In this episode, Chris Hervochon from Better Way CPA shares his expertise and passion for running a service-based business and how to make it successful with having clean and accurate accounting records. This episode also tackles why agencies need to hire accounting experts and use accounting software to keep track of the inflows and outflows in their company.
Often, we base an agency’s success on its profitability. However, we tend to forget the financial aspect of things. And, why agencies need to understand the importance of accounting. And so there’s just so many things that I want to talk to you about. And, I want you to ask yourselves why you chose to run or work on a service business.
And according to Chris Hervechon:
“Marketing agencies are a lot like accounting firms. How they operate. It’s a different service. Sure, it’s more creative, generally speaking. But they’re both service-based businesses.”
What Makes Accounting for Service Businesses Unique
According to Chris Hervochon, there’s a lot of agency owners that do not realize that running a service business when it comes to accounting, which is very different than almost every other service business.
And, its main difference happens above the margin. So your margin is your gross revenue minus all the variable costs that go into generating that gross revenue.
If you think about a retail store that tends to have lower margins, your gross revenue is gonna be all the stuff that you sell. Let’s say you sold a television for $850, then that’s already your gross revenue. If it cost you $500 to buy the television, including taxes and licenses, then your gross profit is $350.
On the other hand, service-based businesses tend to have higher margins. There is not much variable cost going into generating the revenue. It is solely based on human capital, on the amount of effort agency owners and their employees put into to generate profits.