalize it next year or early in 2022 but for now, it’s time to let it rest so we can focus on the things that our clients want and need.
It’s human nature to allow our less-than-ideal clients or bad apple employees or poorly executed services to make a dent in our revenue, but as the economy takes a turn, we all need the time and energy to be flexible so we can react to the things we cannot control.
Knowing When and What to Quit
This doesn’t mean you need to immediately fire a bunch of clients and institute another round of emergency budget cuts or furlough employees.
But it does mean you should know what else you may have to “quit” as the economy worsens in coming months.
Hope for the best. Plan for the worst.
When you look at cutting expenses, ask yourself if you truly need it.
On the personal side, I really love Birchbox.
I’ve learned about new products I never would have otherwise tried and it’s only $10 a month.
But do I truly need it? No. Not really.
I love it, but I don’t need it.
The same goes on the business side.
When we had an office and more than 30 people running around, I provided breakfast and fancy coffees every day and wine on Fridays for wine:thirty.
It was super nice to have and there were many mornings we had hot breakfast together.
That was amazing. But it also wasn’t necessary.
When I asked my team what we could cut without it hurting too much, that was one of the first things they listed.
As you look to cut expenses, involve your colleagues.
At the very least, the leadership team should know cuts are coming—and should be involved in the decision of what to cut.
I personally love to involve everyone because there will be things you think everyone needs and find out that’s not the case.
Likewise, they may have some ideas you hadn’t even thought of.
The most important part is to make sure no one is blindsided.
You are in communications, after all.
Communicate the changes.
Managing Your Liquidity
The fourth tip from the Forbes article was to manage your liquidity.
This is finance team stuff, but if you’re a leader of any kind in an organization and you have P&L responsibility, you have to manage liquidity just like you do profitability.
Liquidity is the money you have available to pay for your expenses.
For most of us, that’s the cash sitting in our bank accounts.
One of the first things I make our agency owner clients do is provide financials and a cash flow projection so I can help them manage their liquidity.
It’s impossible to reach your goals without understanding this.
Review the payment terms you have with your contractors and vendors and start to extend your own accounts payable.
Your clients are going to do the same thing to you so everyone will be rowing in the same direction.
One of the massive things I learned during the Great Recession was to never rely on client retainers as our only income source again.
At the time, I crafted a goal to add seven revenue sources—one a year for the next seven years.
Sitting here 10 years later, I exceeded that goal—we now have more than 10 revenue sources.
And I’ve been very careful to manage to profitability without exhausting my team.
Start to think about the things communicators can add as additional sources of revenue:
- Virtual speaking
- Zoom consulting
- Virtual workshops
- Perhaps a published book
- Online courses
- Virtual events
And one last tip: get paid for things upfront.
We will not start work with a new client without 90 days of retainer or the full project amount paid upfront.
This allows us to always stay ahead with cash and it prevents a client from falling behind.
I also am a big fan of being paid by wire transfer or by credit card.
Of course, wire transfer is preferable because it doesn’t have any fees.
But a credit card is just as good—you can absorb the fees into your cost of doing business.
Even better, you set it up to recur every month so you never have to chase money and you never have to wait to be paid.
Cash is king, my friends!
Collect it, save it, and be ready for a rainy day.
Invest In Yourself
You may know that I do one-on-one coaching with agency owners.
Everything we’ve talked about is what I help agency owners do.
Remember the accounting firm I mentioned earlier whose board I sat on before they sold?
I was on their board for 10 years and I considered the board meetings my “swim in the deep end” education on finances.
For the first two years, I sat there like a deer in headlights.
I had no idea what they were talking about or how I could add value. (Thankfully, marketing had its own spot on the agenda or I really would have wondered why I was there.)
During each meeting, I would take notes and then I’d go back to the office and spend time educating myself.
Soon, I was able to not just understand what they were talking about, but how to implement the best practices into my own agency.
This is where I start with our agency owner clients.
It’s not sexy.
It’s probably dreadful for most.
But recession or not, it’s imperative.
Protect Your Earning Power
For those of you who don’t run agencies, we also recently launched the PESO Model Certification with Syracuse University.
Now you have an opportunity to invest in yourself by learning how to implement the PESO Model and prove the work you’re doing drives cold, hard cash.
Plus, it comes with a certification from the S.I. Newhouse School for Public Communications at Syracuse, which is one of the most prestigious programs in the world.
Your job for the rest of this year is to protect your earning power. For some of you, that may very well mean you have to invest in your own professional development.
No matter what you do, how you prepare yourself for what’s coming next, or what kind of professional development you do, we are on your side every step of the way.