Regrowing Agency Value – Post Covid-19 Bounce Back
Splendid isolation might inspire artists to do their best work. But it’s a very different proposition for advertising creatives who like to bounce ideas off each other and feed off the buzz around them. On the business side, too, agencies haven’t been working as effectively through the lockdown period. Hardly surprising when clients are markedly spending less, margins are being squeezed and new business opportunities are scarcer by the day.
In recent chats with UK agency owners, it’s clear they’re increasingly concerned about both issues. Many are even wondering, if the constraints on creative output, coupled with the lack of opportunity to develop good chemistry with new clients, is pitching worth it right now?
We predominately work with small to medium sized creative agencies across the UK, who cherish their independence and creative culture. So, for them it’s the notion of the agency as a way of life; beyond being just a business, that’s also at risk.
But we must live in the real world and therefore the biggest challenge for agency owner(s) right now is how to ‘recreate lost value’ due to the Covid-19 pandemic while retaining their identity and purpose?
After spending years building value and strengthening their businesses, in a matter of a few months, agency values have dropped by 50-70%. Therefore, there isn’t much of a market for selling UK agencies at the moment.
5 Steps to Covid-19 Business Recovery
Understanding what that market will be looking for in the future and how it has been affected is where we can make a difference. We’ve been busy recently, assessing how ‘agencies’ can rebuild value and strengthen their ‘businesses’. As a result, we’ve distilled our approach into five areas:
1. First Things First, Examine the Financial Fallout
Most agencies have already completed this task, but the first step should determine clearly and accurately the impact of the crisis and develop a ‘rebuild value plan’. Start with the key financial numbers and update your forecasts, then compare them with last year’s numbers. Consider the impact on cash-flow, client revenues, production income, staffing and overhead costs, and finally, the consequences on your profit or losses. Some agencies have cut their new business and marketing budgets and resources by as much as 80%. As a result of the review, the business can determine how much short-term financial support is required to recover and rebuild the balance sheet.
2. Now, It Is Time to Revisit the Business Plan
Basically, determine the impact of the disruption on the business plan and the top priorities. Too often these documents have no shortage of detail on crisis management or business disruption, so this is the perfect time to include how the agency will survive and recover value. More specifically, describe how the agency business will adjust to the new normal. For example, how to develop new revenue streams from existing Clients to help the business outperform the market or competitors (your best source of new business may well be existing business). The pandemic has caused a considerable drop in advertising spend, some are reporting between 10% to 20% fall.
3. Consider Extra Funding
Not every agency requires fresh funding to see them through the crisis, but most businesses have applied and received government and bank loans. The funding will aid the cash flow position and support the agency to generate new income streams. As businesses emerge from the crisis, agencies will need to speculate to accumulate new sales, such as recruiting new skills, improving the quality of lead gen or launching new services. This is an area that may increase your value in the medium term.
4. Develop a Timeline for Rebuilding Value
Agencies can use our business valuation tool to help them clearly establish their value at any time during the rebuilding process, allowing them to monitor and review progress. Also, to prioritise the critical tasks based on the likely impact of the valuation and financial position.
5. Get Your Most Valuable Asset; Your People, On Board
All the above points are necessary and make sense on a rational level. But you need to look at things on a human/emotional level too. A key ingredient in rebuilding value is motivating and empowering the most important stakeholders of all, those who work for you. Get them involved as soon as possible, ask them for ideas, be open with them and get them to help set the new agenda. This is a unique time to develop good-will internally and share the challenges. After all, everyone knows the situation we’re in and will appreciate being heard rather than kept at arm’s length. Incentivise winning ideas, celebrate small victories, delegate and involve. Building morale and spirit in this way will foster confidence, initiative and resilience, and, in time, will help business value bounce back.