Financial Planning & Analysis

Building a Brand Partnerships Business, Part 1: Financial Throughline

So, you want to start a Brand Partnerships business? From selling your own advertising and custom content, to partnering with other brands for marketing campaigns/events, to managing branding resources and integrating with external clients, that shift could mean a lot of things. But whichever Brand Partnership business model you choose, a financial throughline – beginning with lead generation and ending with cash received – is crucial for management to understand the opportunities and risks, as well as evaluate the business as it develops toward profitability (or fails to).

Let’s walk through a hypothetical setup of a new line of business within a company, intending to leverage existing internal resources to sell Brand Partnerships to external customers.

1. Pipeline & CRM

The sales pipeline certainly has plenty of important non-financial tasks, such as organizing the sales team to ensure coverage without duplicating effort, tracking lead development, and providing management overview. But an accurate, up-to-date pipeline is THE crucial input from the business for Finance, not only for forecasting revenue and costs, but also for informing company-wide resource decisions in the short and long term – production capacity needs, real-estate requirements, cash flow impacts, and others.

Similarly, the Customer Relationship Management process has an important non-financial role, but also has financial considerations that can provide much-needed insight to the business. Insight as to which clients are generating the best profit margins, and what kind of volume trends (i.e., growth/decline timeline) can be inferred over the life of a client are important for expanding earnings as the business develops.

2. Deal Analysis (Profitability + Intangibles)

Most sales professionals have one primary belief: bigger sales number = better sales number. (Perhaps because their bonus goals are on gross sales revenue, not on a profitability target?) Not to dampen that enthusiasm, but the discerning finance mind knows it’s not always that simple. It is necessary to evaluate the mechanics of every deal to understand the bottom-line impact once costs (and other factors such as revenue sharing) are taken into account. One client’s sales deal that comes to mind is one in which the sales team trumpeted the multi-million-dollar gross revenue number, which was an important win. You can guess that the other shoe dropped when we calculated the profit margin on the deal, and the result was not exactly worth trumpeting.

This is especially true in the case of adding Brand Partnerships, where the sales team and management may not be as familiar with the mechanics of the new revenue/cost ratios. While looking at Gross Margin might be enough to evaluate one sales deal versus another, sometimes you have to walk all the way through to operating profit to understand the health of the business segment – after personnel, overhead, etc. are taken into account. (This especially matters for revenue-specific compensation and bonuses, which are covered below). With this information as guidance, the sales team can better structure their proposals to focus on the higher-margin aspects and soften the push on lower-margin ones.

3. Planning/Forecasting & Variance

The financial planning and analysis aspect that often gets overlooked – particularly for a sales-driven business line of Brand Partnerships – is the importance of upstream and downstream information. To craft an accurate plan – and to understanding the magnitude of risk and opportunity accompanies that plan – there must be frequent communication between finance and the business. Though assembling the proper Pipeline, CRM and deal analysis is not easy, once those elements are in place, the calculation of expected revenue and direct costs should be straightforward. From there, the appropriate levels of personnel, overhead, and other costs can be configured to position the Brand Partnership business for success.

Once the operating plan is in place, the downstream impacts also need to be considered. Are there cash flow assumptions for a Brand Partnership business that are different from the main business that result in constraints? Is there collection risk that needs to be built into the plan? To correctly estimate these, again finance needs to be tied in to the sales and production teams to have a finger on the pulse of client relationships and timing of projects.

4. Compensation & Bonuses

On multiple occasions, we’ve seen seen sales compensation plans created by Management or the Sales team that were, unfortunately, not run by their Finance counterparts. In every instance, the plans missed the mark on correctly incentivizing the performance of the sales team and/or individuals. Either the mechanics of the bonus calculations were too complicated or obscure to be effective, or the bonus targets were too high, too low, or not aligned to be relevant for the sales goal (i.e., gross revenue rather than gross profitability). Jumping into a new line of Brand Partnership business – with new products and services being sold – will amplify these issues, creating a stronger need for communication between the business and finance when creating sales incentive plans.

5. Revenue Recognition

Since revenue recognition requirements have gotten stricter as ASC 606 and IFRS 15 have come together, it’s important that the finance team and business management are on the same page when outlining their financial plan timing. To ensure that finance’s counterparts in the new Brand Partnerships line of business are providing the correct information, it’s important to educate those from the business as they may be dealing with new products and services as well as new accounting processes and procedures.

6. Cash (i.e., Invoicing, Collection)

Does the new Brand Partnerships line of business have different invoicing and collection timing? Different pattern of up-front costs vs revenue collection? Is there an increased collection risk due to new customers or perhaps smaller businesses with smaller receivables that may take more time and effort to collect from? It’s always important for Finance to be in touch with the business on invoicing and collection, but especially during a change in the ways of working that would accompany a newly emerging business segment.

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