How to start, grow and sell a creative agency

Looking at colour chart

Whether you’ve been freelancing up until now or honing your skills within another business, starting your own creative agency is always going to feel like something of a leap of faith.

Compared to working on your own or as an employee, it puts much greater responsibility on your shoulders.

Your decisions will have a direct impact on the future of the business and the livelihoods of the people working for you – each with their own financial responsibilities and career goals.

With enough planning and forethought, though, it’s well worth it. Running your own agency gives you the freedom to shape your business according to your own beliefs and goals, applying your expertise to something you really believe in.

Ultimately, you want to grow the business into something bigger than one person – building a legacy, I suppose. And maybe even think about reclaiming some of your own time in the process.

Then, when the time comes to sell, you want to make sure it all pays off financially and you get the best possible deal.

Part one: how do you start a creative agency?

So, let’s say you’re starting from square one. You know you want to start an agency, but that’s about it.

Your first steps should be to understand the kind of business you want to start, how it’s going to be different from working on your own, and what you ultimately want to achieve from it. If you’ve got a niche, even better.

From there, you can start setting up the systems necessary to get it running.

What is a creative agency?

A ‘creative agency’ is a fairly broad term that encompasses several different types of business. It’s often used to describe advertising agencies, but many people would say it includes other fields of work such as branding or marketing.

For the purposes of this article, I’m using the phrase in a general sense, to incorporate any kind of agency that uses creative strategies to help its clients achieve their goals.

That might include any of the following services:

  • print design
  • website design
  • copywriting
  • content marketing
  • social media
  • search engine marketing
  • photography
  • video production
  • strategic advice for advertising, branding or marketing.

A key difference between providing these services on a freelance basis and through an agency is the number of people involved.

The business will no longer be about you alone, so you’ll need to think about how you present that new image to clients – from your business name to your branding and ethos.

Define your offering

You might choose to focus on one main specialty, or provide several services like the ones listed above.

If you’re a freelance designer with an interest in digital marketing, for example, you might decide to start a web design agency, or focus on user experience. If you’re a writer you could offer blogging, content marketing or copywriting services.

And if you’ve got experience across multiple fields or already have other people on board, you could think about ways of combining them.

Another option if you are planning to specialise is to tap into your professional networks and partner with other agencies with services that complement your own.

This means you don’t have to manage everything in-house right from the start, but it gives you an option for clients who want a broader set of creative services.

Find your niche

While you’ll probably be keen to take up any opportunities you can when you first start out, it’s generally better to pick a niche.

This could be a specific industry – branding for retail, let’s say, or website design for estate agents. Or you could choose to focus on a particular stage of a business’s growth, only working with brand new startups, or with experienced and growing businesses.

It could even be more about the goals and attitude of the client. You might choose to work with bold, disruptive challenger brands, for example, or businesses with ambitious plans for growth.

Rather than forcing yourself to compete with every other creative agency around, specialising can help you to differentiate yourself and build authority in your sector.

But on a more personal level it also means you can narrow your work down to something you’re genuinely interested in and passionate about, and that enthusiasm should filter through to the quality of your work.

Get your accounting systems in place

Let’s be honest – this is probably not the part of starting an agency you’re most looking forward to. But whatever business structure you choose, you’ll have some level of accounting and record-keeping responsibility to meet.

The easiest way to do this, in my opinion, is by setting up a cloud accounting system like Xero or FreeAgent.

These pull through information from your bank account and can carry out reconciliations with minimal input from you.

They can also be set up to manage your invoicing process automatically, and chase up late payments. That’s a huge time-saver in the early days of any business.

You should also decide on an accounting method at this stage.

The main methods are traditional accounting, where you record income and expenses by the date you invoiced or were billed for them, and the cash basis, where you record them when you receive money or pay a bill.

As you start taking on more projects, you might also consider project accounting – more on this later.

Start winning clients

Now that your agency is set up and ready to go, it’s time to get some clients on board.

If you’ve been freelancing you might have some clients you can continue to work with as an agency, but it’s likely you’ll need to grow that list.

It’s important to be selective at this stage, however.

Your initial projects and clients will set the tone for the kind of business you attract, so think about your goals for your agency, and stick by them when you make these early decisions.

For example, the first project carried out by Manchester-based agency The Chase was a package sent out to announce its opening in 1986. It contained a small wooden elephant and the following story:

“There was an old Indian craftsman who carved beautiful little elephants from unpromising blocks of timber. Asked how he did it, he simply replied:

‘I just cut away the wood that doesn’t look like an elephant’.”

The campaign served to promote the business and attract new clients, but it also demonstrated a core part of The Chase’s creative approach – something you can still see on its website today.

Maybe you have a similar ‘elephant’ story that sums up the way you think, or maybe there’s a kind of client you know you want to work with.

Either way, your first projects are an important opportunity to cement that approach and show potential clients what you’re all about.

Part two: getting serious

Up to this point, you might have been operating your agency as a side hustle, with non-compete freelance work on weekends and evenings.

But when you go full time, you’ll need to think in more depth about your business structure, premises and cashflow management – this business has to sustain itself.

Choose a business structure

With your broader plans in place, it’s time to look at the practicalities of the business itself. For example, how will you structure it?

There are a lot of different business structures to choose from, but the most common three can be briefly summed up as follows:

  • Working as a sole trader means your finances and the business’s finances are the same. It’s relatively simple, but can be risky if things go wrong.
  • Forming a limited company protects your personal finances to an extent from business debts, but it comes with more admin and regulation.
  • Running a partnership means you share responsibility with a partner, or partners, for the business’s debt.

There’s no right or wrong answer between these, and each structure comes with several advantages and disadvantages to consider, so it’s best to give this decision some thought and look into what might work best for your agency. (This is also something we can help with.)

Another thing to think about is your organisational structure: who will be responsible for what, and who will be in charge of who?

You might want to go with a traditional business structure, with employees divided into departments based on their specialism – design in one department, content in the other, for example – each group with its own hierarchy and a CEO at the top.

Another option is what’s known as a ‘pod’ structure, where groups are made up of people with different specialist skills and leadership is flatter. This can be a good way for people to work on individual projects together, reducing the potential for friction across teams and making everyone involved in a project accountable for its success.

Alternatively, you could combine the two with a ‘matrix’ structure. This is where your business is organised into a traditional hierarchy, but groups are formed across departments and led by a project manager.

These are just a few examples of organisational structures, and another kind might be better suited to you. It might evolve as your agency grows, too, so it’s a good idea to review it every once in a while and make sure the structure is still working.

Fees and pricing

Something else to keep in mind as your agency grows is your fee structure.

If you started by freelancing, you might have been charging by the hour or by the project. This generally works fine for a small, one-person business, but as you take on more clients and the business grows, you’ll usually need to set up a more stable stream of income.

To do this, many agencies set up retainer fees for their clients. This gives you a regular income, and it improves your resilience as you’re not relying heavily on one or two clients to stay afloat.

It’s also something that’s looked upon favourably by investors, as well as potential buyers when you eventually come to selling the business. Subscriptions add more value to your agency, especially if you’re able to show positive acquisition and retention rates.

It’s important to think realistically about your fees early on, to make sure you’re charging enough for the work you put in, and that your business will be financially viable in the long-term.

Cashflow management

Proper budget planning and preparation is essential to prepare you for what’s ahead, and to help you to make decisions as your business grows.

So, going back to an earlier point, I’d recommend setting up accounting software that will allow you to collect up-to-date financial information, so you can create projections for your future cashflow and forecast for different scenarios.

Let’s say you want to launch a new service, for example. By calculating the costs required, and estimating the increase in income you expect to get from it, you can draw up a financial forecast. Looking at it side by side with your current forecasts, you’ll be able to see whether the new venture will be worth it.

Forecasting in this way is an important part of planning for any significant change in your business, and it’s also a good thing to do from time to time, to make sure you’re on track.

If you’re struggling to keep your cashflow positive, there are a few steps you could take to improve it. Tightening up your invoicing process and tackling late payments is one option. Another is working out where you might be able to reduce costs and operate more efficiently.

Choose a location

A creative agency might bring to mind pictures of a trendy office with table football and walls lined with post-it notes, but that doesn’t necessarily have to be the case.

Renting an office used to be the obvious choice for anyone starting a new business, but with today’s widely available communication technology – and as working patterns shift following the coronavirus lockdown – many people are starting to think differently.

By using time tracking and project management software, and maintaining regular communication with your team, it’s possible to run an agency remotely, with the added benefit of saving on office running costs.

That said, having a professional, well-presented office can boost your business’s credibility with potential clients, as well as giving your team a space to connect, share ideas and work collaboratively.

Another option could be to go for a combination of the two by setting up flexible working arrangements or making use of shared workspaces.

Part three: growing your agency

Once your creative business is established and self-sustaining, you need to think about what you’ll do when there’s more work than you can handle.

Growth can take many forms: it might be about adding new services, attracting bigger and higher-value clients, or upskilling your team.

This can feel in some ways like a circular process. To become more profitable, you need higher-value clients; to carry out the kinds of projects those clients require, you need the right staff, skills and resources on your team; and for that, you need the cash to pay those people.

Narrow your focus

Even if you started the agency with a clear plan and a niche, you might have lost some focus over time.

At this point, it’s a good idea to reflect on the aims you started out with, judge whether they’re still relevant, and make sure your growth is taking you in the right direction.

This might be about turning away clients you don’t want to work with, or looking at new ways to actively target your ideal ones.

Remember, the relationship between agency and client has to work on both sides – otherwise, you may find you spend too long on projects that are frustrating for your team, and not valuable to your business in the long term.

Take on staff

To figure out who you might need to bring on board, start by thinking about your own strengths and weaknesses. What can you do already, and what will you need someone else to help with?

Once you’ve identified those gaps, it may be time to think about hiring your first employee.

This comes with legal and accounting responsibilities, including getting employers’ liability insurance, registering as an employer with HMRC and setting up a PAYE system, and checking your workplace pension auto-enrolment obligations.

Alternatively, you could commission freelancers or contractors to carry out some of the work, but be aware that they might not be available when you need them, or might decide to turn down work if they find a more lucrative project or a longer contract that offers some stability.

As well as filling creative roles, remember to take into account the other tasks that come with running a business, including admin, finance, accounting, payroll, and so on.

Unless you have an expert in these areas on your team, the best option is usually to outsource them, saving you time and ensuring the work is done to a professional standard.

Funding and finance

Before you can take most of these steps, the chances are you’ll need an injection of capital to push your plans forward.

You might decide to go down the traditional route and apply for a bank loan or look for an investor.

Or you could look at alternative funding options, such as peer-to-peer lending or invoice financing.

There’s also a set of tax reliefs available for creative industry projects, although these specifically apply to films, high-end or children’s television, animation, video games, theatrical productions, orchestral concerts, and museum or gallery exhibitions.

Start stepping back

As the agency grows, your own work as a business owner should change too – becoming less about the day job, and more about delegating and managing.

To do this, you’ll need to grow and develop your team, recruiting new staff to fill any gaps in skills or experience, or training existing employees so you can start handing over more of the day-to-day work. Of course, you’ll also need to balance this with keeping staff costs manageable.

That’s not to say you should no longer be involved in the business, interacting with staff, or taking an interest in projects at all. It just means you should be working at a strategic level, shaping the future of the business rather than being directly involved in its work.

Implementing project accounting can be a good step towards this, putting more responsibility in managers’ hands.

This is where you manage each project individually, with its own budget, bookkeeping and financial reports. It means you can delegate budget management for different projects, helping you keep on top of your cashflow and develop your team in the process.

Automate and integrate

So, you’ve grown your agency to accommodate more, or bigger projects. You’ve got enough projects behind you and enough expertise on the team to handle them, but as the volume of work increases how do you make the time for it?

One answer I’ve already covered – grow your team.

The other is to streamline, automate and integrate everything you can.

For almost any basic or repetitive task, there’s probably a computer process that can do it for you. And once you get all your systems talking to each other, you can rely on them to work in the background while you get on with the creative side of your projects.

Tech is a big part of this, but it’s also about taking a step back and looking at all of your operations and processes to make sure they’re efficient.

Does every member of your team know what they need to do when a new project kicks off, for example? Do they all have access to the information they need to do their job to the best of their abilities, or do they need to spend some time chasing it down?

By speaking to the people in your team and assessing the process each of your projects go through, you should be able to identify and iron out any inconsistencies or inefficiencies.

Part four: sustainability or exit

With your agency established, it’s time to set your sights on its long-term future, and on maximising its value for when the day comes for you to leave the business.

From investing in your own brand to maintaining efficiency, there’s plenty to consider.

Ultimately, if you are planning on selling, you want there to be as few objections or obstacles in the way as possible. People will happily pay more if it saves them stress and hard work down the line – if they can see the dream within reach.

That could be about getting your paperwork together well in advance of the sale, but it could also be about fixing the underlying structures, culture, systems and processes of the business.

You are not the agency

There are loads of good reasons to ensure your business can operate without you. For starters, there’s the old hypothetical question about what would happen if you got hit by a bus.

Could the management team cope without you? And would the agency stagnate in the long-term if you weren’t around to make big strategic decisions?

Creative businesses are a bit unusual in that often clients are specifically buying into the talent of individuals, whether they specialise in copywriting, visuals or devising great campaigns.

With that in mind, prepping a creative agency for sale isn’t necessarily about removing your personality from the brand – it’s about showing that you’ve infused the firm with your values and brought along talented people who can continue to do things your way.

Think about David Ogilvy. He retired from the agency that bears his name in 1973, but the culture he built as ‘the father of advertising’ lives on at Ogilvy even two decades after his death.

One approach is to make sure you’ve got a clear successor – someone convincing that buyers will want to work with. Tim Cook hasn’t done a bad job stepping into Steve Jobs’ shoes at Apple, for example.

You should also make sure that what makes your agency special is baked into the way it works. Try to turn at least some of the way you think, and your approach to creativity, into repeatable processes, or guiding principles.

Convincing valuation

Ask anyone selling a business and they’ll tell you it’s a lovely little earner requiring very little work to turn a tidy profit. Well, they would say that, wouldn’t they?

Any potential buyers of your agency will expect something a bit more than a ‘sez you’. They’ll want to see evidence to support your claims, ideally with the input of a credible, objective outsider.

It’s about showing your working and providing answers to awkward questions before any potential buyer has a chance to ask them.

You can read more about all that in my previous post about valuing businesses.

Good financial health, sound financial records

Of course I’m going to emphasise the importance of the financial stuff, aren’t I?

To back up that valuation, your agency needs tidy books, comprehensive paperwork and reports potential buyers can actually get their heads around.

They’ll be especially keen to see historic profit figures, up-to-date profit forecasts and details of liabilities and debt.

Again, it’s about reassuring them that buying your business is a safe bet.

If you’re planning to sell your business in a year, five years, or even ten years, getting your house in order now will save a lot of trouble down the line.

No legal entanglements

One thing you’ll often notice businesses do as they start courting buyers is settling outstanding legal disputes.

Very few people will want to take on an agency that has unsettled employment cases, trademark disputes, unpaid debts or whatever.

Frustrating as it can be to cave in when you know you’re in the right, this could be the time to compromise and get things squared away, even if it costs a bit.

Cut the fat

Now might also be the time to ask if your agency is as lean and efficient as it can be, in every sense.

Businesses readying for sale will typically identify the one or two products or services that really drive their economic engine and focus all their energy there.

For example, if you’ve got a thriving digital marketing division, given the sudden switch to online we’ve seen since the COVID-19 pandemic, then perhaps that’s what you’re really selling.

Equally, if you’ve been keeping a print design service on life support for a few years, perhaps out of sentimental attachment, you might consider winding it down.

At the simplest level, it’s also a good idea to review your staffing bill, subscriptions and licences, premises costs and so on. This can really help your cash position which, of course, sends all the right signals to a potential buyer about the health of the agency.

One final push

Finally, there’s an underlying principle to bear in mind: even with retirement or your next passion project on the horizon, don’t relax – double down.

You need to be acquiring leads, increasing your client base and growing your revenue. People need to see a vigorous, growing business, not one that’s winding down. And they’ll expect your head to be in it.

The best motivation? It might be the size of that final pay cheque. Or maybe it’s knowing that the groundwork you’ve laid means you’ll be able to find just the right buyer, do right by your team and preserve your legacy in the long run.

We can make starting, growing and selling your creative agency easy – get in touch.

The post How to start, grow and sell a creative agency appeared first on Alchemy Accountancy.