Oftentimes, service based agencies are built reactively rather than proactively. What usually begins as a freelance gig can seemingly spurn into an agency overnight. Sometimes this is due to a client base growing beyond the means of just one person leading to the need for a small team to deliver a quality service. Other times, this can be the result of landing a single large project or campaign that provides enough security to take the risk and start your own venture, before you’ve even identified your core agency business model. The risks of this can be large, but most founders don’t realize this until it’s too late. To ensure you are prepared for the years ahead, consider these 5 essentials of any agency business plan.
1. Identify and Document Your Key Differentiators
Whether you are running a PR agency, web design agency, advertising agency, or any of the other myriad service businesses that exist, simply picking a key area of expertise is not enough. When building a business plan for your agency one of the first things you need to identify is what makes your firm unique. Consider the following questions:
- Why would a potential customer choose you over a competitor?
- What can you offer your clients that nobody else can?
- What can you do better than at least 90% of the other agencies in your field?
Answering these questions should be the very first thing you do when developing your business plan because they will tell your customers, potential investors, and lenders why your agency is worthy of their attention. The answers to these questions will become your key differentiators. They will inform your elevator pitch, provide insight to clients trying to choose between your firm and a competitor, and help guide your hiring decisions as you grow.
If you can’t name at least 3 key differentiators for your agency or service offering, then you may want to go back to the drawing board before making further investments.
2. Identify Your Core 4: Core Purpose, Core Mission, Core Vision, and Core Values
When creating a business plan for your agency, it’s also important that you identify your Core 4, which include your core purpose, mission, vision, and values. This may seem like unnecessary busy work, but you would be amazed at how much these 4 factors will drive continued business success for you. This is because agencies that embrace and live by their Core 4 are able to approach every challenge they encounter with a unique set of ground rules.
As an example, imagine that you are running a design agency and a client asks you to create content around a divisive topic. You want to say “yes” to the project because you don’t want to risk the client relationship, but you also feel uneasy about the subject matter. While this may seem like a moral dilemma, your Core 4 exist to help you view the situation objectively. For instance, you may find that the request goes against one of your core values or maybe would be counter to your company’s mission statement. If your company proudly and publicly embraces your Core 4, it becomes easy to broach the concern with the client without emotional subtext that could lead to conflict. You can simply let your client know that you are bound by your Core 4, which were set in stone before they came to you with this request. You can’t expect your team to live by the agency’s Core 4 if you don’t, so you have to respectfully decline the work.
Used correctly, your Core 4 can be an extremely powerful tool to assess and respond to almost any situation. And if you hire and fire both employees and clients by your Core 4, you’ll often find yourself conflict free.
3. Get Your Financials in Order
A requirement of any agency business plan is to document a clear breakdown of financials. You will especially need this if you are fundraising, but even if you are bootstrapping your agency you will need a documented financial strategy to get insurance and setup your business bank account. Plan to develop a detailed financial summary outlining the following items for your first 2 to 3 years in business:
- Money you plan to invest yourself including when you plan to invest
- Money you plan to raise or already have raised and when or if there will be future raises
- Key vendors you will need to pay, when they will be paid, and what you expect to pay them
- Recurring business costs such as website hosting, internet, rent, utilities, etc.
- Expected income and sources of that income
Depending on your agency’s business model, you may be able to plan your financial needs for each month while others may only be able to estimate yearly financials. With each passing month though, you will get better and better at predicting future revenue and costs. And with each year that goes by, those estimates will become even more accurate.
4. Identify and Hire Your External Team
As you start your agency, you will need to build a small external support team early on. You may be thinking that we are talking about freelancers, but there are actually some key hires to consider before you ever build your team of talent that will help deliver your services. These key hires include a lawyer or law firm, a bookkeeper or CPA, and an insurance broker at minimum.
While you may be thinking that this is a large upfront investment for a fledgling business, it’s a necessary investment to keep your agency from failing in its first year. There are plenty of reasons for this, but here are just a few to consider:
The Tax Implications of The Wrong Agency Business Model
There are vast differences between an LLC, S or C Corp, or LLP and the tax implications that go along with them. It’s important to consult with a CPA before launching your agency, to ensure you’ve chosen a structure that aligns well with your business model. While you can read through various articles that try to make sense of these things, only a CPA will be able to provide the most up-to-date understanding of tax law. They will help you identify a structure that will stand the test of time for you, taking into consideration not just federal but state and local taxes as well. Choosing the wrong structure can cost you thousands, if not tens of thousands in unnecessary taxes each year.
The High Cost of Using the Wrong Contract
You may be wondering why you haven’t found legal contract templates, like a Statement of Work template (SOW) or a Master Services Agreement template (MSA), on this site. This is because your contracts need to be rooted in federal, state, and local laws the latter two of which are unique and ever evolving around the country. A template won’t protect you from every possible outcome and could even get you into hot water with a client. The wrong contract can release your client of any payment obligations to you, which may not be known to you until it’s too late. Hiring a lawyer from the start will help to ensure you don’t run this risk.
You Didn’t do Anything Wrong, but They Sued You Anyway
One of the biggest items agency owners neglect to incorporate into their business plan is the need to get good business insurance. Too often though, founders look to cut costs and believe that insurance is only for those who make risky choices. But the reality is that you can get sued even if you didn’t do anything wrong. And even if you are proven innocent in the suit, the legal expenses of fighting it (along with the months of distraction), can easily bury your agency. To avoid this, meet with a business broker early on as you build your business plan. You’ll sleep better at night knowing you spent a few hundred dollars on insurance for the year.
5. Identify and Plan to Hire Your Internal Team
Once you have done all of the above, it’s time to identify the types of hires you would like to make for your primary team. This may include project managers, web developers, visual strategists, the list goes on. You don’t need to hire this team right away, in fact it’s best to wait until there is enough longterm demand to begin hiring. But simply the act of identifying these needs will help you on your journey because you can start scouting talent, determine how to best incentivize your team, and inform your financial planning as you go.
A business plan is exactly that: a plan. It’s not a law set in stone that you must live and die by. It’s not a clear cut path to the finish line. It’s a ballpark idea of what’s possible provided you work hard and remain committed to your goals. Because of this, don’t beat yourself up if the plan has to shift and evolve over time. Some of the best agencies in the world have had to revise their business plans on a regular basis simply because agency life demands innovation. Regardless, these essential aspects of any agency business plan should always be considered as you grow and evolve. And if you find yourself years into your agency with an entirely different business model than originally expected, don’t dwell what could have been. Instead, celebrate your years of success!
