As every agency executive knows, there are two distinct sides to running a B2B company such as a PR firm, each with it’s own litany of strategic and tactical methods: There’s the challenging, exciting job of providing great service to your clients, and then there’s the onerous task of optimizing your agency’s profit margins, where you’re often knee-deep in business models, pie charts, books and records, budget meetings, cash-flow numbers crunching, and all that … math. So it’s easy to see why PR firm owners tend to excel at client service, but often fail to apply appropriate attention to the financial management of their business—that agency they’ve poured their heart, soul and other coffers into, and probably even plan to sell one day. Smart owners realize that maximizing profits should always be job number one.
At face value, this threat might not add up—owners assume that if they succeed for clients, the agency’s prosperity will be a complementary by-product. However, according to veteran PR-firm financial consultant Rick Gould, this notion is faulty logic that could cripple, if not ruin, your agency—despite your clients’ own success—and suddenly your endgame looks pretty bleak.
The fact is, just about every PR firm owner could use a refresher course on financial management, if not top-to-bottom schooling. And most are right in the middle—they’re savvy, creative people who solve problems, but lack understanding of some fundamental business-planning methodologies. But fear not, as the just-released new edition of Gould’s Ultimate PR Agency Financial Management Handbook provides you with everything you need to know about running your business in an easily digestible format—written specifically for agency owners and managers.
Some of the key takeaway concepts of the new edition include:
• • Run the firm as a business from the start, not as a hobby or as a “lifestyle” business.
• • Every executive in your firm should be or should become an entrepreneur.
• • Don’t spend so much time on client work that you’re spending too little on marketing, managing and building the business.
• • Hire an experienced CFO even if part-time to get the counsel and expertise of years of education and training.
• • Run your firm “as if” you will sell it. The day you put your name on the door is the day you should start your exit plan.
With an Executive Juris Doctor degree from the Concord University School of Law, as well as being an ongoing participant in the Harvard Law School Program on Negotiation, Gould more than anyone knows the value of a high-performing, financially sound firm—and is perfectly suited to offer this level of insight and information to agency owners. More than 14 years ago, he founded Gould+Partners, a New York-based merger and acquisition consultancy specializing in the PR industry, identifying what he believes are quality buyer-seller matches and facilitating the transactions, working with the CPA firms and law firms for both buyer and seller to create win-win combinations.
It’s no surprise that agency owners generally don’t know how to run a business—it’s not one of the topics they cover when studying public relations. “PR agency executives have not been trained in financial management,” says Gould. “Few colleges and universities previously offered courses in “Entrepreneuring,” such as the one I created and taught at Parsons School of Design. As a result, we have very smart, very creative entrepreneurs with little understanding of balance sheets, P&Ls, time management and profitability analysis—all of which are necessary to achieving the benchmarks outlined in the book, which should absolutely be goals for every firm owner.”
Among the key financial benchmarks Gould recommends all firm owners should be adhering to and monitoring regularly:
• • Your Net Revenue per Professional Goal (net revenue divided by the number of account professionals) should be $200,000+
• • Your Total Labor Cost Percent Goal should be no more than 55%
• • Your Net Operating Profit Percent Goal should be 20%+
Even if your firm is currently operating at a 5-10 percent net profit margin, Gould’s strategies can help you turn things around in less time than you’d think. “Those firms that religiously monitor their operations against our benchmarks, reported by size, region and specialties, have seen their operating profit grow substantially, some to in excess of 30%,” Gould says. “Firm owners and execs that follow the process and implement the steps I have outlined in the new edition will ultimately exceed the 20-percent goal.”
Once the firm begins to properly manage its finances, increased profits are just one benefit owners will notice right away. “Owners will see an increase in the value of the firm and much more rapid growth because they will have the funds to invest in quality staff, nicer offices, cutting-edge technologies, and marketing budgets and teams,” says Gould. “One of the most rewarding results will be breaking through the growth gridlock that the majority of firms experience as they stagnate, particularly because they continue to run ‘lifestyle’ firms.”
Although maximizing your firm’s value for potential sale is not the more urgent reason to get your finances in order, it is certainly on the back of every agency owner’s mind. Whether an owner is planning to sell her firm now, soon or at some undetermined point in the future, it’s just smart business to know where you stand in the market. Gould has been working with firms since 2001 on preparing for that very day—the day you decide to sell your agency.
The first edition of the book appeared in 2012, but a lot has changed in the years since, and Gould has significantly updated the new edition, following the mantra he shares with clients and industry personalities every day—you should run your firm “as if” you were planning to sell it today.
“The book is about how to manage an agency so it returns as much profit and value as possible—and is a very attractive acquisition prospect when the timing is right,” Gould shares. “It outlines a framework and the steps needed to run a dynamic, prosperous, fun firm. The ‘mindset’ of managing your firm ‘as if’ you were going to sell it will maximize not only profitability but also the endgame value of any firm.”
The book has not only been updated but also significantly upgraded. “I have added chapters on the importance of the second tier of management, perks, the most critical benchmarks, specs proposals, what buyers want, why all firms should have a valuation, why the earn-out model works, ad agencies as acquirers, steps to a successful sale, building trust and brand recognition,” says Gould. The new edition also contains important insights from the results of five different benchmarking surveys and reports.
What are the biggest changes since 2012 when the book was originally published? “There are many more buyers in the market now,” Gould shares. “Smaller buyers are wanting to make niche acquisitions, and virtually all acquisitions have strategic value for specialties, talent and locations.” In fact, guidebook publisher Bulldog Reporter sees this as a seminar within a book.
What’s the starting point for a firm owners thinking about selling? Gould offers the following tips, just a sampling of the concepts he tackles in the book’s new edition:
• • Don’t be hasty—“It is better to wait and do it right,” he says.
• • Be sure all items a buyer wants are in place. “I call this ‘packaging’ a firm for a sale.”
• • Culture and fit is most importance—more important than the value/price for the firm.
• • Price “expectations” should be discussed very early on with advisors. “I recommend a valuation of the firm be done so the prospective seller has a frame of reference.”
• • Be sure to have a “quality” CPA firm and law firm on board that know the PR business.
Gould is offering much more to those who purchase the new edition: “I am willing to offer a free 1-hour consultation to anyone in the C-suite who buys the book —the CEO, COO, or CFO of a firm—to answer questions and explore options for their firm,” Gould says. “I am happy to do make this offer—the worst-case scenario is that I get the opportunity to meet new and interesting PR execs.”
Rick Gould’s achievements include:
• Representing over 200 PR firms as CPA & Financial/Management Consultant
• Creating, managing and interpreting the “Financial Benchmarking/Best Practices” annual survey for the past 22 years
• Being featured in Bloomberg Businessweek, Bulldog Reporter, PR News, O`Dwyer’s, Crains, PRWeek, AdWeek, HOW Magazine, and other creative services publications
• Reviewing and reporting the annual ranking of PR firms for the Council of PR firms for 5 years until it was discontinued as a result of Sarbanes-Oxley
• Providing expert witness testimony to support litigation valuation
• Serving on the graduate faculty of Parsons School of Design for 4 years, and teaching the course he created, “Entrepreneuring: The Business of Creative Business”
Gould can be reached at [email protected].