4 sensible questions to ask when working with small or young agencies

During the past year we have had the opportunity to audit some small, independent and relatively young agencies in a number of different countries across Europe and in the USA. This has been a learning experience for both us and our clients.

Here’s why: standard brand/agency contracts are often based upon a standard contract available to members from ISBA, the ANA or their equivalents in other countries. That is, on the whole, very positive. Standard contracts, however, tend to be more suited to mid-large sized, established agencies that have the systems and processes in place to comply with all the terms within the contract, particularly the ones related to record keeping.

There can therefore be a sizeable gap between the brand’s expectations of what exemplary record keeping looks like and the agency’s. By and large this is not an issue for agencies that are part of groups, particularly ones that are listed on stock exchanges: each company within the group is required to have an annual external audit and the group’s internal reporting and consolidation requirements are such that financial systems and processes have to be fit for purpose and standardized, irrespective of the size of the agency.

When it comes to smaller independent agencies………there can be blind spots when it comes to record keeping…

When it comes to smaller independent agencies, particularly ones that are still owned and managed by their founders, there can be blind spots when it comes to record keeping, and particularly so when involving matters financial. This is quite understandable – those individuals are focused on delivering the best product to their clients and building a team of like-minded individuals around them as the agency grows. And rightly so. For them, finance is often dull, deserving the minimum level of investment to ensure that the business runs legally, and better left to someone else to manage – often a hard-working and well-intentioned individual without high-level professional qualifications and clout within the business. As a result, it is not uncommon for the financial systems and processes run by the agency to be under-developed and, in some instances, not sufficiently robust to fulfil their obligations under the terms of the contract.

Such arrangements can be compromised further if the contract has been issued from a global or regional head office and the local brand marketing team has not fully familiarised itself with the detail. In such instances the local brand team will run the account its way, which can often be quite different to the ways of working set out in the contract. This means that when it comes to a thorough contract compliance audit we can, quite literally, open a can of worms.

Some of the problems we uncovered during those audits could have been prevented if the following questions had been asked not only before hiring the agency, but also regularly during the life of the contract:

What percentage of your turnover are we?

When I mention to Marketing Procurement Managers that their brand represents 50% – 90% of the agency’s turnover, they get decidedly twitchy…

Getting a large corporate client is the stuff of small agencies’ dreams. In fact, many of the smaller agencies we audited this past year have literally grown off the back of a single, large corporate client. The agencies were consistently meeting their client’s needs and delivering exceptional service: they absolutely deserved their success. However dreams can so easily be shattered if the agency needs to drastically upsize or downsize when the corporate client shifts gear. When I mention to Marketing Procurement Managers that their brand represents 50% – 90% of the agency’s turnover, they get decidedly twitchy for obvious reasons. It is in everyone’s interest for an agency to have a robust and sustainable business with or without a particular brand’s account. Yet, once the contract has been put in place and the brand team is delighted with the agency’s output, the question tends not to be asked again until we arrive to audit them.

What is your expansion plan for growth?

you can take a punt on an agency where you know you will be their biggest client by a long way IF you know that they plan to go after similar, large sized accounts.

Helping small and/or young agencies to grow is something that most people I have met in the industry would strongly endorse. But does this question have any relevance when hiring an agency or managing the relationship over time? To quote a Britain’s Got Talent judge “100% Yes!”. After all, you can take a punt on an agency where you know you will be their biggest client by a long way IF you know that they plan to go after similar, large sized accounts. With a business plan to attract in similar clients, you have the peace of mind that they will be investing in the tools and infrastructure needed to service big brands. If that’s not in their business plan, you might need to raise a red flag.

What time recording and accounting systems do you have in place?

You may think that the financial and time-recording systems that an agency has in place have no relevance on their ability to fulfil the demands of a standard brand/agency contract. Well, I beg to differ. Small agencies often don’t have the capital available to spend on the all singing, all dancing integrated time recording and accounting systems that are pretty much standard kit for medium and large agencies. Any agency contract that is heavily based on an ISBA type contract pretty much assumes that these systems will be in place. The absence of these systems can mean that auditing them becomes a large and laborious task, particularly when it comes to reconciliations of estimated costs to actuals. When you are dealing with an accounting system based on hastily prepared Excel spreadsheets, scraps of paper, crumpled receipts and what is in the agency owner’s or production manager’s head, it becomes very hard to get 100% financial transparency on the account (this was exactly what we found at one of the agencies we audited this past year…).

What changes to the way you normally work will you have to make if you win our business?

This question is designed to test their initial robustness to deliver for you. Growing too quickly or ‘over-trading’ due to winning a large account can be incredibly harmful for a small, young agency. I am absolutely convinced that the brands Financial Progression works with truly take their duty of care to their agencies seriously. But how often do brands fully check out an agency’s suitability to run their account sustainably as part of a pitch process? Or is what is said in the RFP or pitch meeting taken simply at face value?

In summary

There are two key issues at stake here. Firstly, is the contract you are asking the agency to sign actually suitable for them? Secondly, will winning your business adversely impact the agency’s long term sustainability?