The Nine Deadly Sins of Internal Financial Mismanagement by Account People
by Sheila Campbell
In our agencies, it's the senior executives who determine compensation agreements with our clients. Those agreements are based on assumptions about how much time and effort they figure it will take to service an account.
But it's account people who are often the ones who determine how much real profit will be made on an account. They're the people who are making small decisions every day that can have a big impact on profitability.
Not every account manager walks into a new agency understanding why it matters whether the company makes good money. It's up to agency leadership to make it clear that profitability means more money in people's paycheck, and more people to help do the work.
Plus, of course, any account manager who hopes to become senior management needs to have a firm grasp of the financials.
Often account managers recognize their financial stewardship responsibilities to their clients, but don't realize that things they do inside the agency also matter. So, according to many agency CFO's, here are the nine deadly sins of internal financial mismanagement by account people.
Not closing jobs immediately.
The longer it takes to bill jobs, the less likely the client is to remember any changes they made that added to the cost, and the more likely that they will protest the invoice. Even if everything on the job went perfectly, the agency can't get paid if the client hasn't yet received an invoice. We don't want to live on credit personally, and we don't want to set it up so that the agency has to either. So account managers need to let accounting know as soon as a job has been completed.
Billing to estimate and then not reconciling quickly.
If we billed to estimate, it's likely the client still owes us some money at the end of the job. This is just like not closing jobs immediately - we need to reconcile any outstanding charges ASAP so the agency can collect all the money it's owed.
Forgetting to open and use holding fee jobs for talent.
Long after the production has been billed, we might still need to invoice a client for talent costs as a campaign runs on. In many agencies, that requires opening a specific job to produce those invoices. It's easy to forget that you need a future job number, but if you don't, when the talent invoice comes in, there may not be a place for accounting to apply it.
A corollary here is that - on every single job - account managers must specify exactly how and where the work will be used, and if the agency will be buying out the talent costs and rights on the work produced, or if they'll be paying residual fees.
Over-identifying with the client.
Account managers work for their agencies. But they spend a lot of time with their clients and get to know very well what the client likes, so it's tempting for them to start thinking too much like the client. Account managers aren't client substitutes, and if they over-identify with the client, they've lost their objectivity. Result: Not pursuing the agency's financial interests as rigorously as they should.
If an account manager finds herself thinking that the client is paying too much for the agency's work, she just might be guilty of over-identifying with the client.
Moving time from one job to the other.
Oh, it's so tempting. Account managers think, "Our time ran under on this job and over on that one, so let's just move the numbers around. The client pays the same amount in the end, anyway. And then I won't have to explain why the invoice is over the estimate."
While all that may be true, when we start moving time around from job to job, it prevents the client from having a realistic idea of what it really takes to get certain work done. And the account manager is ducking the responsibility to explain the truth to the client. Clients are grown-ups; things like this happen in their business too. We all need to learn to explain what happened and why - and THEN point out that we saved them money on the other job.
Progress billing production for a shaky client.
When the agency has to lay out money for a major production, it should be spending the client's money, not its own. Most agencies run lean; we don't have the cash to front money for a client - and it's certainly not a good business practice even if we do.
Progress billing, where we bill as we go, means that the money has already been spent before we get payment from the client. If the client's business is at all shaky, that can put the agency in a very vulnerable position. It's an account person's responsibility to be sensitive not just to the marketing needs of a client, but also to what's happening operationally, and how the client is doing from a financial standpoint.
Saying, "We can't bill the client for that."
If an expense comes up at billing that an account manager thinks the client shouldn't pay for, our first question should be, Why did we let the issue get this far before dealing with it? The problem might have been a mistake somebody in another department made, but account people have to deal with those right when they happen.
And if the account manager is seeing this cost for the first time, then we need to understand how we missed it. What's our early warning system for mistakes like this? How do we make sure it won't happen again?
"I'll do my time records tomorrow."
We all hate filling in time records. But if your agency bills for time, that's the only way we have of capturing the work that has to be billed. And accounting needs this information on time, so that if we're going over budget, we can still do something about it.
Finally, the longer anyone waits to record their time, the more likely it is that they're forgetting some things and just taking a guess. Without prompt and accurate time records, it's impossible for the agency to figure out what it actually costs to work with each client.
Insensitivity to client financial problems.
When clients pay late - or not at all - it's a serious disruption to the agency's senior leadership in managing the company.
Every one of us has to watch and detect signals that the client could be in financial trouble. Account managers have to listen hard to what their clients say about their business, and make sure they and the client have some unstructured conversations every now and then. If there's any possibility of a red flag on the play, account managers need to let the agency's leadership know their suspicions early.
This article has been written by founder and president of Wild Blue Yonder, Sheila. Sheila works with large and small agencies to help them with organizational development, creative thinking, strategic planning, leadership and skills training. For more details, visit her website at: www.wildblueyonder.biz