An Agency Story

7 Habits for Building Financial Clarity in Your Agency - Sarah Patterson with Essjay

• Russel Dubree / Sarah Patterson • Episode 174

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Money clarity changes everything. In this episode, fractional CFO Sarah Patterson breaks down how agency owners can stop guessing and start making confident financial decisions using 7 simple, repeatable habits. You’ll learn how to turn financials into a practical tool for direction, focus, and smarter leadership.

Key Takeaways

  • Why clean books alone aren’t enough, and what most agencies are missing beyond accounting
  • A simple framework for reviewing financials without feeling overwhelmed
  • How consistent review and updating financial tools work together to reduce surprises
  • The metrics that actually signal future revenue and risk
  • How better financial visibility leads to calmer, more confident decisions

Want a more clarity and control for your agency in 2026? An Agency Story has three coaching spots available for 2026. Let’s see if one of those spots is right for you. Click this link to visit AnAgencyStory.com and click “Let’s Talk.”

Russel:

Welcome to An Agency Story podcast where owners and experts share the real journey, the early struggles, the breakthrough moments, and everything in between. I'm your host Russel Dubree, former eight figure agency owner, turned business coach, sold my agency and now helps agency leaders create their ideal business. Every agency has a story, and this is your front row seat. This is an agency story. Welcome to the show today, everyone. I have Sarah Patterson with Essjay with us here today, a fractional CFO for marketing agencies and consulting firms. Welcome to the show today, Sarah.

Sarah:

Thank you so much. It's great to be here.

Russel:

Well, great to have you. Today's conversation, we're gonna dive into the makeup of what a finance team should look like in an agency business. And some of the important foundational habits to give owners more clarity and make more confident decisions around all things finance, which can be a subject sometimes, uh, I know owners want to avoid. So we'll make it nice and fun and easy for them today. And so before we get to all that, I want to just hear a quick intro to your background and story. Who was young Sarah and how did she come up in the world?

Sarah:

So, um, I grew up in Connecticut. I was very studious growing up, and I went to the University of Connecticut, got a degree in finance and then graduated. Worked for Fidelity Investments as a financial analyst. I did that for four years, and then I moved into private equity in Boston and. Worked for that company for four years as well. So basically you would say like my whole twenties, I was very much the corporate climber. Yes. Classic. Oh, I want that title. I want that office. I want, you know, that travel schedule. I want that type of apartment. It's like if there was a status symbol, I wanted it you,

Russel:

you wanted those airline miles and then loyalty points.

Sarah:

That's right. That's right. And so. I was working to achieve and to prove and to climb and to grow and earn more money and all of these sort of things that I thought defined success.'cause it was really important to me to be successful. And then essentially when I hit 30, I realized that I had achieved all of these goals I had in my mind when I graduated college in terms of salary and the way everything was supposed to look. Private office and all that. But then I took stock and realized that I wasn't actually happy and that happiness was important to me. Those were two epiphanies where it was very much like, well, happiness will come, it'll come when I've achieved all those metrics. Right? And then it was like, wait, oh, that's actually much more elusive than that. So I. Essentially realized that I didn't wanna continue on this path if the path didn't seem like it was gonna lead to happiness. And so I redefined success for myself. And it's not these metrics. Basically success is happiness. And then what is that? Like? How do I define that for myself? And so I decided that I had to basically leave that kind of corporate box environment in order to. Figure out what's gonna make me happy in the long run. So I quit my corporate career and I decided to travel and dance tango for a year and a half and traveled all over the world, tango, gypsy, and just following my bliss, and essentially ended that stint and realized, you know, okay, well what am I gonna do next? So I didn't want to work for other people. I didn't wanna work in a corporate environment, but I loved finance. And I loved analysis, so I wanted to use my background and skills, but in a way that gave me the lifestyle that I wanted. Yeah. And I knew that like after working in those corporate environments with people who were kind of, you know, there was a lot of politics and there was a lot of just toxic kind of people. I made a very clear statement for myself. I wanna do good work with good people and have an impact. And that became my foundation for deciding to work as like a freelance finance person as I saw it. I didn't have any real sense of what this was gonna be except I just wanted to use my skills for local businesses. The first kind of in my networking person that I met who needed someone with finance skills was an agency owner. So that set me out on what's basically been the last 15 years, which is being a fractional CFO for agencies. And so I wanna do good work, which is, you know, work that I love and that I'm good at. I wanna do it with good people. So like my, um, filter is, would I hang out with you? Like, would I go get a glass of wine with you? And if answers, I was gonna say the beer test,

Russel:

but that makes more sense. Sense you'd say the wine test. Yes.

Sarah:

Right, exactly. It's like. If I would do that, then there's a good chance that we're gonna have a good time working together. And like you work with people you like, you're gonna do better work together anyway. Yes. And then I wanna have an impact. So I wanna really to make a difference for the people that I work with, where the things that we do together are gonna change their lives and really improve their quality of life as a business owner versus being a cog in a machine in the corporate world. Wow. That's been the last 15 years and it's, and here you are, been really amazing here. I'm,

Russel:

and here you're today on an agency story podcast, getting ready to educate some owners. Well, gosh, I have 50 million questions. I'd love to just ask you about your own journey and so inspirational, and if anything, just to highlight on the fact of just how important it is in this life, but especially in entrepreneurial life, to make sure that you're on a path to happiness. If that's never not the case, then take a step back and do what you need to do to get on the right track and, um, you know, go dance tango all over the world if you need to, but whatever that looks like for you, that's so inspirational to hear. So thank you for sharing that. Alright, well let's get down to, and, and talk about all things finance. We'll start off and just what your finance team looks like. And you have a pretty cool analogy that I think really sets the tone for everything else that we'll talk about. Just who and what does your finance team look like?

Sarah:

Yeah. I like this analogy because it works no matter how big or small the business is. So essentially, I think of the finance and accounting team as three legs of a stool. You need all of them. One is what most people know they need early, which is your accounting. So early days that just looks like a bookkeeper. As you grow, that becomes more sophisticated, but that's the accounting and the accountants make sure that all the data goes into the financial system and is correct. It's all backward looking. It's all basically keeping the data in order so that you can run reports and make decisions, et cetera. But like. Also file taxes and things like that. But you have to have clean books, and that's the leg of the stool that's getting you the clean books. The second leg of the stool is another thing that you're not getting very far without, which is your CPA. So you have to file taxes, probably not gonna do that yourself. So you're good. Your CPA is gonna be, you know, another piece that you'd need. Um,

Russel:

you haven't found a way around not paying tax. I mean, uh, you haven't found that in your business yet? I haven't

Sarah:

found that loophole. I haven't not yet. Fair. Not in this country.

Russel:

All right, fine. We have to have a CPA for Texas,

Sarah:

unless you're doing an all cash agency business. Uh, you know,

Russel:

that would be interesting. Probably. Uh, if there's any all cash agency businesses out there, please hit me up. I have questions.

Sarah:

Right. Let us know. Um, and then the third leg of the stool, I would call fp and a. So financial planning and analysis. Now this can look a lot of different ways because as I said, the first two, you're not getting very far without those. The third you can get pretty far without it, although I would argue if you don't have someone owning that role or sitting in that seat, it's probably you as the agency owner. So somebody's covering that base. And if it's informal, it's probably you. So the financial planning and analysis is basically everything that takes that good data from the past and uses it to make decisions and look forward. So it's all of your budgeting, your financial strategy, your projections, your analysis. So that piece needs to be in place. Again, for a good stretch in early days for agencies, that's gonna be the owner, or maybe the owner has somebody on their team, you know, some operations person who's good with numbers and likes to do that too. Typically, you're not gonna see the CPA or the bookkeepers doing that function well, although they will try because they're early on with you. They're already in the numbers. And so it's very natural to ask those people to run an analysis or create some projections or do some modeling and things like that. My experience is that you're asking a fish to ride a bicycle. You're just asking someone who's wired a particular way to do something. That's just a different way of thinking. And so usually, a lot of times when I start working with someone, they're basically telling me that they've been asking their CPA or their accounting people to do some stuff, and it's just not where it needs to be. And so you wanna be covering that base with the right type of person. And as you grow, you need to professionalize that piece of the puzzle. Yeah.

Russel:

Well, I've read a really great way to really even separate the roles of finance and, and to the point, uh, we were talking of most agencies. Most companies are gonna naturally do the bookkeeping because they have to do the second part, which is pay taxes, and then it is that third seat that gets filled in maybe more interesting ways, or in some cases not really filled at all, but probably really being the most critical role as far as leveraging the finance factor of your business.

Sarah:

Right? Yeah, that's right. It's the most critical role in order to be able to make powerful decisions because all decisions have a financial impact in business to get some financial benefit from it, right? And at the very least, you know, you wanna stay in business, you wanna pay your people well, all of those things. So the finance. Piece. It's really about grounding all of your business decisions in financial data, in clarity in what's the impact of this?

Russel:

Well, the same way, we haven't seen an all cash agency business. I haven't run into an agency business that's a non-profit. So at the end of the day, it doesn't have to be the sole purpose, but in order to be sustainable, in order to achieve our mission, we have to have some good financial means to do so. Well, speaking of which, let's get into that and we're gonna cover just some important habits and foundational pieces to better build that role out in your business. So let's just get right into that. Mm-hmm. What is one of the first things owners need to be doing or whoever's filling that role for an agency? What is that?

Sarah:

Yeah, whether it's the agency owner, the finance person, there's certain good financial habits, right? That'll keep you on track. So I would say the first thing is you have to look through your financial statements. So that is what your profit and loss statement, that's your income statement. Your balance sheet and your statement of cash flows. So all of these things are interconnected and you wanna be looking at them, not just what happened this month, but what's happened the last 12 months in a month by month trended view. Mm-hmm. So that you're able to get a read on. What's changing month over month? Are you overall growing? Are there blips? Are there warning signs? Things like that. So, you know, I think a lot of times there's some pitfalls if you're not doing this, like you can confuse profit with cash. Mm-hmm. So a lot of times, an agency owner will look at their p and l and they'll say, on paper it looks like I made a half a million dollars this year. Why do I only have 200,000 in the bank? Look at your statement of cash flows that will show you exactly the translation between your net income is gonna be right there at the top. This is your income from business activities. And then going down, it's gonna say, what are the differences between your net income and your cash? And that gets listed out. Piece by piece. It's your changes in working capital, it's things happening from finance activities. You know, in some cases you could show a hundred thousand dollars of profit, but you got$200,000 in the bank. Well, what happened there? Oh, well, you've got financing activities, you're drawing on your line of credit. Things like that. Where you're actually, there's more cash in the bank than your profit shows. You need to understand that relationship and be very fluent in the numbers that are showing up on those financial statements. The balance sheet is one that gets tricky because people. Sometimes don't know what those items are, or there's something about the language used in the account naming nomenclature that feels confusing. Sometimes what agency owners do is go, I don't understand this, so I'm just not gonna look at it.

Russel:

That's true. I'm not kidding. No, for sure. I'm not kidding. I see that all the time. I mean, I think just to even the point. I have been surprised and at the size of some agencies that don't have, this fluency or this understanding mm-hmm. That you're talking about. And it's to the point of the bigger you are right, the more dangerous it becomes. That's, I'm not handing your hand on this wheel.

Sarah:

That's right. It's true. And I feel like the reality is, you know, you've got some level of. Accounting. You may not have a finance person, but you've got some level of accounting people working in your business with you for you ask the questions. If you don't understand what something is, ask them and if their answer doesn't make sense. Figure out how to get it. So it does, you figure out how to make sure you do understand what this means. Um, sometimes accountants are not the best communicators, so, so they don't always know how to make it clear what this particular type of equity or what these intercompany payables and how does that net to an equity, they don't know how to explain it in layman's terms. Yeah. These days with chat, GPT and Claude and other things. It's actually really nice because you can go that to them with your quote dumb questions. You know, the, any something that you feel like, oh, this, I should know this. I don't wanna sound dumb by asking some data. Go ask those, you know, AI tools and it's actually really great. Or even pump your balance sheet into that. Yeah. And say, explain this to me, or tell me what this means and you'll really get some good answers out of that. So. There's no excuse for being ignorant. About what's on your financial statements.

Russel:

Great advice. Right. I mean, I, I think first and foremost, sit down to do it. Make it in such a way that you understand it. Whatever you use for your translator, your interpreter or whatever means AI or something like that. But it is important to really understand what's going on. It's not something you can ignore that rings so true. Okay. Alright. That's. Probably the most basic is sit down and do it. Where does one go next? The most basic.

Sarah:

So next I would say go through a budgeting process every year. And you know, maybe a lot of people are already doing this. I've definitely seen at the smaller levels that they're not, or they're doing it at a very high level. And then there's other people who say. Well, the only place where every number is wrong is the budget. That's true. But that doesn't mean it's not useful. Yes. Right. So, um, I feel that the budgeting exercise is extremely important because it's a comprehensive look at the business. And all the moving pieces. Basically the financial reflection of what's happening in the day to day and over time, it's all laid out when you look at your numbers and actuals are great, but it really helps to connect the dots when you actually. Take the historical actuals and then you use them to build a forward looking budget, and that gets you to do critical thinking about the business overall and how do all these pieces work together? I feel that it should involve the leadership team. Bigger the agency, the bigger the leadership team. But you want input. From them and ideally buy-in. Ideally, those people are working alongside you because a budget ultimately is a goal, right? It's a goal for the business that's going to hopefully be achieved over the coming year. Well, your leadership team is gonna help you accomplish that goal. So you want them to inform it, to have buy-in with it. It's comprehensive in the sense that all of the factors are have to be interrelated. So you don't wanna build a budget where you've got. Huge revenue growth, but you're not building in staffing that's gonna support that revenue growth. And as obvious as that sounds, I actually see this happening. I mean, I, I worked with an agency that's$17 million a year in fee revenue. It's got 75 people. Pretty sophisticated agency. Yeah. And yet. They get revenue numbers from the CRO that say, you know, this is gonna grow from say, 15 million to 18 million over the next year. And then you get staffing inputs from all of the leaders of all the different departments, and they say, we need these new account managers. We need a head of ai, or whatever. This is who they think they need to put in place to keep that business going as they see it. Well, when you put that staff in place and you put the revenue and you line it up, all of a sudden it's like you're underwater for the year because you've staffed for a level of business that the CRO doesn't think is achievable. So you have to right size that so that. What's you think you can achieve in revenue is going to be matched by how you're gonna staff and that utilization times the billable rate. And what's the revenue capacity of this staff? Does that match the revenue that you're budgeting? So you want the whole system, the whole budget to make sense within itself? When you factor in all those pieces. Yes. So I feel that the budgeting process is just like a really good kind of level set. Get everybody onto the same page and understand what you're trying to do with the business over the coming year.

Russel:

Yeah. And the kind of underpinnings I'm hearing there is, right, a budgeting is not just a laborious process to fulfill a accounting checkbox, but it's kind of a garbage in, garbage out of what, I can't remember how you worded at the beginning of the place where the numbers are all wrong, but directly a reflection of Yeah. Your ability to collaborate, your ability to really understand why the numbers are what they are and how they got created in the first place and really put some effort and intention. All to say what, you know, I think you were kind of capping off there of to support the growth strategy of the business as a whole. All those pieces can be aligned within each other. Probably the more likely you are for success.

Sarah:

Exactly. Exactly. And what does success look like for you? Is it happiness? What do you need to be happy? I like to sort of think that in the best of worlds you're doing it. Like, where do I personally wanna be in three years? What does my wealth profile look like? And then how does the business allow me to achieve that? And then how do I step back from there to build a budget? Because all of that is getting you directionally motivated towards something that's gonna make your life work for you, right? Yes. Like I think a lot of times agency owners become a slave to the business and they work for the business, but the business doesn't work for them. So this helps you flip that. So wait, how would the business work for me in an ideal way three years from now? And what does this look like? And then what does that have to, you know, track back to over the next 12 months?

Russel:

Nice. Nice. All right, well this is going great. I'm seeing how this is starting to ladder up upon each other. So we are now looking at our historical records on a consistent basis. We're doing through a diligent budgeting process, a collaborative diligent budgeting process, and now what do we do?

Sarah:

The budget is something that doesn't change. It's this static, sort of stake in the ground that you've established that this is what success would look like for us over the next year. Well, now you track against it. Okay, so that's obviously something that is going to. Important. Don't just put it on a shelf and ignore it. What are track your budget to actual variances every single month. And by the way, it's funny that I have to say this, but like look at what was last month budget versus actual, but don't just look at last month, look at year to date as well, because you wanna always be showing how does this story aggregating? Mm-hmm. One month. It's going to have different levels of noise, of variances that are immaterial and not worth talking about. Like, oh, we budgeted to buy this sponsorship in March and we bought it in February instead. So now you're looking at a March variance and it looks like you saved money, but you actually spent it. There's these timing things that wash out when you look at it on a year to date basis. So I just like to look at those side by side. Current month versus budget variance, year to date, actual versus budget variance, and then that will allow you to normalize some of the month over month variances that are really not, not material. Yeah, so that's just like hygiene, that's just like good hygiene's, like just looking at those budget to actual variance reports. Sexy, but this is just like foundational stuff that's like, again, gonna have you be very fluent in your numbers.

Russel:

Well, that's such a good way to put it. No one wants bad hygiene. Um, so no, um, I, I love that. Yeah. Well, I can honestly say to that one, you know, I always. Thought and prided myself on having a pretty good grasp of the finances in our agency. And it wasn't really till pretty later on where I actually saw for the first time a budget to actual variance report and I was like, oh my gosh. This is very helpful. It sounds so simple, right? What did you say you're gonna do and how well did you do against that? But it can be an easy thing to overlook. Where do we go next?

Sarah:

So next level is, a reforecast. And this is something that is not as common to do, but something that I feel is really important. You're looking every month at what was the performance year to date. And I like trailing 12, just'cause you get that full kind of prior 12 month view, what was the trailing 12 months income statement, performance, and then how can you re project. What's going to happen for the rest of the year, and that exercise is also useful because. Everything's changing all the time, right? And so all of the assumptions based on the business conditions and the pipeline and the staffing and all the things that you did when you created the budget are all different like a minute later than the budget is complete, right? So especially since, if you're doing your budget and completing it in October, November. By the time January actuals are done, it's now been several months since you've created those assumptions and it's time to do a refresh on what's the momentum and how's that you lost a big client. Okay, let's reforecast the revenue for accordingly and figure out if you need to make adjustments in expenses. So the reforecast allows you. To have that forward looking view and be proactive about making changes. Because if you just look in the rear view mirror and say, well, I'm gonna wait until profitability is down, but I'm gonna wait three months for it to be down before I do anything. You're already losing money. You have the ability to predict and project what's gonna happen in the business based on what you know. And if you're not profitable or you lost a client or whatever, the sooner you can factor that in and make moves the better off you're gonna be. Now, listen, I'm not advocating you lost a client. That automatically means you have to fire people. Because if you've got good pipeline and a good, probability that something's gonna land to replace that revenue within 60 days, it's way more costly to fire and hire people than it is to carry that. But that's what the reforecast is gonna help. It's like you're doing that thinking between drawing that connection between the pipeline and. Where that's gonna land and how much and when and then that's accountability for the sales team and things like that, which a lot of times is the founder. But it's just clarifying all of that.

Russel:

Yes, yes. Such a good way to put it. And I personally believe in the folks that work with it. This is a non-negotiable that gets set up very early on in my client relationships. We have to have everything else we've talked about before to even be able to build a good forecast. But this is absolutely critical and essential and does exactly what you were saying there of should I be worried? Should I not be worried? Are things going and if we just leave that to counting the beans in our head or instinct, we're gonna be That's right. We're probably gonna be off. So, that's right. This is clearly an important piece to that.

Sarah:

And it doesn't have to be that laborious.'cause if you think about it, you built a budget, it was all forward looking. So now just take that, make a copy of it and change some numbers. So like this doesn't have to cost you a lot of time and energy. It's just it important to reground yourself every month and make yourself sit back and think. What am I anticipating?

Russel:

Great reminder. Make it easy. I have seen some very complicated forecasts that end up almost not being useful to that end. So that's a, a great reminder, right? Keep it simple. Keep it simple. That's right. All right. We we're on a great path. I don't know what comes after good hygiene, but, uh, we'll maybe make up or doing your hair. Okay, so now we're starting to look forward and how do we even get more sophisticated with our finances?

Sarah:

I think this just builds right on the prior point. So the exercise of the reforecast is helpful, but everything is only really interesting or relevant when you're comparing it to something. So you've done the budget, take that reforecast and do a comparison. So really. Every month, I want you to be able to look at the full year reforecast versus budget variance. Once you've now built in the current state of the world and what do you think revenue's gonna do? Or you have to hire this person, and there are salaries more than you expected. Whatever, whatever. How do all those things offset each other and then compare to the stake in the ground of the goal that you set for the full year. So I, you know, feel like that full year re-forecast versus budget variance is just a really good kind of north star.

Russel:

I love that. You know, and, and right. The, the theme here, right, it seems is the, the first few steps were all things looking backwards now. We're putting a lot of value and the ability to look forward. I don't know if I could just wanna scream from the mountaintops how important that is. And you, I think the analogy you were sharing earlier of just. When your boat's small, you can turn on a dime. But when your boat's big, you have to be able to see forward, not unlike the Titanic to avoid the icebergs or make better decisions. And, um, we can't do that if we're not taking the time to do this analysis.

Sarah:

And that's what I said is that third leg is the financial planning and analysis. So it's doing that forward looking but also the analysis piece to do that critical thinking of why are these things over and under and how can I course correct to still meet my goals?

Russel:

But I just thought finances were for paying taxes. Sarah, why do I gotta do all this extra work? Right. Alright. Now we're getting into the interesting stuff. I mean, I feel like this is. I don't know if we call this one oh one or 2 0 1 up to this point, but you're doing pretty good at agency. I feel like if you're doing these things we've talked about so far consistently, but now we get into the good stuff. Yeah. How do we really amp up our game here?

Sarah:

So this is more getting into the analysis piece. So I would say, you know, we've set a good foundation for healthy financial practices. Now how can we take that to the next level? So to me, that's putting metrics around the pipeline so that you get better at predicting revenue. So. How do you get better at something? You do it more often. How do you get better at predicting you? Predict often, and then check again how your predictions, uh, played out, right? So the more often you're building that muscle, the stronger it's gonna be. And how do you predict revenue? You've gotta look at the pre-revenue, you've gotta look at the pipeline and you have to measure it. So I think it's important to put metrics around the pipeline rather than, oh, we're having calls, we're having conversations, things are active. Put metrics around what that means, and then put goals around what those numbers should look like in order for you to hit your actualized revenue goals. So one thing that I always like to look at is like. What's the size of the pipeline? Now, I understand that when you're in upper funnel, it's hard to put dollar values on that. You've just had a conversation. It's hard to really know what the client's budget is or what the scope is. That's fine. You know, you've got your different stages of the pipeline, but at some point you can put dollars around it, right? Whether it's proposal requested, something in that pre-delivery of a proposal. You are getting that sense of how big is the scope of this thing? And the sooner you can put numbers around it, the better. Because by the way, it also helps you know how much to prioritize different prospects, right? And so laying out the what do we think this deal value is at different stages of the pipeline, what's the probability of close, what's the timing of close? And also the more metrics you put around it, the more you get a sense for how things are performing. Like what is your sales cycle? From initial contact to closed one, what's typical for your particular agency, and then understand how does that kind of map to the industry? There's different sales cycles with different types of agencies, obviously. I've worked with companies that are in the pharma space where sales cycle's an average of a year. Yeah, that's really good to know. That's a very different scenario than a 30 to 60 day sales cycle with smaller deals because then you know, like you have to really have a lot of seeds planted. In order for them to come to fruition, especially if you know there's certain client churn. And then you can also do more things, like smaller deals tend to close faster. Larger deals tend to close longer, make bands of deal sizes from X to Y typically take A to B length of time. All of that is just giving you more ways to predict how revenue is going to. Play out. And it also just, it helps direct your salespeople and get them on track. And when you're measuring your pipeline and you're taking all of those deal values and you're factoring them by probabilities, then add it up, and then you get like a total factored pipeline value. Mm-hmm. Plot that on a chart on a month by month or even week by week, week by week might be a lot, but how does that pipeline value change over time? And then you start to get a sense for what size should it be in order to sustain the level of business that we're trying to have. All of that is squishy when you're not measuring it and you don't really have a sense for how many deals do we need to have in the pipeline in order to land four per month or whatever your goals are. And I've actually done a chart that I really like where I show the pipeline value on a chart where it's like over time, month by month, you're seeing that pipeline value fluctuate and then you chart against that on the same graph sales. And what can be interesting is that once, first of all, once you start measuring it, things tend to improve this like law of physics, right? But what happens is that as sales are improving and going up and up and up. Emotionally, it's gonna feel really good in the business'cause people are busy revenues, cash is flowing and it emotionally feels like, wow, we're really winning. We're really succeeding. But if you are plotting your pipeline value against your sales, you're all of a sudden realizing, things are good because we've just converted our pipeline into revenue, but we haven't backfilled it. And only by plotting those things against each other, can you see that this is actually not a good moment? It feels like a good moment. Like I said, cash is flowing and people are busy, and so it's easy for the agency owner to get caught up in this like. We're winning, we can float on that. But if you aren't realizing that you've gotta keep backfilling, you're gonna have a problem in three months. So that's why I feel like it's important to measure, plot chart and analyze the data.

Russel:

You know, it's just so funny and, and I think for, a smaller growing agency that this can be a really hard one. You know, you hear, you talk to an owner and they're like. Well, this next three months are gonna be the greatest months we've ever had in the business, or nothing's gonna happen and we're gonna be a failure. but it's because they don't have these plot lines as you're saying. And I think, yeah, just in, in my experience, that total pipeline value could be a really great one.'cause you can start to understand it over time. It averages out of. You're going to close X percentage of your total pipeline, and that can be a really strong indicator. Not to say you don't have variances, but over time mm-hmm. All data weighs out. Again, more than just instinct to

Sarah:

Yeah.

Russel:

How they predict revenue, which I know can be so hard for a lot of folks.

Sarah:

Exactly.

Russel:

All right, well now we're cooking here. I think we've got one important factor left. I dunno if it's the most important or if it's just another layer on the cake that we're building here. But tell us what the last part of this magic formula is

Sarah:

Yeah, I would say the last thing is basically measure and. All important business KPIs, and if that feels overwhelming or daunting, then just create three, boil it down to what are the most important business drivers. You've got revenue drivers, you've got expense drivers. At the end of the day, the thing that's creates profit is just two things, revenue and expense. So what are the key revenue drivers now that can be organic growth of existing clients? That can be like we just talked about, pipeline. That's new business. So it's a way to just simplify, being able to track organic growth. How much did you do with that particular client last year, and what do you expect to do next year? What on average is the organic growth per client, or maybe by type of client or by industry of client or by size of client? You're breaking down the overall business performance into smaller pieces that you measure and analyze to know whether the business is succeeding or not, and the more you can track those metrics. The better you're gonna get at creating benchmarks. Now there's industry benchmarks for different things, and those are always good to know and track against also. But then there's also what are your internal benchmarks that tell you that you're doing well in succeeding, revenue per FTE. That's a common kind of industry metric. Right? That's a good, you wanna make sure. Exactly. So are you looking at that? You know, like maybe, maybe not, but that's an easy one to calculate. Not only, okay, what is it, but what does good look like? What should it be? What's industry, what are you trying to get to, et cetera. So essentially, what does that tell you? It just tells you how efficient you are. Because if it's lower, you're needing too many bodies. If it's higher, that's great. You don't need as many bodies. And you know, and then there's things like. Percent of revenue by client. You don't wanna have a client concentration problem. But all that tells you is we need to rebalance this, so let's fire up more new business activities so that this doesn't start to get outsized. So those are some examples of ways of measuring more granular levels of the business to get more insights and to take those actions. And on the expense side. Looking at, utilization, how billable are different people and what should they be at different levels and things like that. Or looking at this is another really good one, client profitability. And I've totally seen this where the biggest clients. Are the least profitable. So something's gotta shift there, right? Because that's driving a lot of the profitability of the overall business. So what needs to shift? And so being able to dig, drill down into. That greater level of visibility into what's driving the overall profitability of the business is gonna help you make better decisions or find better clients or fire clients or know this type of client tends to not work well with us or this or that. Right. So that to me is the final level of sophistication, is that kind of KPI tracking and measuring of the KPIs.

Russel:

Well, it rings true, and I feel like any agency that has grown well and handled growth well, this is absolutely something that has a, a critical component to doing that without you know, what is it? I think it's, Keith Cunningham said one time, you can go fast in an F 16, but if you don't have great measurements, you're going to. He was being pretty dark about this. Kill people. Um, um, and so while that won't happen in our agency space, you will get burned. You will suffer the consequences if you don't get a handle on your measurements at some point. So yeah, that, that rings really true. Yeah.

Sarah:

No, I mean, yeah. The, the analogy, it's like trying to fly a plane when you don't have a, a controls, you don't have a dashboard showing you, what's happening and what's going on. Like you've got a, yeah. Know what's gonna allow you to have to fly that plane and go the right speed at the right altitude and all of those things. Yeah,

Russel:

yeah, yeah. And this is getting into stuff that QuickBooks and your typical accounting tools won't give you. But to your point, start somewhere. Start small, and then there's things like parallax and whatnot out there that can. Help you make that more sophisticated over time? Well, amazing lists. These are all great things, and whether they excite some people in the world or whether they sound boring in something they don't want to do, they're important, they're critical to growing your business. I wanna just do a quick recap there for everyone listening of what this seven step magical process there is. But number one, review your finances on a regular basis, your p and l, your balance sheet, your cashflow statements, and just make sure you find the discipline to do that. Take the time to go through a meaningful budgeting process and collaborate with others and make sure that all the pieces line up, uh, in your business and how you're looking at that. Once you have your budgets and you're actual looking at your p and l, measure those against each other. Number three, look at a budget versus actual port on a regular basis, and then use that to create a forecast. Number four, create a forecast every month. Looking at both the backward 12 months and the forward 12 months if you can. And then compare your forecast number five to your budget, variance ports monthly. And then, number six, starting putting metrics measure aspects of your pipeline, not just what you have and what you close, but some of those more subtle metrics and then you start to take those across your business. And last but not least, a number seven of what are all the important metrics that ladder up to your overall success of the business? Hmm. And snap your fingers and you're done. Right?

Sarah:

Yeah. Yeah. Well it's the kind of thing where like crawl, walk, run, you know? Yeah. Like start at the top of that list and take on one piece at a time as it feels doable.

Russel:

Crawl, walk, run. I think that's a great way to put it. And I'm advocating, I don't know what you come from your position as. I think it's important that an owner learns and goes through this process on their own, and once they have a strong handle on it, once they know how to look at certain things once they started creating some of these things, that's when go to a professional like yourself to do some of the hard grunt work of that. To make these numbers, more easily put in front of you so you can spend less time creating the numbers and more time doing the critical thinking as you shared.

Sarah:

Yeah, exactly. Yep.

Russel:

Exactly. All right. Well thank you so much, Sarah for Thank you. Sharing your expertise today and, and running through all these different things. If people wanna know more about you and or your business, where can they go? Uh.

Sarah:

My website, E-S-S-J-A y.io. sj.io. You can find me there, or LinkedIn. Sarah Patterson can type in Sarah Patterson fractional CFO, and you should be able to find me.

Russel:

Wonderful, wonderful. All I can say is thank you so much for taking the time to share all this with us today. Pleasure and wonderful guest pleasure, wonderful insight, and this is really important, critical stuff.

Sarah:

Thanks for having me. This was fun.

Russel:

Thank you. Thank you for listening to an agency story podcast where every story helps you write your own, subscribe, share, and join us again for more real stories, lessons learned, and breakthroughs ahead. What's next? You'll want to visit an agency story.com/podcast and follow us on Instagram at an agency story for the latest updates.

Sarah:

Well, actually it was the first client I ever worked for. I started working with them and it was run, the agency was run by two business partners who had graduated college together and they were like brothers and they were basically ready to kill each other. Oh boy. And they were just fighting. They're fighting like little kids. All the time. So they brought me in and I became like the balancing force that helped them navigate their dynamic so that they could like see things more objectively. And so they jokingly after a while called me their therapist. So I was like, I don't want you to call me that. I don't wanna this's not at all what I am or what I want to be. But in the end, they had a great story because they had a really successful exit and one of the two partners ended up leaving the business completely. The other one got. Roll over equity into the larger thing. But to this day, they're two of my closest friends and my two kids are the same age as one of those founders as well. And so like we get together on, birthday parties and things like that, and so they're two of my closest friends to this day, but. We definitely all went on a journey together. Yeah. And so anyway, that was a wild ride. And great kind of one of those like win win, win for all of us all the way around.

Russel:

I love that. I love that. And not only did you probably save some black eyes and bloody noses, but on a really darker side maybe prevented a dateline story from happening. And um, so you're out there saving lives, Sarah.

Sarah:

That's what I do. I'm a hero. My cage is in the closet.

Russel:

We all need more heroes.