Thinking

Is your business effectively managing an economic downturn?

Written by Jonathan Ross
26 Aug 2023

The UK economy grew marginally in the second quarter of the year, but the threat of recession still looms before the end of 2023.

Many agencies have been enjoying a long run of strong growth and profitability for several years. However, recently things have become more challenging.

Fallow Associates has extensive experience in helping businesses navigate through difficult economic times and below we share some of our insights and ideas on how to manage things over the second half of the year

Seven ways to increase your financial strength and flexibility.

  1. Start managing your staff costs more tightly.

Total “people costs” can reach as high as 70% of an agency’s cost structure. Let attrition take its course. Don’t feel the need to replace staff until you must. Cut back on the use of freelancers where possible.

  1. Carefully examine where your non-people costs have crept up.

Spending on phones, IT, subscription services, user licenses and other major items is too often taken for granted but can easily add up to a substantial number all too quickly. Challenge your team to see how the agency can remain competitive and effective while spending less.

  1. Protect yourself with stronger client contracts.

Negotiate the payment of significant money upfront so that your agency is working off client money and not your savings. Also, ensure your termination clause guarantees that a specific (or minimum) amount of money will be paid to you during the termination notice period.

For start-ups and venture-backed clients, get the termination notice money upfront along with first month or quarter of work to avoid serious write-off situations.

It may become necessary for the senior team to take a lower salary during a recession

  1. Have a contingency compensation plan for you and your team.

It may become necessary for the senior team to take a lower salary during a recession to help avoid layoffs of other valuable staff. Letting good people go due to short-term economic hardship can hurt your agency’s long-term value.

  1. Consider offering your key senior people additional compensation based on new business performance during the period of salary sacrifice.

This can increase their motivation for actively promoting the agency and growing revenue. This approach might not only help you get through the next recession but actually emerge even stronger on the other side.

    1. Finally, overall cash management is very important.

Accelerate invoicing. Stay on top of payment collections since you can ill afford to be the client’s banker. With as many vendors as possible, extend your payment terms to preserve cash.

Review the non-financial aspects of your agency to increase competitiveness.

During a downturn, there will be fewer new business opportunities, so you need to become more capable and competitive than ever. Carefully review key areas

An agency’s Mission, Vision and Values are the first steps to market differentiation. What are yours? Are they still, right?

You could consider reviewing the following key areas:

 A downturn may be the best time to develop a three-to-five-year growth plan. Your senior team may never have more interest for this undertaking than right now.

An agency’s Mission, Vision and Values are the first steps to market differentiation. What are yours? Are they still, right?

Are you positioning yourself as a strategic partner to clients based on your deep knowledge, insights, and experience… or as a commodity that simply delivers the standard service offerings?

Developing intellectual property included branded products and proprietary methodologies that attract prospects and can be sold at a premium.

Ensure you have all relevant service offerings that your clients need for success.

Rally your people round common cause.

Create a deep, motivating sense of united purpose and collective mission. Your staff will rally around you and the agency during tough times if they feel valued and if they have a personal bond with you as the leader.

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