[Top Agency Series] Financial Tips To Thrive as a Creative Agency With Ryan Watson

Ryan Watson is a Partner at Upsourced Accounting, a firm that helps creative companies evaluate financial progress and elevate performance. Upsourced has a team of future-focused financial strategists who provide digital accounting and CFO services to small businesses across the world.

Ryan is a full-stack finance and operations leader for SaaS startups and tech-enabled service providers. He’s also the Co-founder and COO of Hearty and a board member for Main Street Ventures. Before Upsourced, Ryan was the VP of Finance and Operations at Ahalogy, which was acquired by Quotient Technology.

Here’s a glimpse of what you’ll learn:

• Ryan Watson talks about Upsourced Accounting and its services for creative agencies 
• How Upsourced helps agency owners with different exit strategies
• Tips to make an agency more attractive to a buyer — and the lessons Ryan learned through his experience
• The four stages in a business lifecycle
• How the hierarchy of needs applies to business KPIs
• Upsourced Accounting’s customer success stories
• Ryan talks about time management and the best time tracking tool
• When is the right time to hire business leaders?

In this episode…

Starting, scaling, and running a business is challenging. As an entrepreneur, how can you thrive despite the difficulties and grow through each phase of business?

According to Ryan Watson, there are four different stages in the lifecycle of a business. There is the startup phase, the scaling phase, the project profit stage, and the exit stage. Unfortunately, each stage poses a unique set of challenges. Ryan recommends hiring professionals like Upsourced Accounting to help you move through these stages successfully. 

Listen to this episode of the Inspired Insider Podcast with Dr. Jeremy Weisz as he welcomes Ryan Watson, Partner at Upsourced Accounting. Ryan talks about Upsourced Accounting and what he’s learned about growing a business, the company’s customer success stories, and tips to thrive through the four stages of business.

Resources mentioned in this episode:

• Upsourced Accounting
• Ryan Watson on LinkedIn

Special Mention(s):

• Second Bite Podcast
• Harvest

Related episode(s):

• “[Top Agency Series] Growth Through Acquisitions – What is Your KPI and Northstar? With Jason Swenk”
• “Building a Great Team and More Helpful Insights with Jason Swenk Host of The Smart Agency Master Class Podcast”
• “[One Question] Building a Platform to Empower Others with Jason Swenk Host of The Smart Agency Master Class Podcast”
• “[Top Agency Series] Most Valuable Advice When Selling Your Agency With Todd Taskey of Potomac Business Capital”

Episode Transcript

Intro  0:01 

You are listening to Inspired Insider with your host, Dr. Jeremy Weisz.

Jeremy Weisz  0:22 

Dr. Jeremy Weisz here founder of inspiredinsider.com where I talk with inspirational entrepreneurs and leaders today is no different. I’ve Ryan Watson of upsourcedaccounting.com. And Ryan, before I formally introduce you, I always like to point out other episodes, people should check out of the podcast. And there’s two favorite two great episodes with Jason Swenk. You know, Jason too, he talked about how he built his agency to over eight figures and sold it. And then he has another one that he talks about, they’re actually buying agencies. And so he talks about how they evaluate agencies and what they’re looking for, as far as purchasing them. Another great one was Todd Taskey, who basically also helps sell agencies, any peers and agency with private equity. And he has a Second Bite Podcast. So he’s he talks about how sometimes these owners make more on the second bite than they do on the first, depending on the growth. So those are great episodes and check out more on inspiredinsider.com. And this episode is brought to you by Rise25. At Rise25 we help businesses give to and connect to their dream 100 relationships, and how do we do that we actually help you run your podcast, we are an easy button for a company to launch and run their podcast, we do the strategy, the accountability and the full execution. So you could just show up, build the relationship and run your company. So for me, Ryan, the number one thing in my life is relationships and always looking at ways to give to my best relationships. And I found no better way to do that. And over the past decade profile of people and companies I most admire and share with the world what they’re working on. So if you’ve thought about podcasting, you should if you have questions, go to rise25.com happy to help. And without further ado, we have Ryan Watson. He’s an experienced operations and finance leader for creative agencies and venture-funded startups. And as a partner at Upsourced Accounting, he helps scaling agencies. And they he helps them build better plans, see the future and drive profits like what else do people want? Right? I mean, that’s really what they want what I keep hearing. So prior to Upsourced, Ryan actually led operations and finance for a large influencer marketing and ad agency. And this is where they built the team to over 50 and 10 million in annual revenue, and before selling to Quotient Technology, which is a publicly traded company that was in 2018. So Ryan, thanks for joining me,

Ryan Watson  2:48 

Jeremy, thanks for having me, I’m excited, it’ll be fun.

Jeremy Weisz  2:50 

So just tell us a little bit more about Upsourced Accounting and what you do.

Ryan Watson  2:56 

Yes, happy to Yeah. So if I only had five words, I guess I would describe us as an accounting firm for creative agencies, I would say accounting firms a little bit of a misnomer though in that like, we don’t focus on the things that traditional accounting firms often do, like compliance work, filing your tax returns, doing audits, things like that, where we focus, we like to call ourselves future-focused financial strategists. And so where we focus is predominantly on the CFO services. And that’s really kind of two buckets, one being like, let’s create that operational mechanism to be able to create data, financial or non-financial, so we can make decisions. And the second piece is joining your leadership team, hip to hip as your CFO so that we can help you interpret that data and make decisions. So that’s what we do we do it for the better part of a decade, got a couple of offices, a couple of dozen people, and we work with just over 100 creative agencies, across country.

Jeremy Weisz  3:50 

I want to break this down a little bit. Because, you know, as far as you mentioned, the services and you kind of I guess I put them in different buckets. I don’t know how yet. But there’s like kind of a CFO level service to it. There’s a financial Strategy level service to it, and there’s an accounting service do people come in and it’s kind of hits on one or two people come in and they want I just want this piece?

Ryan Watson  4:16 

Well, it really depends, right? It definitely depends on what the problems of the agency are, and like what their maturity is. And so, you know, we have a number that so let me say that we work with agencies, roughly from a million in revenue to call it 30 plus million in revenue. And on the lower end, let’s say one to 3 million in revenue, often there is not a finance person, right? The previous person was either an owner or it was an internal bookkeeper. And so we’ll come in and often will do both, right. So we’ll handle what I would call the accounting, which is the month in close we’re going to generate your financial statements. We’re gonna recognize reconcile your bank accounts. We’re going to pay your bills and we’re going to create financial reports that we can use. And then the other half of that the financial stuff Managing CFO services. That’s where we’re going to take those financial statements. And we’re going to add context and meaning to them, right? We’re going to do that through a KPI dashboard. We’re going to do it through long range forecasting and budgeting. And so mean to answer your question, some of our clients, certainly some of our larger clients will already have the accountings handled, and they just want the CFO services, they just want that context meeting, others will come in and they’ll need both. And very occasionally, we’ll come in, we’ll just do the operational piece, we’ll just create the financial statements, and we’ll partner with an internal CFO. So we’re happy to do any of those three scenarios.

Jeremy Weisz  5:34 

I want to go through this little bit. So like, if people are watching the video, I’m just showing the upsourcedaccounting.com page and you can look at some of the services but when you are wearing the same sweatshirt, five, for every day,

Ryan Watson  5:55 

It’s like a Mark Zuckerberg, I’m just gonna wall the same sweatshirt. Anyways.

Jeremy Weisz  6:00 

So, with the company that sold that you worked at, you know, the CFO services, you know, I’m just gonna put plot exit strategy. So yeah, let’s talk about some of the exit strategies.

Ryan Watson  6:13 

Yeah, great question. So, look, I mean, there are a few, that certainly, there’s selling your agency, and that can look like, it can look like a couple of different things. One looks like a sale to traditional agency holding company. Another looks similar, but slightly different, which is sale to like private equity, or a Strategic Fund buyer. Then there’s selling to your employees, and forming an ESOP plan, which is growing in steam a little bit lately. I think that’s a little bit more popular. What’s that? Why? Well, yeah, good question. I think that it’s a combination of just like awareness of the product. But also, in quite frankly, maybe this is just a biased view. But we’re seeing the next generation of agency owner that we are working with, is a little bit more interested in bringing everyone along for the ride. If that makes sense. I’ve just I’m feeling a lot more, we’re having a lot more conversations about instead of comp plans, Phantom equity plans, or Aesop’s different ways for employees to get more upside in the collective success. I feel like we’re having those conversations more this year than we did 10 years ago. Again, I think it’s a little bit of just the sort of collective Zeitgeist and what is important to business owners, but I love it, I’m happy about it, this is where we enjoy. But this is some of the work that we enjoy doing the most. So anyway, these offices is an increasingly popular option, which is right for some and wrong for some, and there’s definitely some pros and cons. So I’m not here advocating for it, but it is it is an option. And then, of course, there’s traditional succession plan. So I’m going to bring in future owners who are going to buy me out sort of a more traditional succession plan. And then of course, there’s like, family and other similar but different succession. So it was there’s a variety of options, and all of that to say, we like to have this conversation early. So even if you’re an agency, that’s only like a million dollars, you’re not really in a position to go market yourself for sale, making sure that we at least understand what our current thinking is, which by the way might evolve what our current thinking is, in terms of what are we trying to do here? What’s the goal of this business? Where do we want what do we want this to end up is really important for your decision making for our ability to help you with your decision making. So this concept really underpin every one of our engagements.

Jeremy Weisz  8:53 

What do you find, makes an agency more sellable? Because you’re seeing all the skeletons, right? People can say, oh, I’m, I’m doing this for that, but you’re seeing their financials?

Ryan Watson  9:05 

Totally. Great question. So there’s some very objective things that look like revenue, they look like growth, and they look like EBIT up a profit, right? So these are qualifiers, these are more binary consideration. So under a certain level of profit under a certain level of revenue, it becomes quite difficult just to market your agency, like we might talk a little bit about like the stages of growth, but if you’re under 3 million in revenue, for sure, that’s not necessarily a repeatable business that lives discreetly separately from the owners and that’s hard to sell. Right? And so, there’s some binary kind of qualifiers. And then from there, there are a variety of things that makes an agency more or less attractive, things like having a very specific niche offering or a clear Linear messaging in the marketplace a clear right to win in their space that’s helpful. Having good repeatable revenue generation with long term clients that have like a good long term value, that’s very helpful. Really not having concentration risk. So, being able to say like, we’ve got a broad base of clients that that, again, live discreetly separately from the personal relationships of the owners, that’s obviously helpful. Having a good team in place that can exist once the agency owner departs. That’s obviously helpful growth rate again, so I could probably keep going. But things that are somewhat intuitive in terms of like is that, if I’m buying an agency, outside of just Does this meet my size profile? Is the juice worth the squeeze for me to go ahead and do this? I’m looking for the things that that make a good business that is repeatable and live separately from the owner, because that’s the number one risk is that they have key man risk. I’m trying to buy a business, not somebody else’s job.

Jeremy Weisz  11:07 

Yeah, love it. Thanks, Ryan, you experienced this firsthand. When the agency sold to a publicly traded company. What were some of the lessons from that process that you observed?

Ryan Watson  11:21 

Yeah, that’s a really good question. So I would say, let’s say there are a couple things. So one lesson was our ultimate sale and now sitting in this chair, many other ultimate sales, these things don’t happen overnight, right. So it’s not like, you wake up one day, and you think, Oh, I’m gonna go sell my business. And I’m gonna hire an investment banker, and they’re just going to shop me around now. For the right kind of agency, that’s possible, it absolutely can happen. But often, it happens through a relationship that has developed over a relatively long period of time. Right. So in our case, the buyer of our agency, we met at a trade show in our very specific space, let’s say 36 months prior to the actually executing the sale. And so that was, and by the way, as we were entertaining, as we’re working through that offer, we had a bank, and we did entertain some inbound offers. But while there’s plenty of people who are interested in like, having a conversation, looking under the hood, to actually make the purchase decision, in my experience, often requires a longer term relationship. But that was a big learning for me. I wouldn’t say one of the other learnings This is, maybe this isn’t a learning as much as I think that I assumed that is really important is it is a selling your agency is a very, very, very time consuming thing. It is I mean, you know, it took us I’d say we our goal was to create a land speed record for getting through like the due diligence and sale process. And it still took us from like January to May to actually get it done. And so the agency partners and owners are gonna be the people that are the most involved. And there is a high degree of risk that when you take your eye off the ball of running your agency, and you devoted towards going through a sale, things in the agency could decline over that four or five year period, particularly sales. So it’s really important that before going into a sale process, you have a plan for how you’re going to run the sale process. And that you have a plan for how you’re going to sustain whatever the trajectory of growth and whatever the quality of service because nothing kills the deal more than negative momentum in the business. And I’ve seen it firsthand happen best case scenario margin or the multiple gets compressed worst case scenario, the whole deal dies. So that is very important have a very clear plan. And I think similar to the very clear plan, it’s just really devoting some time ahead of time to like building a deal room getting your legal docs in order. I mean, the amount of information that you’ve got to provide is just a truckload for its enormous and you’re going to be asked questions around HR docs that you might you might not have thought about a lot so again, just a big like prepper right and I think all these learnings were related to the maybe key theme which is preparation is really important. And thinking about this well in advance is really important. Not gonna wake up one day and say, oh, we’re gonna sell our agency and like that’s going to happen next month not gonna happen it’ll backfire. So it’s a long it’s a long process but the outcomes obviously very important so it’s worth it if it’s if that’s what you want. It’s worth it got to do with intention.

Jeremy Weisz  14:41 

Ryan, I’m curious at what point companies call you I could see at one on one point you know, maybe they’re exiting and they want to get stuff in order. So I can see that being a point where like, okay, we need to profess, yeah, is this what are what are all the different kind of entry points that people or calling you?

Ryan Watson  15:02 

Yeah, great question. Yeah. So I think that there are, I think most of our clients would agree there are inflection points in a business, right, and we get called at inflection points, right. And these inflection points more or less caught, they coincide with how we think about agency personas and the sort of needs and opportunities with them, right. So just quickly, like we like to bucket agencies into a couple of four buckets, right? These are stages of their lifecycle. The first stage is building your agency, zero to 1 million in revenue, you’re putting the thing on your back, and you’re trying to get it to succeed at all costs, right? So that’s the other one, then you’ve got the sort of building the agency pay, congrats, it exists. But it’s really just a job for the owner or partners. And so from the building the agency, one to 3 million in revenue, the goal is like, how do I now create a sustainable business that generates an adequate level of gross margin and net profit. And ultimately exit that stage with some form of repeatable revenue growth. And so then that’s, that gets us to the third stage. So at the 3 million, you start to enter the growing your agency, right, and so at three to 4 million things start to break, and it gets, everything gets harder, because you are your partners, kind of controlled all the decisions and manage all the processes, and that’s not going to work anymore, right? You need a deputy of leaders to come in and assume the growth and owner the machinery of what is running the business. And that’s really hard. And that’s kind of the like the growing your agency, which kind of takes you to the eight to 10 million. And at that stage, now you’re like a big business, you got to make the choice. Do I want to be a really big business? And that’s kind of a scaling your agency. So there’s kind of those, those four inflection points. And at each inflection point, that’s often a point where an agency says, whoa, what got me here won’t get me there. I need some help. I’ve got to level up and we get a call.

Jeremy Weisz  16:52 

Makes sense. I want to kind of talk a little bit through each of those stages for a second. And when I was looking at, you know, the financial strategy piece, again, people are watching the video, there’s the KPIs, the KPI dashboard reporting, talk about some of the KPIs people should think about, I know it depends on the state yet.

Ryan Watson  17:17 

Yes, yes, yes. So it’s very, very simple for me to say I totally depends. And again, that’s like a soapbox thing that I often get on, like, people have to talk about, hey, are these 10 KPIs just look at all of them, in our point of view is like, actually, depending on what your stage is probably only like one or three that really matter for you. And especially for the sort of first two stages, let’s say that you’re creating your agency, and then you’re building your agency that zero to three million comprises kind of those two stages. I like to think about those or we like to think about those KPIs in a hierarchy of needs, right? And so I can’t think about a particular KPI, I can’t think about the next hierarchy of need, until I have satisfied the prior one. I can think about self-actualization until I have shelter, right? And so the hierarchy of needs that we often run businesses through kind of goes like this. The first is solvency like, Can I pay my bills got to keep this business open. Can we make payroll next week in the month after? Yes or No? If I if I’m not solvent than like net profit margin, who cares? That’s such a Cadillac problem. We’re just trying to stay in business. So solvency is the first question. Then the second is like, Okay, I’m solvent. Am I earning profit on a project basis? Like, am I hurting gross margin? Right? If I’m not earning gross margin, again, none of the other stuff after that matters. So am I earning some gross profit? Okay, once I’ve decided yes, on a project basis, we are making money. The next is like, do I have reserves? Do I have enough cash in the bank to sustain the ebbs and flows that that are endemic to like project-based revenue? Yes or no, because that’s the next priority. Once I’ve got like reserves, making project-level profitability, then I can focus on getting an adequate net margin. And the net operating profit margin is that sort of next area and next kind of bucket of KPIs. And that’s really once I’ve done the first three, that’s easy. And once I’ve done that last piece, I’m profitable as an agent agency, like, I’m putting money in my own personal coffers and putting agency money in its coffers. Then the final sort of the self-actualization piece is repeatable revenue growth. Can I have predictable revenue? Can I predict my growth rate with some degree of confidence? So anyways, those are the now some of those areas aren’t specific KPIs, we get into the weeds on them, but like we like to look at the hierarchy of needs to say, okay, you’re here you’re not solvent. Let’s look at just your cash balance and your runway. That’s it. Those are the KPIs nothing else matters. So that’s how we think about KPIs.