PUFF MEDIA
Challenge
Puff Media is a new strategy consulting agency that just established in the later half of 2020. Other product lines are supported by Zimar LLC, Puff's sister company, including selling advertising content, and drop shipping products. While they are still currently in the process of getting itself set up, what they need the most assistance with was implementing a bookkeeping system, and obtaining guidance on the US business taxation system.
Timeline
August 2021 - February 2022
Questions
What do I need to ensure that my company will have good financial records for analysis and audits?
Outcome
An understanding of the company's legalities and necessary expenses, and an outlook into the company's future goals.
RESEARCH
The US tax code is purposely made complicated. Add another layer of NYC specific codes. Research was done to understand how online sales tax is collected when selling to customers of other states, when the company is registered in New York state, and what services that the company provides require the collection of sales taxes.
As a new business, the company did not have health insurance set up for its three employees yet. After some comparisons of cost vs deductible (copay was not included, as they can be negligible when compared to the deductible), it looks to b that the NYSMTRONG 50/100/100EPO ZD 22 plan with United Healthcare for $869.27 a month, with an annual deductible of $0 would be the most economical option for a company of this size. Based on our analysis, this has the lowest minimum annual cost for each employee.
FINANCIALS: FUTURE OUTLOOK
The company also needed assistance in setting up an accounting system, training someone to use it, and understanding how their financials will be used in audits, etc. In 2020, the company only had about six months of operations. As this is barely a first year, financial ratios are skewed in a way that a financial analysis would not provide too much feedback yet at the moment, however, we expect them to get closer to industry averages as the company continues its operations. Currently, an item to note is the company spent 72% of its gross profits in these six months on advertising and marketing. This is typical of many companies in their first year of operations.
Based on research, Puff Media has a quick ratio of 2.62, higher than the industry average of 1.81, and a total debts to equity ratio of 0.41, which is lower than the industry average of 0.03. While this looks dire, it is important to keep in mind that as a company that is six months old, it is not uncommon to have lots of debt during the startup phase. Additionally, the quick ratio shows that the company has been using this debt to obtain assets. As the company continues its operations, the ratios will start to reach a more comfortable average.
As we continue to look towards the future, the marketing consulting industry is expected to grow by $3.83B from 2022-2026 (about a 3.03% per year on average), due to a rising need for improved customer digital experiences, and the shift to customers doing the research instead of hiring others (for example, travel agencies). Additonally, the global advertising industry is expected to grow to $1T by 2025, with digital advertising accouting for 64.4% of global advertising revenue. 58% of retail executives expect to increase their social media advertising spend in 2022. With retailers continuing to face supply chain issues and staff shortages, there is a need to create more innovative store, and focus on the customer experience, while also participating on social commerce online. Instagram and Snapchat provides a good example of digital advertisting growth and development. In 2021, 50% of users made purchases after seeing and ad on Instagram, and mobile shot stories outperformed studio shot ads 63% of the time. Snapchat revenue growth has outpaced used growth, meaning strong demand from marketers, especially with the growing function of AR (alternate reality) shopping.
To reach the upcoming demands, Puff Media plans to add a new business line for livestreaming and e-commerce in the upcoming year. They would also like t to put together a team for TikTok commercials, similar to those for television or other traditional video forms of advertising. They will also like to start to host workshops and lectures for others learning about digital advertisting and marketing in the space to create an environment that can further partnerships. For a more long term goal, the company would like to also start to participate in branding as a service, that centers on their focus and expertise of online short form videos.
