For anyone wondering how Mojo New Zealand could go broke, or anyone interested in ensuring their prospective agency doesn't, here's some free advice from 14 years' experience running an independent agency.
There are three necessities to ensure you don't go broke in adland:
1. A brilliant and trusted finance director (I'm not naming ours in case you try and poach her).
2. Self discipline to keep three months' working capital in the business at all times (if you dip below this, you need to close up or inject capital – simple).
3. The ability to be firm but fair with your clients about terms of business.
The first two are pretty straightforward but the third is often where we have challenges. Being a small independent agnecy, we tend to occasionally get lured into some traps which we carefully have to side-step.
Rules for being firm but fair:
The cash flow trap – don't accept anything with more than 45 days' payment and for any larger jobs, make sure you get paid a portion on commencement of the job and the balance on completion. Don't let clients subsidise their own cash flow issues for yours.
And here is a little tip for the next time a client pushes out payment by a couple of months: just ask them if they got paid this month? If they did, then you can politely ask how they expect you to pay your staff?
If they are in so much trouble they can't pay themselves, you should act quickly to get your money for work completed. A signed estimate is gold in this case.
Numerous times when smaller companies have failed to pay us, I've jumped on the phone to our lawyers, sent them the signed project estimate and evidence of the work completed, and have had my money within a month – it's called a Creditor's Statutory Demand and it's well worth the $1,500 it costs.
Remember that you are the client's agent, not their business partner, and thus you don't have to share the risk they take in launching a new venture.
If you really want to take on a new venture and help a client out with extra work to see it become a success, then I would strongly suggest you give your agreed time in exchange for shares.
We have done this occasionally. It's risky, but at least you have some shares in something, rather than a debt and nothing.
Rob Currie is MD of JackWattsCurrie