Managing the Holiday Cash Crunch

Hey there, Welcome back to the Agency Finance Letters. This one will be a 4 min read.

Last week, I was chatting with an agency owner who was absolutely crushing it this quarter. Revenue was up significantly, the champagne was flowing, team spirits were high, and everyone was riding the wave. Then we looked at their January-March forecasts from previous years… It’s common for agency owners to forget the post-holiday slowdown that hits almost every agency. Not to mention the stack of year-end bonuses they'd spontaneously promised the team. This is a pattern I see every year, which is why I wrote this edition...

Here's how smart agencies handle the holiday season cash flow rollercoaster:

1. Get Strategic About Team Compensation 

Random acts of generosity might make you feel like Santa, but they can wreck your budget. Here's a framework that works:

Set up bi-annual performance reviews, here is an example scale to use:

• Underperform: 0% raise, 0% (of monthly pay) bonus

• Met expectations: 4-6% raise, 10% (of monthly pay) bonus 

• Above expectations: 6-10% raise, 30% (of monthly pay) bonus

• Exceptional: 10-15% raise, 50% (of monthly pay) bonus

Pro tip: Start evaluating in June. This gives you 6 months to budget and plan for year-end numbers.

2. Smart Holiday Spending Hacks 

Your client gifts and team events don't have to be a complete write-off:

• Use credit cards with reward programs (double-dip on those expenses)

• Look for corporate bulk discounts on popular gift items

• Check if your bank offers holiday season cash-back bonuses

3. The January Hangover Prevention Plan 

Q1 can be brutal for agencies. Here's how to prepare:

• Keep a cash buffer of 2 months of operating expenses

• Don't let the December revenue spike cloud your judgment - stay level headed. 

• Consider offering early payment discounts to clients for Q1 invoices

• Start selling January projects in November (before budgets get blown on Christmas campaigns)

Don’t let your personal spending habits spread to your business during the holiday season. 

If you need help running any numbers or want to bounce ideas around, just hit reply.

Stay profitable (even in party season), 

Joey

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