Cash Flow Management: Maximizing AR, Minimizing AP for SEO Companies

Dec 13, 2004 • 4:25 pm | comments (0) by twitter Google+ | Filed Under Search Engine Strategies 2004 Chicago
 

There are many decisions that will affect you bottom line, this session dealt with those decisions that effect smaller to moderately sized SEO companies. Both of the speakers explained in more detail on how they run their companies and the wide variation among SEO firms.

John Lustina, from Intrapromote was up first to talk about the large side of the SEO industry. He explained that the larger side of the industry often means only 30 employees. He explains that his firm deals exclusively with white techniques, and that has enabled his firm to attract and get larger brands. Basically they do not want anything that will harm their URL.

He goes on to say that he only uses full time employee, as there is a high margin, and he realizes that he will invest a good amount of time into teaching them about SEO and the industry. He doesnít think itís worth it to hire a contractor and invest that time. There seems to a good number of people that have gotten started with SEO in the last 6 months. I think the industry veterans decided to sit in the back.

John puts up a slide about the emerging cash flow management issues for SEM in 2005. They are in circular fashion.

SEO High Margin -> PPC Single Digit -> Sequential Liability -> Terms -> Cash Reserves ->

He goes into more detail about sequential liability, a think that most SEO companies understand. Where the profit comes in and right back out the door, and its need to be the responsibility of the firm to make sure that clients pay on time. You do not want to turn your business into money out, money out, money out. I agree completely, he makes a good point. John stresses the importance of being very tight on terms. He says that Intrapromote has 10% of revenue in cash reserves. He says that it helps him sleep at night and allows him to take some extra risks. He explains that the way he came up with that number is he started with a certain amount of funds in the bank and they need funds to cover expenses for several months.

The next speaker was Laura Thieme from Bizresearch. She explains her story of how she got into the business. She said she started in 98, and her company grew out of her apartment. She says they gradually went to an office space, and got rid of any employees that would rather have remained home based. They used a book keeper a couple times a week, now as opposed to several times a month when she started out. She hired other people such as data entry, graphic designers, accountants, lawyers, temp staff.

She explains the benefits she offer employees. Such as 1 week vacation, offering a 401K, and other medical fees such as dental, training, travel, and 10% bonuses. One interesting and helpful way she mentioned to keep employees accountable was set an expectation of them to make 2-3X there annual income from the company. This worked.

Bizresearch has not been in the red. She has never hired a CFO, and doesnít think she will need one currently. She had trouble getting the business a line of credit. They ended up financing software and equipment they had already bought.

She said they switched to a hourly model to charge clients in 2004. Prior to 2004, all clients were on retainers, and they realized that they were spending way more time than before, and thus needed to charge for it. Laura talked about contracts in that they are one year, and auto renew, and hire a part time corporate contract lawyer at $25 and hour as opposed to one that goes for $200 an hour. You can use DMBís collection service to collect on money that is owed under a few thousands dollars. She concluded that her outlook for the future in 2005 is reducing the amount of outsourcing and to use technology to save time.

Jim Boykin, was up next. I am fond of Jimís work, he is rather private in the forums, but is in my opinion one of those guys you should watch. He is a defining leader in his field. Jimís presentation was extremely simple outline. He explains how he got started in 99, worked as a consultant, built We Build Pages, eventually moved out of home office, and eventually started to target ďinternet marketingĒ.

He explains that when Florida hit in November that several of his clients left. They realized they needed to change there offerings so if in the event that Google had another Florida then the client would still be receiving a good deal of promotion from other areas. His early goals for 2004 included consulting, on page optimization, link building, website design, website templates, pay per click, and shopping feeds.

Jim related that they experienced quite a few challenges. They needed to be more organized, organize billing, obtain and office manager, define roles, set contract. They are one of the only companies that publishes there contract online. Jims says he doesnít have a business plan. One thing I know myself have rarely done as well. Things change daily in terms of the search engines, its hard to set that in writing. He also recommends that you can get insurance from the Chamber of Commerce for small businesses. Additionally he related that his contract style is monthly. If the client pays the contract renews. Plain and simple way of doing, but it works for them.

Overall the session was very good from a small business prospective, while the session was not the most exciting, I did notice a lot of note taking as there were many people there representing SEO companies that were looking for good ideas to increase the success of their own business. One of the interesting questions that was left in my mind at the end was if the era of high margin SEO was over?

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