The Agency Hour
The Agency Hour is for digital agency owners like you who want to start, grow and scale their businesses. It’s like hanging out with friends while getting a masterclass in how to tackle the most significant obstacles you’re facing as an entrepreneur.
The Agency Hour
Forecasting financial hurdles & increasing profit margins
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
If you're gonna grow and if you're gonna do it rapidly, and if you're gonna do it in a big way, you're gonna take a hit in profitability in the near term and you're gonna take a hit in cash flow in the near term. The reason being is because you have to bring on capacity into the agency before you actually need it. Otherwise, you're gonna have a completely different issue and you're not gonna be able to service the work that you brought in, which that's a totally different issue. That's a really good way to go out of business.
SPEAKER_01Welcome to the Agency Hour Podcast. This week we're joined by virtual CFO Chris Hervishaon, all the way from Hilton Head, South Carolina. In this episode, we discuss forecasting your financial hurdles, increasing your profit margins, why you probably shouldn't be doing your own marketing, how to keep your finger on the pulse when it comes to your accounting, as well as the importance of creating a cohesive strategy for growing your agency. This is a super interesting podcast we have for you. And if you're an agency owner who wants to know exactly what question you should be asking yourself in order to grow, this is for you. I'm Johnny Flash. Stay with us. Hey Chris, how's it going?
SPEAKER_02Doing great, Johnny. How are you?
SPEAKER_01I'm doing well, man. So um tell everyone if they're not familiar with uh what you do, tell them a little bit about your business and and kind of the how you help uh business owners.
SPEAKER_02Yeah, I appreciate that. So I am a CPA by trade, so certified public accountant by trade. And I own and operate a small firm. We are virtual, but I am based in Hilton Head, South Carolina. We've got employees that are all over the US, and then we've got one international as well. And what we specialize in is fractional CFO services in particular for marketing and creative agencies. And fractional CFO really that encompasses everything from bookkeeping up through actual fractional CFO, and then as well as uh tax work as well. So that's what we do and who we do it for, and you know, love to dive in.
SPEAKER_01Okay, cool. Awesome. Well, this is really great because uh I'm an agency owner as well, and this is like that's like one of the last two pieces of my pie that I still need to hand off. There's 18 on our team, and uh, I'm still doing some sales and some CFO stuff. So uh this is a good conversation for me to have with you because I've got lots of questions. So um for someone that's maybe still doing it on their own or or doesn't have like a fractional CFO or maybe even doesn't have a bookkeeper, um, you know, how do you, you know, and I and I think for me, one of the challenges is um I kind of know how everything is and like letting go of like the numbers and the data and like you know, not having it right at my fingertips, or you know, worried that someone else isn't gonna like care as much as I do because it's my baby business, right? Um so how do you kind of like coach clients through that? This can be like a little therapy session.
SPEAKER_02A little therapy session. I love that. Yeah, I mean, there's a lot going on there, right? Um, you know, I think as an agency owner, you would tell the businesses that you work with that you shouldn't be doing your own marketing.
SPEAKER_05Right.
SPEAKER_02I mean, that that doesn't work out. Um I'm a small business owner too. I did my own marketing, and then I realized I I shouldn't, I should not be doing that. That is not a good thing. Uh when we're talking about financials, where it's got a compliance thing laid on top of it. So compliance meaning you've got to file a tax return, maybe you've got an audit, maybe you've got bank covenants that you've got to that you've got to be in compliance with. If that's not where your area of expertise is, then you probably shouldn't be doing it. And if you want to be working on the business as opposed to in the business, you probably shouldn't be doing it, right? So you know, that's that's the place to start. Just realizing like the things that you should be doing, the things where you have expertise, and is it really the highest bet and best use of your time at that particular time? Or should you be doing something else? Client delivery, you know, sales, things like that. Definitely other stuff.
SPEAKER_03That's the first place to start.
SPEAKER_02Yeah, that's that's most definitely the first place to start. And we if like frankly, we see agency owners that are both ends of the spectrum. They will come to us and they will say, Hey, I know that I have a problem because I have absolutely no idea how much AR I have. Help me fix it because that's that's a different problem, right? Like you don't know how much money you can collect and then pay bills and all the things that you have to do with the money that you actually bring into the agency. That's one end of the spectrum. The other end of the spectrum is I DIY this, I did a pretty good job, or I already have an accountant, or I already have a fractional CFO, or I already have a bookkeeper, or we have somebody in-house, whatever it is. Um, that's the entire other end of the spectrum. And you have those agency owners tend to be very in the weeds, very into the numbers, and basically just helping them to, you know, walk through like, all right, well, you have access to all this information. What are the questions that you have about your agency that you currently can't answer? Or, you know, what are the things that you wish you had that you currently can't get to? How, you know, what what how can we help you grow the business from a financial perspective? So, you know, those are two very different conversations, but they're happening on both ends of the spectrum.
SPEAKER_01Yeah, yeah. So um, where where do you recommend? I'm curious about this too. Like, um, you know, if I'm talking to a client who needs marketing or website and they're just starting their business, you know, and they haven't even made any sales yet or something, right? Then I typically say, I mean, we're we're definitely not the right fit for them in terms of you know them being a client of us because we we tend to do better when there's already a fire going and we can add gas onto it to really make it go. But you know, if someone's just starting out or they've done $10,000 in sales, like we're there might be some agency or freelancer out there that would be a good fit for them. That's not going to be for us. And so I'm curious with you, like, where do you find the sweet spot? Particularly, I'm thinking on the low end of like, or even if it's not for you personally, you know, I wouldn't necessarily, if my neighbor came to me and said, Hey, I've made $5,000 on this little side hobby that I have, like, should I, you know, put a whole bunch of money into a website or marketing? Like, I would tell them, no, just keep growing it grassroots for a little while. And like, you know, I would want them to operate out of a place of strength versus, you know, using all their money and then some just for a website, which I know is not gonna like make that big of a difference in their case, right? So when do you kind of recommend? I guess I'm thinking first on the bookkeeper side, like at what point does it kind of logically make sense to get a bookkeeper? And then maybe on the fractional CFO side, when does that start to make sense?
SPEAKER_02Yeah, so our services start to make sense somewhere around half a million in in revenue. That's that's pretty much the line. Now, and we're you know, we operate largely the same way that that y'all do. Uh it's it's not terribly different. We're just doing different services. So starting out, you definitely need to have some sort of a financial infrastructure. And basically what that is, is some sort of an accounting system, some sort of way to send invoices or to collect money from customers, some way to pay bills. You need a business bank account, a dedicated business bank account, um, maybe a credit card, maybe a line of credit, you know, stuff like that. And you need to start putting a process in place. And it's it's super simple. When it starts to get to the point where you either say to yourself, I can't do this, or I don't want to do this, or I'm doing this and it looks wrong. That's when you go get a bookkeeper. Or that's when you go get additional training. We've seen that both ways. And so sometimes we help with training. Like, here's how you can manage this yourself if you want to try to DIY it. And we've got free resources and courses and stuff like that out there where because we got to the point where it's like, all right, like this is not how we should be spending our time. Um, so you can learn to DIY it, or that's the point where you go and and get a bookkeeper, and that should get you through basically to that, you know, a couple hundred thousand dollar, half million range.
SPEAKER_01Okay.
SPEAKER_02When you get to that range, and when you're trying to go from 500,000 to like a million, at that point you probably need some advice. You probably need some advisory type type stuff. And that's when, you know, going out and hiring somebody like us really kind of sort of makes sense.
SPEAKER_01Mm-hmm. Mm-hmm. Okay. No, that's really helpful. And and so let's say, let's say the agency out there that's listening is making a quarter million dollars, you know, the revenue is a quarter million. Um, they're a small little team, you know, maybe, maybe it's even just the owner and a few like contractors or whatever, you know, so they've they're they've their profit margins are decent because they don't have a lot of overhead. Um, they hate bookkeeping, they're like much more on the you know, web strategy or whatever the stuff is. Um, what would they and I I'm sure there's variables, but like how does stuff like that generally get priced out for a bookkeeper? Is it like on volume of transactions? Is it like frequency of like reconciling? Like just kind of educate us a little bit.
SPEAKER_02Uh good question. So the way that we do it is subscription-based pricing. We've got three different tiers. So it's it's flat and it's you it's basically an access agreement. So you have access to us. Now firms that aren't ours. There's all sorts of manners that uh of ways that that it gets done. Some like to your point, some of it is transaction-based. So how many transactions do you have? Some of it is hourly, so there's some sort of an hourly rate, some sort, some of it is fixed or subscription or however that's kind of bundled together. Um I mean it it really runs the gamut. It it just it just depends on the firm that you're working with and and how they choose to work.
SPEAKER_01Okay. But I've seen all of it. Yep. And then and then what's reasonable in terms of like frequency of reports or you know, kind of like um, do you typically are are you typically recommending to you know for agencies to work with something like say QuickBooks as an example, where like then I'm assuming whether you're doing the accounting or someone else is doing the accounting, they can go in and do their part. As a business owner, you can like go in and and kind of see it at any time. Like what how does the how does the reporting work and like what are the types of tools that you're seeing work well for agencies?
SPEAKER_02Yeah, good question. And that's where you get into the accounting infrastructure and it's it's super, super critical. So everybody that we've got is on QuickBooks Online. And the reason why everybody's on QuickBooks Online, number one, it's it's online, right? So anybody can access it from wherever and you can transfer ownership you know relatively quickly. Like if somebody is in your agency who's doing the invoicing and they leave, you can just transfer that ownership to somebody who maybe isn't working um in your physical office space, maybe they're working remote somewhere else, or if you're changing accountants or things like that, you can you know pass that access back and forth. It's super helpful. Now, being online, it also allows for a whole bunch of apps to connect into it. And that's basically why we use QuickBooks Online is because it has the best ecosystem out there as far as things that connect to it. So maybe, so maybe you've got QuickBooks Online, but you don't want to do invoicing through QuickBooks Online because you've got some sort of um client experience uh situation where you're trying to meet, or you want to have a you want your clients to have some sort of an experience, or for whatever reason, the odds are that you're gonna be able to connect that platform into QBO. So that's a good thing. Now, as far as frequency of reporting, if you have an accounting system and if it's up to date and it's being kept up to date on a consistent basis, then you can go in there and pull reports whenever you want, so long as you know what you're looking for and know what you're looking at, and you can translate that information into actionable insights for the business. All of that said, the more if you're paying somebody to do your accounting, the more frequently that uh QBO or whatever accounting system is getting updated, the more expensive it's gonna be, generally speaking. It's just gonna be more expensive. It's higher touch, it's more expensive. It's just like the agency world, no different. Um, so the larger you are, you probably need to be looking at some sort of financial information weekly. Like our larger clients, we're sitting down, we're doing cash flow, we're doing cash flow meetings on a weekly basis. Basically, we're forecasting out cash flow, we're having that discussion, and then we're doing a bigger financial review meeting at least once a month where we're actually walking through all of the financials PL balance sheet, that sort of thing. Now, when you're smaller, you've got fewer transactions, there's less to keep a hold of. You can you don't want to do any less than or any, I guess you would say any more than quarterly. Like you don't want to be doing annual meetings. You want to be keeping a f your finger on the pulse uh more frequently throughout the year. So I'd say quarterly at least, and then monthly is better. And then, you know, for the larger, uh, larger agencies out there, you really need to be keeping your finger on the pulse probably on a weekly basis because there are so many more moving parts that can get away from you in a in a heartbeat.
unknownYeah.
SPEAKER_02That answer question?
SPEAKER_01Yeah, yeah. And I think that's I think that's right. Because, you know, for me, like I as a business owner, I'm looking at it weekly. And so the thought of like suddenly going to say monthly and getting my financial stuff. I mean, I guess I'd be able to potentially go in there in between and kind of see stuff, but if it ultimately, if it's only getting reconciled once a month, then the even if I logged in in the middle of the month, I would be kind of not seeing the latest stuff, right?
SPEAKER_02Yeah, so like it and this is part of like this is the accounting thing, right? Uh working with firms, we're with outside firms and and things like that. Uh, if you are only doing your accounting on a monthly basis, if things are only getting reconciled on a monthly basis, you're posting accruals on a monthly basis, that's fine. But when all of that is done, like fully baked, you're probably two to three weeks into the following month. And so now potentially you're looking at information that's somewhere between three and seven weeks dated. And the more dated the information gets, the less relevant it is to you right now when you're trying to manage a business right now.
SPEAKER_03Sure.
SPEAKER_02So timing of the close is super important too. Um, that's part of the reason why we update, you know, for our clients, we're updating on a weekly basis, but we say, look, they're basically soft closes. We're not like fully baked until you know 10th of the month in the following month, but it's being updated on the on a consistent basis throughout the previous month, too. So if you wanted to go pull a report, you could, but you just need to realize like those are soft numbers.
SPEAKER_01So so talking about the um kind of transitioning a little bit to the uh fractional CFO, I I think you know, one of the things that I realize as a business owner is that like even if I can keep the books reconciled and like do an okay job of, you know, I I'm forecasting a little bit, but not with like any particular uh system or like you know great knowledge base that I'm like basing it off of. I'm kind of it's it's a little more than like lick your finger and put it in the air, you know, kind of thing to see what where it's going. I mean, I do have historical data, right? So I can see, okay, how were we last year at this time? How are we trending this year and so forth? But I would imagine with the fractional CFO, there there's more that they would be looking at, you know, and kind of able to help uh maybe see the hurdle or the hill or the mountain before I before I get to it and realize, man, I'm, you know, we're halfway up this mountain. I didn't realize that we were gonna have this big hurdle that we had to get over. So talk a little bit about that part of it.
SPEAKER_02Yeah. So where I would say that accounting ends and finance begins is when you start with the what is gonna happen in the future. Accounting is very much a score keeping, what happened in the past type of function. The the the finance, so the finance and chief financial officer, CFO, that's all about things that are gonna happen in the future. So, you know, an interesting question that I would have for you is you're forecasting a little bit now. When you go and do your forecast, are you then going at some point in the future and looking back at the forecast that you made and seeing how close the actuals were?
SPEAKER_01I'm only only in the sense that I'm saying, hey, I want to get here by end of the year or end of the quarter. And, you know, did we get there or not? But that's about the extent of the uh of the look back. You know, but they're probably there's even as you're asking the question, I'm like, oh, there's probably other stuff I should be looking back at, you know, um, in that way.
SPEAKER_02So that's a super great question that you didn't even ask. Um, but I'm gonna I'm gonna kind of fill in the blanks there. So please I think what you're describing is more of a budget as opposed to a forecast. Now a budget to some extent is is a forecast, but a budget is a roadmap. It's I want to get to here by by this time, and then here's how I here is how I'm gonna get there. Right. The difference between a budget and a forecast, the forecast is this is what I think is gonna happen. Budget is this is what I want to happen, and here's the roadmap. Okay, forecast is this is what I think is gonna happen. Both of you know, so there's there's three kind of tracks here, if you want to kind of think about it this way. One is actual, so what actually happened and what is actually gonna happen. Budget, which is what we want to happen in the roadmap, and then forecast, which is what is going to happen, probably, maybe hopefully. Um, and but tracking all of those three things in the context of each other, super important. And we're not gonna be re-budgeting on a consistent basis, probably. We're gonna be reforecasting on a consistent basis, probably, to see how we're tracking against those things. Budget, generally speaking, we're doing that once a year, end of the year for the following year, and then we're forecasting on a continuous basis.
SPEAKER_01Right, right. So you're so you're so you're saying basically, like, hey, Johnny, even though you want to get here, you think you're gonna get here, you know, at the end of Q1 or at the end of Q2 or whatever, like based on what I'm seeing, like you're gonna fall sh short by this much because of the trend or or whatever where the actual direction that are going. I think it's easy, at least for me as a business owner who's like a go, go, go. I'm I'm like more the rosy colored, you know, like, hey, we can take the the we're we didn't get as far up the hill as we thought we were gonna get, but like I think we can still get up the hill, you know. Um, so yeah, I'm sure you bring a more um kind of neutral, um, you know, sort of unbiased sort of reality check in terms of like how likely we're gonna be able to get there and and what it's actually looking like, right?
SPEAKER_02I I hope so. Um my favorite like thing to do like through this whole process is just ask questions. And that's kind of how we operate. Like my my core philosophy is that uh questions are the basis of strategy, and this is all strategic type stuff. So I just ask questions. So um, you know, kind of to your example, like, okay, cool. You want to do 10 million in revenue next year. What are we budgeting for marketing and advertising for the agency, not for your clients, for the agency. And every year I get a handful of clients who will be like, Yeah, nothing. I'm gonna DIY it. Like, okay, cool. Fine, but what else are you not doing? And by the way, you're still budgeting something, you're budgeting your time, which is worth something. So uh what we try to do is bring a level of coherence to it, which basically means like all these things tie together. Like, okay, we want to grow by 10 million, but okay, we also need to have the marketing, advertising, and sales budget to go along with that $10 million growth. And what does that mean from a travel perspective? You're probably gonna be going to conferences, you're probably gonna be going to visiting clients. Like, what does that mean in relation to that? And then, oh, by the way, your team structure, like the people who actually do the work for you, what does that mean we have to hire? When do we have to hire those people? Because your current team now is not gonna be able to service 10 more in revenue 10 million more in revenue, probably. So, okay, we're gonna need to hire these people. Well, what does that mean for our um software expense because those people also need the resources to do their work? What does that mean for buying new laptops? What does that mean from a tax perspective? Because now you're gonna have payroll taxes. What does that mean from a benefits perspective? Because now you're gonna have to pay benefits for these people, probably, maybe. So there's a whole there's a whole um you know, chain reaction of things that you have to consider when you say, I want to grow by 10 million in revenue. And those are the kind of conversations that we're having. Now, if you're like, okay, I want to grow 10 million in revenue, and then you know, the the next question is, well, what's your pipeline look like? And then if it's like, well, our pipeline's not very good, like, okay, well, how many people do we need to get into the pipeline? What's our conversion rate? Um, what's our cost of acquisition? All of those sorts of questions, those all need to be coherent too. And then we can do that from a forecast perspective too. Like, okay, we said we're gonna budget this. What's the pipeline right now? It's good or it's great, it's not good, whatever. It's like, okay, we're either gonna hit the budget or we're not based on what you're telling me, because now things have changed, circumstances have changed. We're three months into the year, you know, something like that. Um, so just you know, asking all those questions and putting a coherent strategy around this is where we want to get to, and this is where we think we're gonna get to. You know, that's I think where we provide the most value from a finance perspective.
SPEAKER_01I'm I'm smiling over here because this is so great because you know, this is the conversation we have with our clients, right? About like, hey, you know, they want to they want to grow their business by this much or whatever. And we're like, okay, great, you know, how much are you spending on marketing? You know, what's your, you know, le your cost of acquisition, your lifetime customer value, all this stuff, which they usually often can't answer, right? They they're a lot of times they're not organized enough. They don't know, right? And so then you're like, okay, so you want me to build this website and you wanna triple your, you know, your business coming in from online and stuff, but like you don't want to do all the recommendations we have for like implementation of the website. You don't want to spend any in marketing, and like, you know, they're basically wanting everything out of like, you know, nothing or the ashes or whatever, right? And so I think uh it it's interesting to hear you state it back, you know, to me as an agency owner, um, and and I'm thinking about like all my clients where I'm having the same conversation just in a slightly different way, right?
SPEAKER_02Absolutely, absolutely. I've got a great example from my own business. Years ago, I sat down with um somebody who specialized in Google ads, you know, just trying to like spend some money on advertising, and he comes back with a number as far as what I need to spend to get you know my number of clients based on my niche and blah, blah, blah, blah, blah. And it was a really big number. And I'm like, really? Like, you mean I can't do this for like a hundred bucks? Right. No, you can't. You're just lighting money on fire. It's the same, it is the same thing, right? It's you know, it's all professional services, it's all got to be coherent, it's all based on people, it's it's all the same stuff. It's just that, you know, we take a finance perspective from it, then y'all take a marketing perspective from it.
SPEAKER_01Yeah, yeah. So for the agency owners that are listening, then what are the questions that we should be asking ourselves, which which would probably like uncover like the direction that we need to go or or kind of give us the, you know. Help us realize what we don't know. Like what are what are those questions that we should be asking ourselves?
SPEAKER_02I think the first existential question that you need to ask yourself is how big do I want to get? And then that's gonna drive a lot of everything else. You know, do I want to have an agency with a hundred people? Do I want to have a lifestyle business? And then you can kind of figure things out from there. And when do you want to get there by? That's the that's the next iteration of that. Uh as as luck would have it, I've actually got a list up here because I'm we're working through a new like financial reporting package build, and I'm working through all of the different questions that I want that reporting to answer. So I've actually I've got my list here, and I'll actually give it to you. Okay. Yeah, and this is in no particular order. So, like, where are we in relation to our cash reserve target? That is gonna be a risk management type of type of KPI. What's our labor efficiency ratio? Which is gonna get into do we have the number of people that we need and um are we paying them well, what we should be paying them? Um that's a little bit of an indicator as far as whether you're top heavy, bottom heavy, don't have enough people, have too many people, that sort of thing. Uh what's our burn rate? So how's how fast are we basically burning cash and how much runway do we have? When are we gonna go broke or when could we go broke? And then if you know that date, you can start to make different decisions to make sure that you're pushing that date further and further into the future. Um, forecasted credit card balances, forecasted loan balances, forecasted debt balances, and forecasted interest expense. So, one of the things that we see all the time is that if you're gonna grow and if you're gonna do it rapidly, and if you're gonna do it in a big way, you're gonna take a hit in profitability in the near term and you're gonna take a hit in cash flow in the near term. The reason being is because you have to bring on capacity into the agency before you actually need it. Otherwise, you're gonna have a completely different issue and you're not gonna be able to service the work that you brought in, which is that's a totally different issue. That's a really good way to go out of business.
SPEAKER_01Can you repeat that for all of our agency owners, real quick? Because this, as a coach for agency owners, this is something that I have to like constantly harp on. They're like, well, I can't hire anyone because I don't have enough work to keep them busy. And I'm like, you're not gonna have enough work to keep them busy if you don't hire them because you're gonna be so busy doing all the things, you're not gonna be able to go get the clients, right? Mm-hmm.
SPEAKER_02Yeah, a hundred percent. You have to bring on capacity before you actually need it. And so what I said there was you're gonna see a hit in profitability, you're gonna see a hat a hit in um cash flow. And you may have to hit, or you may have to basically start financing that out either with a credit card or line of credit or loan, like something like that. But understanding how much runway you have there, how much access to cash, because you you can't pay people with anything other than cash. Like you can't pay people. Well, I mean, unless they're contractors, that's a different story. But employees, like actual employees, you have to pay them in cash. You and by the way, you can only pay your mortgage in cash too. So, like at some point, you need to have cash and you need to have access to cash. So, understanding the access to cash and understanding the cost of cash, super important. Um, revenue pipeline, that's another one. Um, on the tax front, understanding what your distributions are, how much you can take out of the business, understanding the tax impact of that, that's something to pay attention to. Understanding break-even analysis. So, how much do you need to sell at your current margins in order to break even and understanding what that threshold is, that's important. And then finally, I'll just throw out their production margin. So, understanding when you sell a dollar of revenue, how much of it are you actually can you actually keep in order to pay yourself, pay your people, and pay the fixed expenses? Now, the way that we get to production margin, I'll touch on this. Um, number one, it's revenue minus all of your variable costs. So, in there, it's gonna be, for example, software that's related to a specific client or a specific project. And then it's gonna be contractors who are related to a specific client or a specific project. And then it's gonna be your production-related labor. That's your production margin. Super important number to know. And then I'll I'll shut up now.
SPEAKER_01No, no, that's that's pretty much the list. I I want to circle back to the um the the cash reserves in terms of like you know, the burn rate when you when you're paying, you know, whether they're employees or contractors, it doesn't really matter that much in the sense that if if you need them to get the work done, like you got to be able to pay them, you know, whether the income goes up or down or whatever. So do do you typically see agencies um aiming for a particular like number of months or year, whatever? Like what what's kind of uh for the industry that you know well here with with all of our listeners, like what are what are they typically looking for? And I know I'm sure it varies, but just give us some idea.
SPEAKER_02Yeah, and I'll I'll just let you know the methodology that that we use. And if you go and you google it, you're gonna find all sorts of answers. But what we what we say is you wanna be somewhere between two and six months of fixed expenses in cash reserves. And fixed expenses, the way that we calculate that is we take your last three months, take the average, and then that's what it is. And then we can forecast that out in the future too. Like if we know they're gonna be hiring, then obviously fixed expenses are being gonna go up. Obviously, we need a bigger cash reserve, that sort of thing. So um, that's how we look at the expense side. Now, the question is do I need two months or do I need six months? And that is very much a qualitative thing. You're trying to, you're trying to take a qualitative function and fit it into a quantitative number. So the way that we do that, we go through like an eight or nine question um survey. We just did this last week with an agency. It was like it's super fun and it's always fun. Um, but it's just all of the factors, and we just say, hey, just rate this on a scale of one to five. Like, how do you feel about your um revenue pipeline? How do you feel about your growth? How do you feel about your ability to collect on AR? Um, how do you feel about your your need to invest back in the agency? And when we go through all of those questions and we average them up, it'll give us a number. So we need 3.25 months in fixed expense, or we need four months of fixed expense, or four months in in cash reserve, whatever it is. And then we just take that, multiply it by the fixed expense number, and then that's that. And if anybody's interested, um, shameless plug, but you can go on our website betterwaycpa.com slash cash dash reserve slash, I think it's calculators on the end, but if you Google it, you'll find it. Um you can go on there, you can try it out, but it's it's there, it's free. Um, but that's our methodology, basically just going through uh a list of questions, ranking them one to five to kind of get that that monthly number, and then just multiplying it by the fixed expense.
SPEAKER_01I love it. That's so good. So good. And you were you were teeing me teeing me up um because I was gonna ask you your website, and you just you just said it here. So betterwaycpa.com. Uh Chris has a whole bunch of great resources on there, downloads, calculators, stuff that um I think will be helpful for everyone. So um cool. Well, we're as we're wrapping up here, um, Chris, is there anything else that you think would be helpful for um business owners to know? I know we're I I know we had talked earlier, like tax, you know, we're in the middle of tax season in the US here at least. Um, and I know like that we could spend a whole nother episode talking about taxes and all the all the details and nuances there, but um, you know, I've found for my own business, I I guess I had always thought that, you know, if I if I do turbo tax and I answer all the questions and stuff, then like I'm gonna get the most maximum value. And what I didn't realize until oh, this was probably four or five years ago, I didn't realize that there's like different sets of rules you can play by that like you think that you're doing everything you can, but you're playing in this one set of rules here. And then, you know, when someone says, Oh, well, you don't want to be a soul prop because you're making X amount of money, you should actually be like an LLC as an S-corp or something because then you get to play by a different set of rules, uh, which then saves you a lot of money. So um, I don't know, anything with the taxes that you want to chime in on in terms of that, since we're kind of in the middle of the season, then I'll I'll get your kind of uh any final takeaways.
SPEAKER_02Yeah, so I think my basic overarching advice on the tax side um that I would give is that you definitely get what you pay for, for sure. And especially and that is particularly true on the tax side. There are fewer and fewer accountants, CPAs, and EAs who are out there doing tax work. Prices have gone up across the industry, and it's it's just a supply and demand thing. Like the number of people filing tax returns hasn't really gone down, but the number of people who are preparing them definitely has. So if you're doing the turbotax route, you're not talking to anybody who's got knowledge about your business. You're not talking to somebody who's gonna ask you questions about your business and try to fit it into a fact pattern to save you money. And turbotax is very much a transactional thing, and to your point, you said it so beautifully, you are playing in a very specific sliver of the tax code there.
SPEAKER_01Right.
SPEAKER_02And, you know, I would say from a from a not to knock on turbo tax or whatever, it's a it's a fine service and it's appropriate for a large segment of the population. But if you don't even know what you're supposed to be answering, then it's very easy to miss stuff, even even there, right?
SPEAKER_01Yeah.
SPEAKER_02Um but sitting down and having a conversation with somebody and paying them for their time and paying them for their expertise over a over a long period of time can save you a whole boatload of money. Maybe not just in year one, but for a period of time where the tax, where that particular tax law still applies, can save you a whole bunch of money and you definitely get what you pay for in the in the tax side. It's definitely worth paying for tax planning, especially if you're a business owner. It's definitely paying to have the preparation done right. It's bet it's definitely worth paying for somebody who you can call and just ask questions and just get sanity checked even.
SPEAKER_01Yeah.
SPEAKER_02But you definitely get what you pay for on the tax side.
SPEAKER_01Yeah, and I was so surprised even for ourselves, like it, you don't have to make that much money to like for it to make sense to be in a different tax status, right? Than like, say, a soul prop. I mean, um, at least, at least at the time when we made the transition, you know, we saved a lot, of lot of money switching to an LLC as an S-corp, um, you know, by being able to pay yourself a salary and take dividends and, you know, certain certain things that you can take advantage of. Um, and so I think that's um that that's really great. Any last um things that you would uh say to the agencies out there uh listening?
SPEAKER_02Uh I don't think so. I I definitely enjoy the conversation. I would just say if you want to find me, if you want some free resources to learn more about what we talked about, um betterwaycpa.com resources tab, bunch of free stuff on there, a bunch of information that I think would be helpful and you know kind of shares our experience that we've had with agencies and that is definitely applicable to agencies.
SPEAKER_01Awesome. That's great. Yeah, I'm gonna I'm gonna be checking it out myself. Uh betterwaycpa.com. Chris, thank you so much. This has been great. I feel I feel like I've learned just from talking with you, so thanks so much.
SPEAKER_02Awesome. Thanks, Johnny. It was a lot of fun.
SPEAKER_01Thanks for listening to the Agency Hour podcast and a massive thanks to Chris Hervishaan for joining us and sharing his insights with our audience. Super important stuff. For those of you in the U.S., definitely check out betterwayscpa.com. Unfortunately, if you're outside of the USA, you may not be able to access Chris's website. However, you can reach out to him on LinkedIn, of course. Now, are you getting paid to close clients? Right now, we're guaranteeing you get paid to close eight new clients in the next 30 days. If you'd like to chat with our team about how you can get paid to close, click the link beneath this episode. Let's get to work.