Finding yourself with surplus cash sitting on your balance sheet is a great place to be. It provides you with plenty of options. But do you know what those options are and how by making the right choice you could transform the future of your business?
Many agency owners don’t. They keep the money where it is, taking comfort in knowing there’s something for a rainy day, a cushion that may be far in excess of the recommended three to six months running costs. They may choose consciously to leave it untouched because they believe that it offers flexibility when it comes to key decision making in the future. Instead, they should be thinking about using it NOW to help drive further growth and value in the business.
And where owners/shareholders do agree to tap into surplus cash, the default option is often to take it as dividends or to boost a personal pension.
Don’t let a bumpy economy stop you
When the economic outlook is bleak, leaders can be reluctant to think about meaningful ways to deploy available funds made through profits. While that’s understandable, it could be a great time to do so!
It obviously depends on how risk-averse your agency leadership is and how much money is available, but during a downturn when business leaders strategize and look forward (including your clients), you have some rare breathing space to take stock and consider how to invest in ways that can transform your business.
Agency leaders tend to be much more financially astute than a decade ago but in the work that we do, we see that many simply aren’t aware of how cash on the balance sheet can be put to work to help the company prosper in good times and bad.
Inorganic growth / M&A
You might think your agency is too small to buy another one, but it’s potentially something you could consider.
There’s a mindset that views deal-making as the domain of the holdcos and bigger groups. The truth is, any business with cash available can look to leverage it to acquire useful assets.
Moreover, with a pandemic and cost-of-living crisis still uppermost in their thoughts, some agency leaders will be seeking divestment and realisation opportunities. Many would be happy to merge their businesses with ambitious agencies looking to grow as part of a strategic M&A drive.
Similarly, agencies can look at ‘tuck-in’ or ‘acqui-hire’ growth strategies, where you acquire a (usually smaller) company to gain its employees and expertise – especially in a niche area related to what your business already does. Recent examples include acquisitions in high early-growth areas such as AI and Influencer. It’s a great way to employ your cash to bring in new skills and clients.
Expand via offshoring or nearshoring
Twenty years ago, digital agencies faced a dearth of talent. In 2023-24, nothing has changed.
However, cash on the balance sheet can cover the upfront investment required in offshoring or nearshoring. It mainly applies to tech-enabled agencies – with at least some level of commoditisation in their products – who, by accessing a wealth of overseas talent, can reduce their salary bills and therefore drive margins.
Investment in technology
You might have an opportunity to use an internal project team or invest in building out existing capability to develop a piece of tech. If you can show that it’s viable and accretive then your requisite value may go up.
But that investment takes time and resources from the business, plus any external costs and use of additional external technology. Harnessing cash sitting on the balance sheet in this way can deliver substantial rewards in the longer term. Don’t forget about the R&D tax credits available from the UK government to help offset the costs of developing new systems and technologies
Practise what you preach
When times are tough, CFOs cut budgets and marketing is usually first on the chopping block. But agencies with cash available can use it to keep feeding their marketing and sales engines as others in their space fall away.
In essence, you can do what marcoms agencies always tell their clients to do – keep investing in your brand and marketing when times are tough and you’ll be best placed both to compete for the available wallet share in the immediate term and to succeed when things get better.
Expand the senior team
Some agency founders are reluctant to bring in senior people to help them. But remember, just because you can do everything yourself doesn’t mean you can do it well.
For example, an experienced CFO may be a significant investment, but they will help you see things you didn’t see before. A diversified, best-in-class leadership team is not just good for the business, but will help you appeal to buyers and investors down the line. When you have cash in the bank, the temptation will be to keep doing more of the same and hang onto it, especially if the outlook is uncertain. However, that can be a mistake when there are other, better, smarter things you could be doing with that money to grow value in your business.