loopy #5377

In your interview with Leo, you mention you started your business in 2004, but BLUECHIP COMMUNICATION GROUP incorporated in 2014. What was the structure of the business 2004-2014 and how did it get rolled into a newly minted llc?

Your 2016 revenue through Feb is off of the prior year, and operating profit is off massively from the prior year and budget. What’s happening?

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BLUECHIP COMMUNICATION GROUP 169030639 #5379

Hi Loopy,
Good questions.

I co-founded the business in 2004 and have been the Managing Director since inception. In 2012/2013 my business partner and co-founder exited. Given we were married, and had personal financials to agree concurrently, the exit /asset settlement took place during the subsequent financial year. I acquired the other 50% to become the sole owner. This required a change of structure, hence the new operating entity.

Once my partner exited I was able to make choices about the strategy of the firm and how to position us for future revenue. Traditional PR is in decline as are traditional media.

Yes the revenue and profit are way down on previous years. I made a deliberate decision in calendar year 2016 to ramp up investment – and spend 18 months investing the business’s profit in order to set us up for growth in a multi-channel, online and social media-powered world. We’ve hovered around the 2.5m revenue mark for several years. We have exceptionally strong client relationships at senior levels of many wealth and financial services companies yet were doing only PR for them, while other agencies picked up a range of other marketing services. The strategy is to diversify our revenue – use the strong relationships we have, bring in new marketing talent and offer a broader range of services, in particular online marketing.

I’ve invested my operating cash flow in people, marketing and advisers (Advisory Board).

DETAIL
People
Two key marketing people (approx 250k per annum), Advisory Board and an external adviser (approx 80k per annum)

Marketing
Development of content and services (new intellectual property circa 150 per annum billable time) and our own marketing (marketing automation sas hubspot, lead generation content and campaigns). As a result we now have inbound leads from marketing as well as leads from referrals and sales. We currently have more leads than we can convert, and as of the last month have started declining new business until we hire additional people.

OTHER
In order to support/focus on the investment in marketing I cut my own billable time from around 50% to less that 30%. This has materially impacted both revenue and profit margin.

My billable hours are now heading back to above 50% (ideal range is 55-65% albeit will be north of that from now until FY end) due to the volume of client work.

Our sales target for marketing is to have 18k per month in retained (ongoing contracted) revenue by 30 June or exit that service line. Last FY we broken even on the new marketing services but it was mostly project work, not ongoing contracts. Right now we’re working on converting leads and our outbound contacts to ongoing contracts so the marketing services are a sustainable and less sales-intensive part of the business. The target date for this is 30 June. If we don’t hit our financial targets by then I’ll be looking to re-shape the team.

Any other questions please let me know.
Carden

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loopy #5380

Thank you for the prompt and thorough response.

I’m afraid I don’t understand the rental maths. It seems you are currently paying ~$240K in annual rent, but that will decrease to ~$130K in your new premises, less any rent charged on the sub-let.

If the business owns the premises, why are you paying any rent in the new digs?

What is the cost to service the $800k mortgage on the new office space?

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BLUECHIP COMMUNICATION GROUP 169030639 #5381

The business doesn’t own the property – my self managed super fund (SMSF) does. There are very strict rules governing the amount of rent BlueChip can pay the super fund (a related entity) i.e. it must be the market rent. SO the market rent for the property is circa 130k. The interest and other fees (e.g. strata) are paid by my SMSF. It’s a separate entity to BlueChip. The SMSF has cash/equity and debt in it. It’s fully funded for some time without any tenant at all. The interest on the debt is significantly lower (a multiple smaller) than the income at a market rate of rent.

Partly because of the rules around SMSF borrowing and the accounting standards around SMSFs the whole amount of the fit out for the new office needs to be funded by the business, native the SMSF. Capital improvements can be funded by the SMSF. Fit out is not (as I understand it) treated as capital – it has to be expensed – and thus paid for by the tenant not the owner.

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