In the last three years leading specialist stakeholder agency, VWV, has doubled the size of its business. In a thriving business within a growing industry, the role of a strong numbers person becomes crucial, particularly when business systems have traditionally been peripheral to creativity.
Warren Stewart, CFO of VWV puts the spotlight on creative budgeting ensuring that the company, long prized for its reputation for quality, is delivering more than what its clients pay for.
VWV talks to an industry that generates R17.4-billion of revenue per annum* - how does VWV plan to grow its share in this profitable and dynamic market during an economic recession?
“This economic period may present one of the toughest challenges VWV will face since the formation of the company 26-years ago. We are already experiencing clients cutting their budgets by as much as 30%. Fortunately a large chunk of our experiential business originates from facilitating corporate conferences which is one area that companies are not forgoing on. Although it appears to be a paradox to spend money on conferencing at such a times as this, it is however, a strategic spend whereby the event is drawn on as a vehicle to cement corporate unity and provide staff motivation.
“VWV is constantly looking at ways to become more cost effective and currently our logistics spend is under scrutiny. Many of our employees need o travel extensively and how we move our people around has been identified as a means to cut costs. One possible option that we are investigating is to bring this function in-house. If we are able to do so the savings will ultimately get passed onto our clients.
“Another tactical decision recently made by VWV management is the decision to be more aggressive within our market. We are making strides to become even more proactive about seeking business, and have staff on-hand to research possible tender opportunities.”
As CFO responsible for managing the financial risks of the agency, what measures do you put in place to maintain financial savvy in an ever-changing market?
“The risks are especially high when it comes to procurement, managing debtors and cash flow. To equilibrate these risks, VWV has implemented a deposit policy of 50% payable up-front by our clients. With project costs that can run into hundreds-of-thousands, VWV is no longer disposed to take the risk of bank-rolling the entire project.
“In a further attempt to avoid superfluous risk, VWV has set up a service level agreement for its supplier base. In essence, this agreement is an elements list outlining the suppliers' area of responsibility juxtaposed with what VWV is responsible for. Agreements also include business-to-business maintenance contracts as a further means of risk-avoidance. This agreement outlines that our suppliers are accountable for their part of the latent defect risk. Should they not deliver as per the said agreement the risk is transferred to them. These non-negotiable agreements are put in place with all VWV service providers.
“In order to mitigate against risks such as cost overrun and performance of contractors we contract experienced suppliers with stable track records. Payment schedules are implemented as part of the financial management sub-project in line with the signed-off project plan. These schedules ensure a sufficient period allowing for effective cash flow management.
“By utilising an even bigger pool of freelancers is another approach we're implementing in our drive to minimise financial risk. The seasonal nature of our industry dictates inconsistent work-force requirements. By going the freelance route rather than employing people who become redundant when a big project comes to an end, VWV is ensuring there is never an excess of employees on our payroll. As a result of this policy it has also made sense to create a pool of existing employees who are hired using the project management contract model.”
As a company that works on big international accounts such as the recent MTV Music Awards in Africa, how do you ensure that you quote appropriately in the market?
“When working outside of our boarders we will always quote in US dollars. Prior to quoting on any project outside our jurisdiction we will always track our pricing against that of the local competitors in order to ensure a competitive pitch.”
What are the financial risks involved in dealings outside of South Africa?
“One of the biggest risks is dealing with foreign exchange. Since we budget up to six months ahead of a project, this can mean that there is a huge variance in the budget vs the actual costs. Budgeting is therefore an unpredictable art and often losses are incurred when budgeted costs become obsolete.”
What are VWV's long-term objectives, besides profitability?
“We are currently focused on international growth. The starting point is growing our client base from our existing US-based office. VWV is setting its sites on achieving a robust business in the States and then branching out from there.
“Another objective is to become more efficient and cost-effective in everything we do. Today clients are expecting the same level of work at a reduced price. We are of the thinking that quality is remembered long after the price is forgotten, but in the current climate we are being forced to get clever with where we spend our money in order to pass extra savings onto our clients. One thing we will not compromise on is the capital we invest to ensure the creativity and quality of our work.”