Managing growth and the challenge of healthy cash-flow
For the first five months of Goat’s existence I was managing the accounts myself, staying up all night making payments and praying the numbers added up at the end of each month. We’re now 24 months into our journey and the transition from working with small businesses with short payment terms, to brands and agencies like Apple and BBH over the space of a few months has proven a real challenge. Poorly managed cash-flow and the resulting hole in a business’s finances has the potential to be it’s downfall, but negotiating hard on payment terms and understanding the difference between cash and credit was essential.
VCs are increasingly prioritising profit over growth. The mantra of ‘growth at all costs’, especially in tech, no longer rings true. With that in mind entrepreneurs are increasingly having to ensure good liquidity, not just to satisfy investors or raise further funding, but also so they have the necessary funds to reinvest back into the business, settle debts, pay expenses or provide a buffer against future challenges.
The challenge we’ve faced at Goat is a unique one. We are a social media influencer marketing agency which means our relationship with ‘suppliers’ is unusual. Our suppliers are individuals who own influential social media accounts. Many are young, many are based in far flung territories, and many don’t know how to put an invoice together. A brand or agency will pay us a fee and we deliver on average 100-300 posts per campaign across Facebook, Twitter, Instagram, Snapchat or YouTube to hit their KPIs at better value than other channels, in the most authentic way possible.
We made a decision early on not to buy or manage accounts ourselves. Many of our competitors do so and their campaigns are limited as a result. We can be more flexible and choose influencers from a far broader network to ensure we’re selecting them based on their audience relevance and ability to deliver on key metrics. As a result, our ‘suppliers’ require payment for each individual post. Some will be for as little as £10, some £40,000, but on average we’re making over 6,000 payments per month, a challenge in itself.
The influencer community is becoming increasingly professional, influencers now know their value and often demand payment up-front or within 14 days. The nature of our business means our relationship with influencers is crucial to our success. The balance between negotiating hard on payment terms with influencers at the same time as clients (brands and agencies), without damaging relationships, is tricky, but crucial.
As a rare example of a startup that was genuinely profitable from day one without raising funds, maintaining good liquidity is the only option at Goat. For the first five months it was relatively easy to do so. Our clients were often startups or young companies themselves (eg, Depop, Happn, Lovoo) and understood our request to be paid up-front. At the six month mark we started working with major agencies and brands who, based on their size and entrenched structure, are unable to be so gracious with our demands, which is completely understandable (eg, Apple, Yahoo, Unibet, BBH, Havas). Our campaigns went from £5,000 to £100,000 in a matter of months and we weren’t prepared for it.
The imbalance between paying 300 suppliers within 14 days of a campaign and receiving payment from a client after 60 days was and is a tricky obstacle to overcome. There was a period of two or three months, when the transition to major campaigns was taking place, where we felt the impact. There are a number of learnings I’ve made over the last 24 months which hold true for any business. The first is to hold firm when negotiating terms, within reason. Most businesses and influencers will amend their terms slightly if you hold your ground. Don’t feel like you’re doing them a favour because they’re a well known brand. You’re providing a valuable service. The ideal situation is not to pay suppliers until the corresponding payment is made by a client, however this is not always possible for various reasons.
The second is to ensure you are constantly aware of exactly how much cash and credit is in the business. The balance between cash and accounts receivable, and reporting on this balance as regularly as possible is essential. Don’t report on it quarterly, do it weekly, but always be aware of where you expect to be at the end of the month through projections. Breaking it down on a project by project, or campaign by campaign basis helps you to understand where you stand too.
It’s essential to use software to generate these reports. You may think your spreadsheets are doing the job but you’re only making it harder for yourself. You should be able to check your cash-flow situation at the click of a button. Thankfully I’m no longer the one making 6,000 influencer payments each month and generating weekly cash-flow reports.
As genuine profit over growth becomes the focus in 2017, businesses will succeed and fail based on their ability to balance the books. The bigger a business the greater the challenge when it comes to cash-flow and we’re now fully prepared to deal with whatever the next few years bring.
Adapted from the original article on businesszone.co.uk – https://www.businesszone.co.uk/do/money/the-cashflow-challenge-of-balancing-social-influencers-and-big-brands