The Hidden Cost of Slow Decision Making

Hey there, Welcome back to Agency Finance Letters.

This week I want to go into a hidden problem I see in lots of agencies. The most expensive line item for agencies isn't software or their team, it's opportunity cost from slow decisions.

When important decisions come up, like when to hire the next person and how much to pay them, many agency owners hide from these decisions until they can’t ignore it anymore.

But the thing - you can't just hide away from decisions or take your time contemplating them. These delays are silently draining your business.

The Financial Blindspot

As an agency owner, when you’re thinking of a new hire, you’re focused on that $5K expense you’re adding as this is what actually will come out of your bank account. What you’re not focused on is the $15K in lost revenue as you’re unable to deliver the service without that hire, and this never appears as a line item on your P&L.

This creates a big financial blindspot that is super easy to miss. You're making decisions based on visible costs while ignoring invisible opportunity costs that are often 2-3x larger.

And if all you're ever looking at is your bank balance or a simple P&L, then you will never spot patterns like this.

Beyond Basic Financial Statements

Standard financial reports simply don't capture opportunity costs:

• Your P&L shows expenses, not missed revenue

• Your balance sheet shows assets, not potential growth

• Your cash flow statement shows what you did, not what you can do

Having a closed view on this creates a situation where your ‘sensible’ business decisions seem better for profits and cash flow than they actually are. 

Making Opportunity Cost Visible

The question is how to break through this. It is still of course important to track your expenses, however with this, you should also be looking at: 

• Your team’s capacity and utilisation rates. 

• Track decision timelines (e.g. how long it takes to decide on a new hire, how long it takes to set up and run ads, how long it takes to invest in that coach etc). 

• With this info, calculate how much revenue delay these issues have caused.

You need to go deeper in your numbers to see these 3D chess moves.

Or if you don't have the time or energy for that, you need to hire someone who can.

Because paying that opportunity cost every month in reality puts you behind those who are moving faster. 

Till next week,
Joey

PS. If you want to see how you can set up a process or dashboard to track these metrics, and where the opportunities lie in your agency specifically, I’m opening up some more slots for a free 30 minute financial health check. Just hit reply if you’d like one!

You can also check out my most recent YouTube video here, with the three biggest cash leaks faced by agencies.